Simonds Farsons Cisk plc - Full-Year Results

On 27 May 2020, Simonds Farsons Cisk plc published its Annual Report & Financial Statements for the year ended 31 January 2020.

Performance Overview

During the period under review, Farsons registered a 3.7% increase in revenues to a new record of €103.5 million (FY2018/19: €99.8 million) as the growth in the ‘Brewing, production and sale of branded beers and beverages’ (+4.3%) and ‘Operation of franchised food retailing establishments’ (+9.6%) segments outweighed the marginal decline of 0.6% in the revenues generated by the ‘Importation, wholesale and retail of food and beverages’ segment.

On the expenditure side, total costs increased by 6.3% to €89.8 million mostly due to higher depreciation charges (+€1.78 million), raw materials and consumables (+€1.67 million) and employee costs (+€1.62 million). Furthermore, the application of the requirements of accounting rule ‘IFRS 9’ resulted in an increase in the required impairment charge amounting to €0.67 million compared to a release of an impairment provision of €0.76 million recorded in the 2018/19 financial year. Excluding depreciation, adjusted EBITDA contracted by 8.4% to €21.3 million when excluding the impact of accounting rule ‘IFRS 16’.

The operating profit for the year amounted to €13.7 million representing a decline of around 10% when compared to the corresponding figure of €15.3 million for the 2018/19 financial year and the projected figure of €15.1 million as provided in the Financial Analysis Summary dated 15 July 2019. Meanwhile, finance costs increased by 10.6% to €1.37 million largely reflecting the impact of ‘IFRS 16’.

Overall, Farsons reported a profit before tax of €12.3 million compared to €14.1 million in the 2018/19 financial year. After taking into account a tax charge of €0.45 million (FY2018/19: tax credit of €1.04 million), the Group posted a net profit of €11.9 million which, in turn, translates into a return on average equity of 10.6% (FY2018/19: 14.8%).

The Statement of Financial Position shows a 9.9% increase in total assets to nearly €188 million, largely reflecting the recognition of ‘right-of-use assets’ (€6.16 million) as well as higher trade receivables (+€5.77 million) and property, plant and equipment (+€2.91 million). Similarly, total liabilities increased by 14.3% to €71.7 million reflecting higher borrowings (+€8.25 million) including the recognition of lease liabilities amounting to €6.39 million. As a result, the equity base of Farsons expanded by 7.3% to €116.2 million.

Dividend & AGM

In view of the prevailing uncertainties related to ‘COVID-19’, and in the long-term interest of the business, the Directors of Farsons resolved not to recommend a final dividend for the year. Furthermore, Farsons noted that the Annual General Meeting which was provisionally scheduled to be held on 25 June 2020 may have to be rescheduled. In this respect, a further company announcement will be issued concerning the fixing of a date for the Annual General Meeting as soon as this is practicable to do so.

Outlook

In their commentary, the Directors explained that Farsons entered the prevailing economic crisis triggered by the ‘COVID-19’ pandemic from a position of strength. Following many years of significant capital investment coupled with a prudent profits reinvestment policy, the Group has a strong balance sheet with shareholders’ equity exceeding €116 million and a cash balance of €8.41 million as at the end of January 2020. After a strong start to the 2020/21 financial year, sales dropped by close to 55% in April 2020 (the first full post-‘COVID-19’ month) when compared to the same month in 2019 reflecting the significant impact on the demand for the Group’s various products and business activities.

Following the ‘COVID-19’ related restrictions imposed by the Government and health authorities, Farsons moved rapidly to implement certain operational and cost efficiency initiatives aimed at mitigating the impact of the sudden and unexpected crisis. These actions included strict cost containment, the curbing of certain discretionary and marketing spend as well as lower production runs. A number of steps were also implemented in the human resource area, including elevated health and safety protocols, remote working where possible, rescheduled work and shift patterns, anticipated leave, and, in agreement with the Unions, the introduction of a number of shut down days. An immediate freeze was imposed on overtime working and on all new recruitment as well as on the engagement of subcontracted and casual labour. Moreover, early steps were taken for the deferral of certain capital expenditure projects and more robust working capital controls were introduced. Application was made for temporary capital moratoria on a number of bank loans and additional focus brought to bear on inventory levels and the collection of trade receivables.

Farsons noted that its projections for the future include a slow and incremental lifting of restrictions and an expectation that even when the airport is re-opened, tourist arrival pick up will be slow and very gradual as it may be several years before tourist arrivals witnessed in recent years are restored. Furthermore, the economic slowdown that will be experienced in Malta as a result of the implosion of the tourist market will inevitably have a consequent impact on local consumer spending (and therefore on local market demand for the Group’s product range) as well as the financial health of those businesses that are more closely related with tourism in general including hotels, bars, restaurants and the leisure and entertainment segment.

In this context, Farsons carried out a careful review of its business and concluded that as a result its existing strong financial position, the strength of its core product range coupled with the measures being taken to address and mitigate the impact of ‘COVID-19’, the Group will be able to sustain its operations over the next twelve months in a manner that is cash flow positive. Accordingly, based on currently available information, Farsons is confident that it will meet all its obligations as and when they fall due over the next twelve months and beyond.

For the future, Farsons explained that post-’COVID-19’, a radically different reality will possibly emerge to which all businesses will have to adjust. Therefore, having responded to the immediate onslaught of the ‘COVID-19’ crisis, the next task of the Group is to develop a business plan that is appropriately tailored to the “new normal” that is expected to take shape. Potentially, this “new normal” may well require the adoption of a materially different business model that will need further measures to be implemented.

Download

Simonds Farsons Cisk plc – Annual Report & Financial Statements for the year ended 31 January 2020.