Neo Group Ltd’s Latest Earnings: What Investors Should Know

Neo Group Ltd (SGX: 5UJ) reported its second-quarter earnings for its fiscal year ending 31 March 2016 (FY2016) on Saturday. The reporting period was for 1 July 2015 to 30 September 2015.

Neo Group is a leading food and beverage (F&B) caterer in Singapore. Beyond the Food Catering segment, the firm also has a Food Retailing segment. Under the latter, Neo Group owns the umisushi chain of sushi outlets which are often found in MRT stations across Singapore.

You can read more about Neo Group in here.

Financial highlights

The following’s a quick take on Neo Group’s latest financial figures:

  1. Revenue for the reporting quarter was $31.3 million, up a stupendous 89% compared to the same quarter a year ago. Neo Group’s newly-incorporated Food Manufacturing subsidiary, Thong Siek Holdings (TSH), added $11.5 million to its top-line for the quarter.
  2. However, Neo Group had clocked a loss of $349,000 for the period. The profit attributable to Neo Group’s shareholders was just $73,000 for the reporting quarter, down from the S$1.53 million seen a year ago.
  3. Consequently, earnings per share (EPS) declined significantly from 1.07 cents in the second quarter a year ago to just 0.05 cents in the reporting quarter.
  4. Cash flow from operations was also negative, as Neo Group recorded a cash out flow of $609,000. With capital expenditures clocking in at $1.1 million, Neo Group is in negative free cash flow territory to the tune of $1.7 million.
  5. As of 30 September 2015, Neo Group had $8.1 million in cash and equivalents and borrowings of about $50 million. The group’s balance sheet has weakened from 31 March 2015 where it had $7.6 million in cash and equivalents and ‘just’ $20.2 million in debt.

In summary, Neo Group’s top-line grew impressively, supported by its new 55% stake in TSH. But, Neo Group had recorded losses and negative free cash flow. The firm’s balance sheet also weakened. As Foolish investors, we may want to look for improvements in the future in both the firm’s balance sheet and free cash flow numbers.

Operational highlights

For FY2016’s second quarter, the Food Catering segment saw sales increase by a strong 31.1% year-on-year to $15.8 million. Neo Group attributed the segment’s top-line growth to its effective marketing efforts and promotions to commemorate the SG50 celebrations.

The Food Retail segment’s revenue, though, lagged with a marginal increase of just 1.1% year-on-year to $4.5 million. Competition as well as a prolonged haze was cited as reasons for the tepid growth.

Neo Group’s incorporation of the Food Manufacturing segment (TSH) lead to operating cost increases in purchases and consumables, delivery expenses, employee benefits, and operating lease expenses. Moving forward, we may want to observe if Neo Group is able to bring down its costs or at least keep tabs on them.

Neo Kah Kiat, the Founder, Chairman, and Chief Executive Officer of Neo Group, gave the following commentary in the earnings release for the current quarter and the outlook ahead:

“Our consistently strong topline growth is a testament of our robust business fundamentals, strong brand and market share, and revenue-accretive acquisition strategy. We have strengthened our suite of capabilities through a focused vertical integration strategy that will allow us to provide customers with turnkey food and catering solutions and maintain our position as Singapore’s No. 1 Events Caterer

TSH has continued to contribute strong revenue to the Group, and we look forward to the maiden contribution from newly-acquired subsidiary, CT Vegetables, in the next financial quarter. Although these business expansion activities will inevitably incur higher expenses in the near-term, we are investing in the long-term sustainable growth of the Group and will remain on the lookout for such revenue-accretive and synergistic acquisition opportunities to enhance shareholder value.

We are currently in the early stage of integrating our newly-acquired subsidiaries, and will work towards boosting their respective sales performance. We believe economies of scale will start kicking in once processes have been streamlined and enhanced”

Foolish take away

At its closing price last Friday of $0.72, Neo Group traded at around 16.6 times its trailing earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.