TFS Corporation Limited (ASX: TFC) has today reported its full-year earnings results to the market with cash earnings (before interest, tax, depreciation and amortisation, or EBITDA) coming in higher than expected.
The Company
TFS Corporation is the world's largest owner and manager of commercial Indian sandalwood plantations. Indian sandalwood is the world's most expensive tropical hardwood (and growing in price every year) and is used in products such as perfumes and colognes as well as various medications, including those used to treat skin conditions such as acne.
The Results
Investors likely received a scare on Friday last week when the company's shares entered a trading halt pending an announcement in relation to "finalising the 2015 accounts" while it was in discussions with its auditors.
The company confirmed today that the delay in the audited accounts was due to a change in the accounting treatment of managed investment schemes on its balance sheet, and had "zero impact on TFS's financial position".
For the year ended 30 June 2015 TFS Corporation reported a 12% increase in cash revenues to $151.2 million, as well as a 12% increase in EBITDA to $57.5 million (compared to previous guidance of 10% growth). Meanwhile, net profit after tax (NPAT) also exceeded guidance of $90 million, coming in 37% higher than the prior year at $113 million.
The company attributed this growth to a 35% increase in sandalwood product sales, as well as a 29% increase in lease and management fees relating to plantations managed by TFS. Management also provided guidance for a further 5% to 10% growth in cash EBITDA for the 2016 financial year with harvest volumes tipped to increase ten-fold (thanks to the group's third annual harvest) and margins expected to improve further.
What happens now?
During the 2016 financial year, TFS Corporation will also focus on the integration and expansion of ViroXis Corporation and Santalis Pharmaceuticals, which TFS acquired in June this year. TFS acquired the businesses in order to extend its vertically integrated strategy from "soil to oil" to "soil to oil to shelf".
Indeed, this decision could generate significant advantages in the coming years, although it also introduces a number of key risks that investors need to consider. To begin with, there are enormous costs associated with the development of medications while there is no guarantee those products will succeed.
Investors ought to consider both cases for TFS's future prospects before actually buying the stock. With the ASX still hovering well below its recent highs, investors may be better off considering other alternatives.
