After almost six months suspended, the Freedom Foods Group Ltd (ASX: FNP) share price is nearing a return to trade.
Ahead of its potential return, this afternoon the embattled food company released its long-awaited full year results for FY 2020.
What happened in FY 2020?
For the 12 months ended 30 June, Freedom Foods reported total revenue of $580.2 million. This was a 26% year on year increase on its restated FY 2019 revenue of $461.8 million.
This was driven by its Dairy & Nutritionals and Plant-based Beverages businesses. Dairy & Nutritionals grew revenue by 37% to $362.9 million. Management advised that this was the result of growing demand for lactoferrin. Whereas the Plant-based Beverages business reported a 30% lift in revenue to $132.3 million thanks to strong MILKLAB growth.
In respect to earnings, the company reported an earnings before interest, tax, depreciation and amortisation (EBITDA) loss of $86.5 million. This compares to a restated EBITDA loss of $88 million a year earlier. Prior to restating its accounts, Freedom Foods had recorded positive EBITDA of $55.2 million in FY 2019.
On the bottom line, Freedom Foods posted a loss after tax of $174.5 million. This compares to a restated loss after tax of $145.8 million a year earlier, which was previously reported as a profit of $21.9 million.
Restatements.
The company revealed that its FY 2019 accounts were restated to reflect past accounting matters and asset impairments.
Net asset write-downs and restatements of approximately $590 million were made for FY 2020 and prior years.
The company explained: "The FY20 audit by Deloitte and a forensic accounting investigation by PwC identified a range of accounting matters going back a number of years. Most significantly, the reviews determined that most of the costs capitalised during the commissioning phase of the Group's capital investment program should be more appropriately treated as expenses."
"These accounting treatments contributed to decisions on new products and expansions that were based on unrealistic assessments of market opportunities and margin assumptions that were not realised. As a result, too many Group products were sold at prices that did not fully recover their costs. These matters have resulted in a material restatement of the Group's FY19, FY18 and prior period accounts and material write-downs and adjustments," it added.
Management commentary.
Freedom Foods' Interim Chief Executive Officer, Michael Perich, was very disappointed with this results release.
He commented: "This is a deeply disappointing set of results for Freedom Food Group, its people and its shareholders. The results reflect the significant costs of past accounting and operational matters – matters we have identified with the assistance of independent experts and are taking steps to remedy."
"Operationally, we are reviewing the economics of every product line, every site, every sales channel and every market segment to ensure we are focused on those brands with the greatest potential to deliver profitable sales. We will be removing products that are not delivering value and investing in the ones that are."
"Freedom Foods needs to become a simpler business – and that includes identifying parts of our business that may perform better under different ownership," he added.
Recapitalisation plan.
Freedom Foods has been reviewing options to recapitalise the business. This includes through debt, equity, or a combination of both.
The board undertook an extensive process to select the right capital solution, given the uniqueness of its current situation.
The proposed approach it has settled on is an ASX-listed convertible note. It advised that this will protect the incoming capital as secured debt, while providing equity-linked optionality and flexibility.
It is anticipated that the capital raising will total up to $280 million. The company intends to provide existing shareholders with an opportunity to participate.
A further announcement on the recapitalisation will be made before the end of the calendar year.
