Farsons undertakes revaluation of its property portfolio

The board of directors of Simonds Farsons Cisk plc approved the financial statements for the year ended January 31 during a meeting held on Friday. The directors recommended the payment of a final dividend of €1,367,000 out of tax exempt profits to those shareholders as at close of trading on May 27. This is equivalent to a dividend of €0.05316 per share, a 38 per cent increase over last year's final dividend. Subject to its approval at the forthcoming annual general meeting scheduled for June 26, the final dividend is expected to be paid on June 27.

The key highlights are:


• Turnover up 6.2 per cent to €66.1 million;
• Gross profit of €24.9 million (+9.8 per cent);
• Operating profit climbs 43.8 per cent to €4.3 million;
• Profit on sale of land of €1.1 million;
• Pre-tax profit up 77.3 per cent to €4 million;
• Shareholders' funds surge to €83.4 million (net asset value per share of €3.24);
• Total dividend of €0.0622 for 2008 (+37.4 per cent).

During the year ended 31 January 2008, total revenue generated by the Farsons Group increased by 6.2 per cent to €66.1 million. The preliminary profit statement published on May 2 does not give a breakdown of the group's revenue by category and it is therefore not possible to provide an analysis of the areas which contributed to this rise in turnover. However, the directors noted that increases were registered across the group mainly as a result of an improved economic climate and a strong rise in tourism numbers. The directors additionally paid tribute to the food importation business, Quintano Food Ltd, which "performed extremely well" together with the "substantial turnaround" achieved by the food franchise retail business, Food Chain Ltd.

The group's cost of sales during the period under review rose by 4.2 per cent to €42.1 million giving a gross profit of €24.9 million (2007: €22.6 million). The gross profit margin increased to a four-year high of 37.6 per cent. Operating expenses made up of selling and distribution costs and administrative expenses amounted to €20.6 million, 4.7 per cent higher than the previous year. The Farsons Group generated an operating profit during the year of €4.3 million, 43.8 per cent higher than the comparative period.

The group recognised fair value gains of €0.2 million on its investment property (2007: €0.8 million) as well as a profit of €1.1 million from the sale of properties which the directors considered to be surplus to the group's requirements following the centralisation of distribution activities to the new logistics centre in Mrieħel. The logistics centre will enable the group to raise efficiency levels and reduce overheads further.

Net interest payable on the group's outstanding borrowings amounted to €1.6 million resulting in a record pre-tax profit of €4 million, representing a 77.3 per cent increase over the previous year. After deducting taxation of €0.95 million, the group registered a profit for the period of €3 million (2007: €2 million). The group's earnings per share similarly rose by 51 per cent to €0.119.

In the 2007 interim report published last September 26, the directors confirmed that a valuation of all the group's properties had been commissioned. The preliminary profit statement explains that independent valuations of the properties were carried out by two architectural firms resulting in a revaluation of €55.5 million. The surplus of €44.4 million (net of deferred tax of €11.1 million) was incorporated in the group's balance sheet.

This surplus was credited to reserves resulting in a significant uplift in the net asset value per share to €3.24 as shareholders' funds increased to €83.4 million from €37.4 million in January 2007.

Likewise total assets of the Farsons Group climbed to €154.1 million from €92.9 million.

In January 2008, Farsons completed the €24.3 million investment of the logistics centre and the new soft drinks packaging hall. The centralisation of the distribution activities to the logistics centre in Mrieħel vacated the distribution depots located in Gudja, San Ġwann and Tal-Balal as well as the large site in Qormi which used to host Wands Limited.

While Farsons have already secured the sale of the Gudja depot, the other two properties are also expected to be disposed of in the near term.

Meanwhile, during last year's stockbrokers' meeting, group CEO Louis Farrugia explained that the Wands' site in Qormi, measuring 12,800m2 (11.4 tumoli) may either be sold or developed into an office block thereby resulting in a new income stream for the group. The final phase of Farsons' investment programme entails the construction of a new brewhouse which is planned to commence in 2009 and should be completed by the first quarter of 2011. Once this is vacated in three years' time, all the frontage in Mrieħel circa (24,000m2) will also be available for development. In various interviews in the media in recent months Mr Farrugia stated that the favoured option currently being discussed is to convert the large parcel of land into a business centre for sectors like financial services. The directors stated in the preliminary profits statement that in the 2008 annual report being sent to shareholders by May 21, further details on the revaluation will be made available and will include a number of proposals currently being considered by the board of directors on how best to use the group's property for the benefit of all shareholders.

The share price reacted positively to the results' announcement gaining 5 per cent to €2.73 by the close of Tuesday's session, only minimally below its all-time high of €2.795 first reached in January 2000.

• Mr Rizzo is a director of Rizzo, Farrugia & Co. (Stockbrokers) Limited