Eco Investor March 2015

Core Securities

TFS Corporation

Star Performance from TFS

One of the standout performers of the interim reporting season was TFS Corporation. Net profit rose a mighty 1,598 per cent to a record $55 million from only $3.2 million in the December 2013 half year. Earnings per share did something similar and rose 1,363 per cent to 16.92 cents from 1.16 cents.

Not surprisingly the share price followed with a 20 per cent leap to a high of $1.90.

The driver for the results was a huge pick up in revenue. Sales revenue nearly doubled to $70 million. Also important was a fourfold gain on the revaluation of plantations from $18 million to $89 million, which the company said was due to a more favourable exchange rate, a higher oil price and a fair value gain due to a shorter period to harvest.

At the same time operational costs mostly edged up, and there was a $23 million unrealized loss on foreign exchange.

If we leave out the non cash elements of revenue, the cash results also look good. Of the three main revenue streams, establishment fees and land sales were up 121 per cent to $25 million, recurring fees were up 82 per cent to $10.4 million and product sales were up 66 per cent to $11.1 million.

However, the net result based solely on cash was a loss of $5.3 million, but this was an improvement on the December 2013 corresponding loss of $14.6 million.

So plenty of good news from the company, but also some caution needed as the company works to gradually turn its increasingly valuable Indian sandalwood plantations into cash.

Chief executive, Frank Wilson said TFS has already sold over a tonne of oil, worth $7.5 million per tonne, to its partner Galderma for use in its Benzac anti-acne products. Initial sales in the US are ahead of expectations. The full marketing campaign will commence shortly and the products will be in 30,000 US stores by later this year.

International expansion will be into China and Europe. Australian teenagers will have to wait.

Meanwhile, TFS upgraded its full year net earnings guidance from $70 million to at least $90 million, largely due to the higher valuation of plantations with the increase to the oil price and the strengthening of the US dollar, and reiterated its guidance for a 10 per cent increase in cash earnings (EBITDA) to $56 million.

The company is aiming to grow its cash results and make these the main driver of its overall results, and it expects the cash results will continue to grow year on year. It could be another two to three years before they become substantially more significant based on sales alone, but their weight will also vary with the US exchange rate. A strong US dollar relative to the Australian dollar is a benefit to TFS as its sales to Galderma are in US dollars.

Top and above: TFS Corporation revenues.

Former CEO Becomes a Director at TFS

TFS Corporation has appointed Michael Kay as an independent non-executive director.

Mr Kay was most recently managing director and chief executive officer of McMillan Shakespeare Ltd, Australia's largest provider of salary packaging and novated leasing services. As well as six years running McMillan Shakespeare, Mr Kay has held positions that include chief operating officer and then chief executive officer at AAMI. He is also on the board of RAC Insurance (WA).

TFS chairman Dalton Gooding said "During Michael's employment at McMillan Shakespeare, the company's market capitalization grew from $160 million to a peak of $1.3 billion, while net profit grew at a compound rate of almost 30 per cent per annum. Importantly, Michael was able to mature a very innovative and entrepreneurial company while retaining its growth trajectory. Those skills are directly relevant to TFS." (ASX: TFC)







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