Farsons announces cost cutting plan as profit is halved
Workforce to be reduced by 60 through natural and early retirements and voluntary schemes
Farsons said today that its turnover increased by 4.6% in the six months to the end of July but its pre-tax profit dropped to €1,520,000 (2007 : €3,312,000).
The group said in a company statement that its turnover grew to €35,306,000. The gross profit margin decreased from 23.4% to 21.5% while the operating profit amounted to €2,010,000 (2007 : €2,905,000).
"In considering the results for the period, attention is drawn to the following factors," the group said.
"Group turnover improved due to increased sales across all business segments. In particular, beer sales registered growth in value and volumes;
"While soft drink sales increased in volumes, sales values per litre decreased substantially. This was mainly due to changes in consumer preferences to one way packaging as a result of the full liberalization of the soft drinks market.
"The franchise food retail and import businesses continued to perform well, achieving growth in a number of product sectors.
"Operating profits were impacted by initial efficiency set-up problems encountered with the newly commissioned production lines. These are being addressed, and production efficiencies are now approaching target levels.
"Gross margins have also been adversely affected by the advent of illicitly imported beverages, which have not been subjected to eco contribution, and, in some cases, VAT, thus placing the group under significant unfair competitive disadvantage. Strong representations have been made to Government in this regard.
"The interim results were also affected by a lower profit on the disposal of property and an increase in finance costs, the latter as a result of the commissioning of the new soft drinks production line and distribution centre at the beginning of the year. In 2007, prior to commissioning, interest costs were capitalized.
"The group is now operating in a wholly liberalized market in which price competition is acute. The board of directors, through its management structures, is in the course of implementing a permanent cost reduction programme. Such programme includes reductions in overhead costs and a head count reduction of 60 persons within the next 12 months through natural and early retirements and voluntary schemes. These cost reductions can be implemented directly as a result of the capital expenditure programme and reorganization undertaken over the past two years. The board of directors is determined and confident that it will achieve these targeted cost reductions, and that, as a result of these measures, the emerging cost structures will allow for improved profitability levels going forward."
The board of directors is recommending a net interim dividend of €200,000 in respect of the financial year ending 31 January 2009, payable on 24 October 2008 to the ordinary shareholders who will be on the register of members of the company on 10 October 2008. The interim dividend will be paid out of tax exempt profits and is equivalent to €0.0078 per share.
In its last full year results, announced in May, Farsons reported a pre-tax profit of €4,002,000 up by an impressive 88% over the previous year's result of €2,124,000.
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14 Comments
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Stephan Camilleri
Oct 3rd 2008, 00:22
It is high time for all the manufactures that produce soft drinks in plastic throw away bottles are made to collect the empty bottles by introducing a charge to the consumer, and hence the consumer brings in the empty bottle and is refunded. As was with the glass bottles some years ago. The manufacturer can sell the plastic for recycling to China for example. And we and our Island would become a cleaner place to live in. And hence a company like farsons would have a postive balance sheet at the end of its financial year.
M D Fenech
Oct 2nd 2008, 18:26
Maybe less people are getting drunk nowadays because they are purchasing less beer...........
NOEL DARMANIN
Oct 1st 2008, 18:04
THIS IS THE REASON OF WHO SEE THINGS MORE THAN HIS EYES CAN SEE.WHY THAT 10.000.000 INVESTMENT WERE FOR? IF I AM NOT WRONG,FARSONS GROUP WAS FAVOUR OF JOINING EU.DID THEY KNEW BEFORE THAT EU BRINGS FREE MARKET? NOW WHO IS GOING TO PAY? OBVIOUSLY,THE LABOURER.
T Farrugia
Oct 1st 2008, 07:41
@ Anthony Formosa. joining the EU does not means guaranteed new customers. you have to work to sell it to them. i can see where this is going. dont turn this into a political debate!!
J Martinelli
Oct 1st 2008, 03:18
@ Lino Debono
What you are referring to is MRRSP which is an acronym for Manufacturers Recommended Retail Selling Price. MRRSPs in N. America are never associated with soft or alcoholic drinks but rather on durable goods - anything from say, a fridge to a car. What Farsons should do periodically, is to put one product i.e. Cisk on sale for maybe a week or two and rotate sales with the variety of products they sell. Seasonal sales are popular and their products should sell even more.
@ M Tabone Charlo Pace
Sales are up so purchasing power and the opening of Lidl have nothing to do with decreased profits.
@ Chris Finch
Shareholders are those who provide capital to large businesses and dividends paid to them is only a portion of the company's profits. You obviously don't know much about business.
@ Liam Kelly
If you read the above article one more time, you may get a hint re the 4 million you talk about.
@ Anthony Formosa
Unless Farsons is capable of providing a constant large supply to large markets at the right price, their products will never penetrate the market for the 500 million customers.
Anthony Formosa
Sep 30th 2008, 20:01
What happened to the market of 500 million customers that were mentioned prior EU accession?
Liam Kelly
Sep 30th 2008, 19:23
Instead of chopping 60 workers why wasnt the 4 million euros profit from last time banked in order to protect the company and give it a sounder financial footing through harder economic times such as these?
This kind of short-termism is the root cause of global economic problems. Will the greedy shareholders take note for next time? Doubt it!
Charles Busuttil
Sep 30th 2008, 16:32
@ Lino Debono
Excellently put. A very good suggestion indeed.
In lots of cases it is the middleman who gets the most profit.
A Zammit
Sep 30th 2008, 16:14
Careful Mr. Chris Finch, your comment smacks of communist ideology which, as history has taught us, has not been the most successful of political paths to follow.
The most basic principle of competitive business is for shareholders to ‘risk’ investing their money in a particular business on the assumption that this shall flourish and they make a profit which is commensurate with their risk.
These FAT CATS as you chose to call them are the commercial basis of any modern society as they provide employment to others and generate wealth through wages and the taxes they pay. A substantial amount of the government social security that you mention is generated from taxes paid by these legitimate businesses.
I have a lot of respect for these business and wish them success in their ventures.
Chris Finch
Sep 30th 2008, 15:17
Boo Hoo Hoo! The shareholders only make 1,520,000euros in profit so 60 people have to lose their jobs.
The rich get richer whilst the poor have to rely on the government social security.
They also saved money at the expense of the environment by its 'one way packaging' i.e. plastic bottles that end up littering the countryside and the sea. Some of these millions in profit should be spent on green issues.
Does anyone have any sympathy for these FAT CATS?
I. M. Dingli
Sep 30th 2008, 15:14
Well, believe it or not, life has been on an uphill for everyone and not Farsons Group only!!
Charlo Pace
Sep 30th 2008, 15:10
maybe they forgot to mention the opening of the lidl stores,.which surely ate a large slice of farsons profit.
M. Tabone
Sep 30th 2008, 15:06
Although Farson's products are very good, they are either expensive/very expensive when you compare them with foreign ones. This may be one of the main reasons why their profit is declining..........since the purchasing power in Malta is also decreasing!
lino debono
Sep 30th 2008, 15:05
Farsons products are amangst the best. These sell and at a very high prices in many places. As the present system in Malta is based on total liberalisation, the biggest profit goes to those shops that sell Farson products at exhorbitant prices.
My suggestion to Farson is this. Why doesn't the company publish its selling price to the public, so everyone will know the difference between its selling price and customers can compare the outlet price from shops?
When a product is sold at a high price, the customer tends to buy other products.
Personally I prefere to see local products being sold than foreign.
Farsons can also indicate at what prices their items should be sold in shops/bars to customers.
Lino DeBono