Back in August when announcing improved first half earnings, the CEO of toy group, Funtastic Limited (FUN) was confident about the second half and the full year.
"When discussing the full year to 31 December 2007, Mr Oates (the CEO) said that "retail sentiment, consumer discretionary demand and any impact arising from the China issue were important factors for the balance of the year. However, at this stage we expect to achieve the lower range of our previously stated EBITA guidance of $43 million," the company's media statement issued to the ASX said.
Yesterday, after three days of trading in FUN shares being suspended, the news wasn't so upbeat.
That $43 million EBITA figure had become a range of between $28 and $31 million.
The shares plunged from $1.18 before the trading halt was called last Friday to 74.5c yesterday. That fall was a fall of more than 35%, or 43.5c.
The board said it would immediately be commencing a strategic review of the business, as it would when confronted with a 34% drop in profit.
The request for the trading halt last Friday from FUN was to allow the board "to review" the group's trading forecasts and guidance.
That task must have been tough seeing it took the best part of five days.
FUN gets most of its sales and earnings in the second half, so the downgrade is a double blow.
The new range puts 2007 EBITA around the $29.8 million earned in 2006, when net earnings amount to $12.1 million. There was also restructuring costs of $1.3 million.
So the past year looks like the company has been labouring for not much gain, and there's the prospect of further write-downs and losses when the new review is finished.
The company said the drop in its profit outlook was due to a higher than expected volume of low margin sales and a disappointing last quarter for sales of its higher margin products.
While the second half is vital, the current fourth quarter, with the Christmas sales surge, is vital to Funtastic, given its stock in trade is toys and associated products.
However, the company said that it anticipates that at least one of its businesses, Madman, will exceed expectations, while its Judius operation will meet internal forecasts for the current financial year.
The company added these internal forecasts are important for its 2008 outlook. (Guidance wasn't given yesterday for next year, so the profit picture must be really clouded.)
In terms of debt, the company expects to finish the year with lower net bank debt than the previous year due to improved operating cash flow.
Funtastic said it expects its US operations to contribute towards profitability in 2008 and expects to ship its first inventory to ABC Learning Centres Limited (ABS) in the US before December 2007.
Funtastic said in August first half earnings before amortisation for the six months to June 30 were $6.7 million.
"This represents a 19.6% increase on the $5.6m achieved for the same period last year primarily due to the earnings contribution from Judius. Reported Net Profit after Tax post amortisation was $4.7 million.
"Earnings Before Interest, Tax and Amortisation (EBITA) was $14.4 million which is a 35.8% increase on $10.6 million in 2006. EBITA for the six months to 30 June 2007 excluding the Judius acquisition was $11.0 million which was broadly in line with the EBITA result for the previous corresponding period."
So essentially it's been a flat year.
