Simonds Farsons Cisk plc - Interim Results

On 23 September 2020, Simonds Farsons Cisk plc published its condensed interim financial statements for the six-month period ended 31 July 2020.

Performance Overview

During the first half of the 2020/21 financial year, Farsons generated revenues of €36.8 million representing a decline of nearly 31% when compared to the previous corresponding period reflecting the significant adverse impact of COVID-19. The sharpest contraction in business activity took place within the ‘Operation of Franchised Food Retailing Establishments’ as this segment experienced a drop of 51.7% in revenues to €4.18 million (H1 2019/20: €8.67 million). Similarly, the two other operating segments of Farsons – namely ‘Brewing, Production & Sale of Branded Beers & Beverages’ and ‘Importation, Wholesale & Retail of Food & Beverages’ – also registered sharp declines in revenues to €21.8 million (-24.3%) and €10.8 million (-31.6%) respectively.

Given the considerable reduction in activity, coupled with the various cost-cutting measures implemented by the company, operating expenses dropped by 24.2% to €34.6 million. Nonetheless, given the much larger contraction in revenues than the decrease in costs, operating profit still dropped by almost 71% to €2.22 million compared to €7.65 million in H1 2019/20.

After accounting for net finance costs of €0.64 million and the absence of any tax related income or charges, Farsons reported a net profit of € €1.59 million during the period under review compared to €6.4 million in H1 2019/20.

The condensed Statement of Financial Position as at 31 July 2020, when compared to the corresponding figures as at 31 January 2020, shows that total assets contracted by 2.3% to €183.6 million whilst total liabilities dropped by 8.4% to €65.7 million. As a result, the equity base of Farsons expanded by 1.4% to €117.9 million.

Dividend 

Given the prevailing conditions related to COVID-19, the Board of Directors of Farsons did not declare an interim dividend. The Directors however explained that the extent of a final dividend distribution, if any, will be determined on the basis of the full year results and the circumstances prevailing at that time.

Outlook

In their commentary, the Directors of Farsons noted that the financial period got off to a strong start with turnover and profits in the month of February exceeding those of the previous year by 10%. However, the onset of the COVID-19 pandemic and the regulations that ensued were very quickly reflected in business performance. Turnover fell precipitously across all business lines as consumer demand for food and beverage products declined. This decline was particularly acute in the bars and restaurant sectors whilst all mass events were also cancelled. The closure of the airport between mid-March and 1 July effectively also shut down the tourist sector, severely impacting the hotels sector. Meanwhile, competitive market pressures also became more pronounced as all businesses strived to retain their market positions and manage inventory levels. Inevitably, these increased market pressures resulted in a further compression in gross margins.

Business saw a gradual recovery from early May, particularly upon the reopening of the airport on 1 July, but the re-emergence of infections across Europe over the summer months and the re-imposition of travel restrictions – particularly those affecting tourists returning from visiting Malta – has seen a tapering off in the nascent recovery of turnover from mid-August.

In the context of the fluidity of current situation, the priority for Farsons has been cash preservation which, in turn, necessitated the re-assessment and deferral of certain capital expenditure projects (including the restoration and rehabilitation of the Old Brewhouse which is now expected to be completed in Q2 2021), intense follow-ups for the collection of debts outstanding, and a more focused control of the credit risk associated with clients. An immediate freeze was imposed on overtime and new recruitment as well as the engagement of subcontracted and casual labour other than in exceptional circumstances where services were required to ensure appropriate service to customers and emergency services.

Looking ahead, Farsons explained that the high level of dislocation and disruption brought about by COVID-19 are expected to persist over the coming months, as is the uncertainty that has come in its wake. The second half of the financial year will undoubtedly be challenging, particularly as the tourism industry and all entertainment events continue to be targeted in efforts to contain the spread of the virus further dampening overall consumer demand and spending power. The company will however remain vigilant and is committed to continuing to implement such further measures as are necessary to safeguard its presence in the market, protect its work force and secure the financial viability and integrity of its business.

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Simonds Farsons Cisk plc – Condensed Interim Financial Statements as at 31 July 2020.