The Motley Fool

Does Delfi Limited Have a Sweet Business Model?

Delfi Limited (SGX: P34) manufactures and distributes branded consumer products that are sold in over 17 countries including Singapore, Malaysia, Indonesia, Hong Kong, Australia and Thailand. Delfi was formerly known as Petra Foods Limited but changed its name in May 2016, and has a portfolio of established brands such as “SilverQueen” and “Ceres”, which are household names in Indonesia.

While Delfi has a long operating track record and a strong portfolio of brands in Indonesia, the consumer goods market’s fortunes are tied to the economy and the industry itself is also fragmented, with many local and foreign players jostling for a piece of the pie. A company’s reputation and branding will determine if it attains dominant mind share when consumers shop for such products, and its success should be reflected in its financials.

To determine if Delfi serves up a sweet and attractive business model, I decided to look at the five-year track record for three aspects of the group.

Financials and margins

As can be seen in the above table, Delfi has had a patchy revenue growth record. 2014 was when revenue hit its highest point at US$504 million, but the group has seen a steady decline over the years till 2017 when revenue rebounded from a low of US$381.3 million to US$427 million. Gross profit margin, however, had risen from 31.9% to the 34% level, and remained consistent for the last three years, implying that Delfi has some measure of pricing power.

Net profit plunged from a high of US$50.3 million in 2014 to US$15.3 million the following year and has not really recovered back to its previous highs. The pattern of net profit also shows considerable volatility, perhaps reflecting the fickle nature of consumer demand for confectionery products.

Free cash flow

Delfi also has a patchy track record for free cash flows (FCF). Operating cash flow has seen significant fluctuations over the years, but 2018 saw the lowest operating cash flow generated in the last five years – a bad sign for the business. With ongoing capital expenditure averaging around US$15-20 million a year, the group sometimes sees itself falling into a negative FCF situation.


As for dividends, the above table shows a dismal track record, as the group has slashed its dividend payments from a high of 5.77 US cents to the current 1.89 US cents, in line with profitability. The practice of paying a special dividend also seems to have disappeared in the last three fiscal years. The silver lining here is that 2018 saw a slight year-on-year increase in total dividends compared to 2017.

Fundamentals seem to be improving

The above numbers provide a few insights into the nature of Delfi’s business – fickle consumer demand in a crowded industry produces inconsistent revenue and net profit trends, while continued investment in the business sometimes produces negative FCF. Sad to say, the business does not serve up as sweet a deal for investors as I would have liked to believe.

That said, Delfi’s latest H1 2019 earnings report showed signs of continued improvement in the business, with revenue up 11.2% year-on-year and net profit up 18% year-on-year (excluding exceptional items). The group also declared a higher interim dividend of 1.27 US cents compared to 1.08 US cents a year ago. Investors will need to monitor the business to see if these improvements are sustained moving forward.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.