Freedom Foods Group Limited (ASX: FNP) shares fell straight in morning trade today after the company announced its exit from major contract manufacturing arrangements in cereals and milling related business, effective January 2019.
The consumer staples company revealed this decision in the half-yearly report, stating that most of these contracts were below the group’s margin criteria and were utilizing the manufacturing capacity that can be better deployed for the growth of its own brands like Heritage Mill and Arnolds Farm. But as an inevitable effect, this decision will reportedly lead to a reduction in sales and contribution for the Group’s Cereal and Snacks Business for Fiscal 2019 as compared to Fiscal 2018.
It seems that investors’ have immediately turned the tables on Freedom Foods as the stock price plunged 7.464% to trade at $4.525 on 1 March 2019 (12:49 PM AEST).
The Group has, however, posted tremendous performance for the half year ended 31 December 2018 with sales up 31%, EBITDA up 31.2% and net profit uplifted by 27.6%. Let’s make it more clear, FNP’s 1H FY19 net sales has increased 31.0% to $2019.0 million with increased gross margins that is uplifted to 24.7%, compared to 23.3% in the previous corresponding period. Operating EBDITA gained 31.2% to $21.0 million with steady EBDITA margin remaining at 10% as the Group progresses through a significant upgrade of equipment and processes.
The elevation in Group’s revenue reflects the strong growth in its key brands including ‘Almond Breeze Barista’ and ‘MilkLab’ in the foodservice beverage divisions and ‘Messy Monkeys’ in the snacks’ category. The results also demonstrate the increased sales and earnings contributions from ‘Australia’s Own’ in Dairy Beverage, the ‘So Natural’ and ‘Vitalife brands’ in Nutritionals and Plant Beverage business units, offset by decline in Cereals & Snacks and Specialty Seafood business.
During the period, the Group has achieved a net operating profit of $6.4 million, a gain of 27.6%, reflecting increased operating EBDITA, offset by higher depreciation costs as compared to the previous corresponding period. Statutory net profit after tax increased by 26.4% to $3.7 million compared to 1HFY18.
Also, during the period, FNP has launched more than 10 new product formats into retail grocery, food service and export markets, supported by increased marketing expenditure. It plans to launch further 60 new products in the second half of Fiscal 2019.
In line with a positive outlook, FNP has declared a partially franked interim dividend of 2.25 cents per share, payable on 1 May 2019 with the record date for determining entitlements of 3 April 2019.
For Fiscal 2019, the Group expects its net sales revenue to be in the lower end of its previously announced guidance range of $500 million - $530 million, still showing a significant increase on FY 2018 sales revenue of $353 million.
FNP’s Managing Director and Chief Executive Officer, Rory Macleod, commented: “Freedom Foods continues to experience strong demand across its business activities in China, Australia and SE Asia. This growing demand in plant-based beverage, dairy, cereal and snacks reflect the positive impacts on the Group’s increased market share with the launch of new products, geographical expansion and structural change in the Australian dairy industry.”
Based on the current portfolio, product range and new key customers coming on stream, the Group has placed its optimistic outlook for Fiscal 2019. Moreover, it expects its new product revenue streams projects including the Nutritionals capability to materially positively impact earnings and sales into Fiscal 2020 and beyond.
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