Mercer narrows first-half loss

Mercer Group had a $2.6 million loss in the first half but says it is anticipating a return to positive pre-tax earnings for the second half despite the "disappointing" start.

The $2.6 million net loss was smaller than $4.7 million from the six months to December 2015, though revenue fell 19% to $7.9 million in the latest period.

Earnings before interest, tax, depreciation and amortisation (ebitda) was a $1.5 million loss, although stripping out costs for its capital raising, acquisition, restructuring and discontinued items slimmed that down to a normalised ebitda loss of $715,000.

"This is positive step following the extensive strategic review, the restructuring carried out over the past 18 months and the acquisition of Haden & Custance," the company says.

It is now focusing on improving operating performance and the commercialisation of its S-Clave sterilisation technology.

Christchurch-based Mercer issued 130.8 million new shares at 1c each to buy the assets and business of Hastings-based Haden & Custance in December last year.

The $2.25 million deal added a robotics system used to prepare bulk products such as cheese and butter for processing, and offices in Melbourne, Australia, and Wisconsin in the US.

It raised $7 million through an underwritten rights issue in last year, used to repay debt and provide the firm with working capital, though the H&C acquisition needed new funding.

The company wants to reposition its focus to food processing and packaging technology, giving it exposure to higher-value export business.

"The contract nature of both the H&C and fabrication businesses makes them susceptible to periods of under-utilisation between contracts and therefore we are focused on building scale and ensuring we are operationally flexible to reduce this risk," the company says.

"Given the different growth opportunities, capital requirements and organisational structures of the three business units we will be assessing how each one moves separately."

The first half saw a decline in machinery business sales, and Mercer has ended its relationship with US distributor Nu-Meat over weakness in its Titan sales, it says.

Its fabrication workshops in Christchurch and New Plymouth have also been underused but the outlook for the next six months "has improved with good workflows enhanced by both orders for wine tanks following the Blenheim earthquake, and an increase in dairy related capex."

Mercer renegotiated its banking facilities on June 30, with new covenants becoming applicable on June 30 this year.

The directors say they believe the going concern assumption for the business is valid given those facilities and the forecast profit for the second half.

The shares last traded at 38c, down 43% from a year earlier.

(BusinessDesk)