Funtastic Limited Expects A drop In Revenue In 2HFY2019, Toy Story 4 Launch closely Watched

On 1 April 2019, Funtastic Limited (ASX: FUN) shared with its investors the half-yearly results for the period ended 31 January 2019. The company also provided an outlook for the second half FY2019. The company declared that its revenue and the margin might be lower than its expectation.

As per the half-yearly results for the period ended 31 January 2019, the company reported a fall in the revenue from the ordinary activities from the continuing activities by 42.6% to $16.078 million. As a result, there was also a fall in the net profit from ordinary activities after tax from continuing operations by 59.5% to $14.353 million. However, the net loss from ordinary activities after tax from discontinued operation improved by 87.1%. Despite a fall in the revenue, the company was able to make a net profit from ordinary activities after tax attributable to members of the company at $14.344 million. However, it did not declare any dividend for the current reporting period.

The fall in the revenue was driven by various factors that contributed to the sales in the first half of FY2018 that did not reoccur in the first half of FY2019. It also included the termination of the Spinmaster and Leapfrog agencies. Toys’R’Us got closed followed by the partial sale of the International business as well as the outstanding success of the Jojo Siwa license. The sales in the first half were strong, and the company expected stronger revenue in the second half of FY2019 with the release of the Toy Story 4 movie and associated product sales.

At present, there are a number of key sales and business initiatives underway which includes the launch of Toy Story 4, Floral Beads launch into Interflora, the launch of Disposable Cup and the promotion of Walmart US. The re-launch of new Pillow Pets range is also underway. These initiatives were planned for the second half FY2019. However, the company has reported a delay in three projects until the first half of FY2020. It included the launch of Disposable Cup, Walmart US promotion followed by the re-launch of new Pillow Pets range.

Based on the delays in these three projects, the company expects that the revenue, as well as the margins in the second half of FY2019, will be lower than its expectation. Along with this, the company also noted that the key retailers have become cautious after the weak retail sales in the Q4 of 2018. Also, consumer confidence got weakened. The company believes that these factors might impact the revenue in the second half of FY2019, impact margins and report operating losses. But at the same time, Funtastic Limited is hopeful about the launch Toy Story 4 which could act as a game changer.

Funtastic Limited also provided an update regarding its Secured Loan Agreement with Jaszac Investments Pty Ltd. Under the agreement, Jaszac Investments will be providing $6 million funds over four years at an interest rate of 12% per annum, secured through the Funtastic business. These funds will facilitate the company to significantly develop some of its existing key owned assets such as Chill Factor, Pillow Pets, Floaties as well as the Floral Beads. It will also help the company in further developing its licensing capability which is currently focused on Toy Story 4’s launch in April/May 2019.

The shares of FUN closed at A$0.049 on ASX (As on 1 April 2019). The company has a market capitalization of A$11.43 million with approximately A$233.18 million outstanding shares and a PE ratio of 0.150x.


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