Simonds Farsons Cisk plc - Interim Results Review

Simonds Farsons Cisk plc published its interim results to 31 July 2008 following a Board of Directors’ meeting held on 30 September. The Directors declared a net interim dividend, out of tax exempt profits, of €0.0078 per share (July 2007: €0.009). The interim dividend will be paid on 24 October.

The key highlights are:
• Revenue up 4.6% to €35.3 million;
• Operating profit declines 31% to €2 million;
• Profit for the period of €0.9 million;
• Net interim dividend of €0.0078 per share;
• Total assets of €161.3 million.

During the first six months of the financial year to 31 July 2008, Group turnover increased by 4.6% to €35.3 million as all business segments registered improved revenue levels. Revenue from the brewing, production & sale of branded beers & beverages amounted to €21.5 million representing 60.9% of the Group’s total turnover, on increased sales of beer and soft drinks. However although revenue from this segment increased by 4.2% profitability declined by 37.2% to €1.7 million mainly attributable to the liberalisation of the soft drinks market and the effect of parallel trading and illicit importation. Farsons Group reported that some products were being imported illegally thus not being subjected to eco contribution and also the imposition of VAT. This placed the Group at an unfair competitive disadvantage and strong representations have been made to the Government in this regard. The operation of franchised food retailing, namely Pizza Hut, Burger King, KFC and TGIF, registered an 11.4% growth in revenues to €4.3 million but more importantly this business unit registered a substantial increase in profitability to €0.34 million from the comparative figure of €0.12 million recorded in the six months ending 31 July 2007. The other two business segments, namely the importation, wholesale & retail of food & beverages and the property management, performed in line with the results achieved in the comparative period last year.

Group operating profit declined by 31% to €2 million, on increased packaging costs and initial set-up problems on the new production lines during the transition from glass bottles to PET and cans.

Following the investment in the new logistics centre and the centralisation of all distribution operations in Mriehel, the various depots were no longer required and the Company decided to sell these buildings to partly finance the new investments. In fact, during the year ending 31 January 2008, Simonds Farsons Cisk sold the depots in Gudja and part of Tal-Balal.  In the first six months of the current financial year, the Company managed to sell the remaining depots in Ta’ Qali, Birkirkara, and the other portion of Tal-Balal resulting in a profit on disposal of €0.52 million. Interest payable increased by 45.7% to €1 million due to the commissioning of the new soft drinks and distribution plants at the beginning of the year. Prior to the completion of these facilities, Farsons used to capitalise any interest costs related to this new investment. Simonds Farsons Cisk’s pre-tax profit dropped to €1.5 million from €3.3 million in the comparative period last year. After accounting for a tax charge of €0.54 million, the Group recorded a profit for the period under review of €0.98 million, substantially lower than the €2.88 million in profits recorded in the comparative six months ending 31 July 2007.

Total assets increased by 4.7% to €161 million with shareholders’ funds of €83 million representing a net asset value per share of €3.23.

In the interim results publication the Directors also stated that, due to the full liberalization of the market which resulted in heightened competition, it will be implementing a cost cutting exercise including a reduction in overheads and downsizing its workforce by 60 employees. This downsizing will take place in the next 12 months and will be a combination of natural retirements and early and voluntary retirement schemes.

Meanwhile, a few weeks ago, Simonds Farsons Cisk announced the opening of a new one-stop beverage shop next to The Brewery in Mriehel replacing the Wands Cash & Carry operation which was previously situated in the Wands site in Qormi. farsonsdirect.com is the new outlet spread over an area of 150 sqm, offering variety of wines, spirits, beers, non-alcoholic brands and accessories. The relocation of this retail outlet from Qormi to Mriehel vacated the Wands site. In previous meetings with stockbrokers and financial intermediaries, Group CEO Mr Louis A Farrugia had explained that while the Mriehel frontage could be developed into a business park, the Wands site measuring 12,800 sqm (11.4 tumoli) may be either sold or turned into a high-rise commercial block due to its centralised location and proximity to an arterial road network. This property restructuring exercise is part of the Group’s plans to separate the substantial property interests not used in core operations from the other business activities. In the last Annual General Meeting shareholders were briefed on the current proposals being considered which mainly revolve around the separate listing of the property company on the Malta Stock Exchange. The Farsons’ Board had explained in the 2008 Annual Report that this restructuring should ultimately lead to added shareholder value.

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