Reporting Season: FFI profit slightly below June guidance

By Trevor Hoey. Published at Aug 8, 2018, in Special Reports

Name: F.F.I. Holdings Ltd (ASX:FFI)

Market Capitalisation: $44 million

Share Price: $4.15

F.F.I. Holdings has delivered a net profit after tax of $2.3 million from sales revenue of $34.4 million.

Both revenue and profit were up 4% with the result assisted by a 3% increase in property rental income of $1 million.

In June, F.F.I. provided net profit guidance which pointed to an 8% year-on-year increase in profit, and while it has missed the mark there isn’t a lot in it and it hasn’t impacted the dividend.

The company also indicated that the issues which placed a drag on earnings towards the end of the year weren’t expected to weigh on the company’s fiscal 2019 performance.

Management declared a final dividend of 10 cents per share, bringing the full year dividend to 20 cents.

Based on the company’s recent trading range this implies a yield of circa 5%.

Food operations up by 8.7%

F.F.I. achieved a pre-tax contribution from the food operations of $3.09 million.

Excluding a payment of $134,000 in relation to the Orchard Icing business which was acquired in June 2017, the contribution from the food operations improved by 8.7% when compared with the previous corresponding year.

As a backdrop, the company is a Western Australian based food group with manufacturing, processing and packing operations covering areas such as cakes, confectionery, baking products and small goods.

Its ‘Prepact’ business engages in contract packing and blending of foods.

In addition to the food operations, the company has a significant investment in prime industrial and commercial property which is held for investment purposes.

Those considering this stock shouldn’t make assumptions regarding future sales, nor should they base investment decisions on performances to date. Those considering this stock should seek independent financial advice.

Chocolate and cake decorating outperform in June half

An improvement in profitability in the second half of the year was mainly attributed to the chocolate and cake decorating divisions.

The record high raw material costs incurred in the last half of the year ended 30 June 2017 continued to decline during fiscal 2018.

This resulted in improved gross profit margins in fiscal 2018, a trend which is expected to continue in fiscal 2019.

Improving returns from property assets

Pre-tax contribution to profits from rental income was $860,000, a 3.6% increase compared with the previous year.

F.F.I.’s strategy is to pursue opportunities to increase long term returns from its investment property assets.

During the year the company entered into a Memorandum of Understanding regarding the development and lease of an area of the vacant industrial land that forms part of its investment property assets.

Under the terms of the agreement, the company is required to effect certain improvements to the vacant industrial land.

The improvements consist of an office/factory building and a hard standing area.

The capital cost of development is expected to be approximately $3.0 million and will be funded from a combination of cash and external bank borrowings.

The commencing lease income to be received by the company will be $500,000 per annum and will be for an initial period of 10 years.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of Maven Capital Pty Ltd (AFSL No. 418504). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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