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On Wednesday the Board of Directors of Simonds Farsons Cisk p.l.c. published their preliminary financial results for the year ended 31 January 2006
From the review of the Group’s business, the turnover has decreased by 1.8% to reach Lm26.7million. The condensed profit and loss account does not give details of expenses but show that the operating profit on this turnover was only Lm319,000 a drastic decrease from Lm1.4 million of 2004. However due to gains resulting from their fair value of investment property, increased investment income, the profit before tax reached just under half a million Maltese liri. The profit for the year from continuing operations, as a result of an income tax credit nearly reached that registered in 2004. The Group then registered a massive loss of Lm542,000 from discontinued operations to bring the profit for the year at Lm210,000 being 35% than that of the previous year.
The financial results have been affected through a lesser demand from tourist outlets. Moreover, this Group operates in a market that is continuously changing even as a result of increased activity by parallel imports and the below average temperature of summer 2005, also left a negative impact on the financial results. The Directors also report that trading losses were registered in certain subsidiaries. Also, the Group decided to discontinue the operation of the Gallerija Entertainment Complex which led to a high impairment charge.
The Group reports that a preliminary agreement has been reached to dispose of the property. If this was not the case, one would have to question if investments for entertainment complexes in the south of Malta are sustainable. It is good to see that other investors have come in and believe in the project. Farsons is also taking action to provide an early retirement scheme to reduce its workforce together with other corrective action to reduce their operating and administrative costs and to downsize and reorganise a relevant recent addition to the Group. A wholesale operation is being turned into a bottle shop.
The shareholders funds represent 44% of the Total Assets and the Group has adequate current assets to cover the current liabilities. Moreover, although Farsons generated more cash the balance in January 2006 is lower than that of the previous year.
The shareholders have seen their earnings per share in 2006 stand at 1cent 4mils against the 2cents 5mils registered in 2005. Although Farsons have an overseas operation and exports some of its products, it main operations are carried out on the local market.
Once the Annual General Meeting approves the final dividend, together with the interim dividend being given out at the end of May, the shareholders would enjoy between them a net dividend of Lm300,000 equivalent to 1cent 1mil per share being 48% than that earned in the previous year.
Farson’s CEO gave an extensive interview this week to explain that the Group will continue to restructure and its investment plans. It is evident that this Group which is a leader in the wholesale and retail of beverages and franchised food retailing will in the future generate additional income from property management. In the next 5 years, the Group will have 22,000 square metres of land stretching half a kilometre long in one road within an industrial area for further utilisation possibly as a business park and retail outlets. Shareholders would be glad to know that this stretch of land is valued in Farsons books at cost and that Management is addressing the challenges resulting form the market and are realistic in their approach to take corrective action where necessary.
In a separate Company announcement on the same day, the Board of Directors decided to redeem the Lm2,000,000 (6.25% ) bonds (2006-2008) on the 2 November 2006.
Currently, investors in bonds do not find this interest rate.
The results of Farsons are a reflection of the Maltese economy of 2005. To make matters worse, in the difficult economic climate experienced last year, there were less tourists, higher utility costs and a flood of imports challenging the Maltese product. This notwithstanding, investment programs continued and commercial entities are re-visiting their cost base as well as seeking opportunities to penetrate overseas markets. Property is there to be used but it is an investment in itself. Entities such as Farsons that have a long term strategy which is reviewed and adjusted to meet challenges and that undertake restructuring to reflect the realities of the market will survive. Farsons uses the funds it earns from divestment of surplus properties for its investment program.
The Group has moved ahead with the market developments. Its results are a reflection of the realistic situation Malta is in. Challenges abound and registering a profit from a shrinking local market is an achievement as is any award won in a competition.
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