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Freedom Foods Group (ASX:FNP) fully operational despite the fires
  • Freedom Foods (FNP) is seeing the first signs of recovery after suffering heavy impacts from the COVID-19 pandemic
  • There had been a distinct drop in certain parts of FNP's business, while others prospered under the changed market conditions
  • Demand for the group's long-life milk and cereal products rose sharply as panicked consumers stocked their pantries
  • On the other hand, product demand in the foodservice and hospitality industries declined by more than half
  • The company hasn't named figures for its expected earnings before interest, tax, depreciation and amortisation (EBITDA) for the remainder of the financial year, but it's expecting a substantial shortfall compared to projections
  • Freedom Foods closed Friday's session 14.7 per cent lower at a price of $3.72 per share

Freedom Foods (FNP) is seeing the first signs of recovery after suffering heavy impacts from the COVID-19 pandemic.

Pandemic costs outweigh gains

There had been a distinct drop in certain parts of FNP's business, while others prospered under the changed market conditions during pandemic lockdowns.

Demand for the group's long-life milk and cereal products rose sharply as panicked consumers stocked their pantries. On the other hand, product demand in the foodservice and hospitality industries declined by more than half.

While conditions are improving in the out of home and industrial channels, demand is still projected to be only around 45 to 50 per cent of pre-COVID-19 projections for the month of May. Considering these numbers are the 'recovery' from the lows of March and April, it shows how hard certain parts of the Freedom Group were hit.

Other channels stayed largely in line with pre-COVID-19 predictions. The company's supply to the dairy nutritional market (including infant formula) continued as expected and is even experiencing growth.

Exports represented around 17 per cent of FNP's market footprint in the first half of the current financial year, and were largely targeted in southeast Asia. Exports to China took a 35 per cent hit through March and April, though they are now recovering strongly.

The company is now expecting growth across several existing lines, and impacts from new product launches across the region, with according sales growth to follow.

Overall, it has been the company's diversity across its products and markets which has helped it stay afloat.

Freedom Foods Managing Director and CEO, Rory Macleod, says this diversity has helped stave off the worst of the pandemic's economic effects.

"The recent macro environment has highlighted that the company’s unique scale, diversification of activities and channels, strong brands and Australian-based food manufacturing capabilities, provide an important hedge against the adverse impacts from the current disruption," Rory said.

Outlook

Despite the (somewhat justified) positive spin about the company's diversified interests, the fact remains that the last few months have been hard.

The company hasn't named figures for its expected earnings before interest, tax, depreciation and amortisation (EBITDA) for the remainder of the financial year.

It has, however, stated that the second half of the financial year typically accounts for over 60 per cent of full-year operating EBDITA, and that "the combination of the level of sales, changed sales mix from March to June, the impact of doubtful debts and an unrecovered higher seasonal milk pricing will materially impact the second half operating EBDITA relative to pre-COVID-19 plans."

That sounds like a heavy hit in anyone's language.

The company has accordingly adjusted its credit and capex models for the next 18 months to provide liquidity and the ability to rebound when the time is right.

It'll be interesting to see the final figures when they do emerge. From the contained optimism of Freedom's language so far, it seems the company has taken on some water without foundering.

In the current climate, it could've been worse. But a projected hit to EBITDA doesn't bode well for the bottom line.

Freedom will be hoping for a rapid rebound to right the ship.

Freedom Foods closed Friday's session 14 per cent lower at a price of $3.75 per share.


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