Farsons unveil cost-cutting plan as profits are halved

Faced with acute price competition and dwindling profits, Farsons has decided to embark on a cost-cutting programme including a head count reduction of 60 persons within the next 12 months.

Farsons said yesterday its turnover rose by 4.6 per cent in the six months to the end of July but its pre-tax profit dropped to €1,520,000 compared to €3,312,000 last year.

The group said its turnover grew to €35,306,000. The gross profit margin decreased from 23.4 per cent to 21.5 per cent and the operating profit amounted to €2,010,000 compared to €2,905,000 in 2007.

The group said that in considering the results for the period, one had to bear in mind a number of factors, which it listed.

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 dropped substantially. This was mainly due to changes in consumer preferences to one-way packaging as a result of the full liberalisation 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, the group added, were also 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 the 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 resulting from 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 capitalised.

Farsons said it was now operating in a wholly liberalised 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 a 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 reorganisation 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," it said.

The board of directors is recommending a net interim dividend of €200,000 in respect of the financial year ending January 31, 2009, payable on October 24, 2008 to the ordinary shareholders who will be on the register of members of the company on October 10. 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 per cent over the previous year's result of €2,124,000.