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Fraser and Neave Limited’s Latest Earnings: What Investors Should Know

Fraser and Neave Limited (SGX: F99) reported its fiscal first quarter earnings for the financial year ending 30 September 2016 (FY2016) yesterday evening. The reporting period was for 1 October 2015 to 31 December 2015.

Fraser and Neave, or better known as F&N, organizes its businesses into three main buckets: beverages, dairies, and printing & publishing. To learn more about the company, you can go herehere and here. You can also catch up with the results of F&N’s previous quarter here.

Financial highlights

The following’s a quick take on F&N’s latest financial figures:

  1. For FY2016’s first quarter, F&N’s revenue fell by 11% year-on-year to S$489 million.
  2. Net profit from continuing operations, though, soared by 57% to S$47.7 million for the reporting quarter; this compares with the S$30.4 million recorded a year ago.
  3. Subsequently, F&N’s earnings per share (before exceptional items) also rose 38.5% year-on-year to 1.8 cents.
  4. Cash flow from operations for FY2016’s first quarter was S$24.1 million while capital expenditure was S$16.8 million. As such, F&N registered positive free cash flow of S$7.3 million. This is a big fall from the free cash flow of $28.3 million seen a year ago ($44.4 million in cash flow from operations and $16.1 million in capex).
  5. As of 31 December 2015, F&N had S$1.02 billion in cash and equivalents and S$141.3 million in debt. This is a big improvement over a year ago when cash and equivalents and debt were at S$381.7 million and S$142.9 million, respectively.

For the reporting quarter, F&N had faced currency headwinds and competitive pressure. This is reflected in its lower revenue. The good news is that the company had generated positive free cash flow for the quarter and had maintained a strong balance sheet.

Operational highlights

For the first quarter of FY2016, F&N’s Beverage segment recorded revenue of S$132 million, a decline of nearly 19% compared to the year before. The segment’s earnings before interest and taxes (EBIT) also fell close to 19% year-on-year to just S$11 million for the quarter. The segment’s EBIT was affected by currency depreciation, competitive pressure, and the loss of sales from Red Bull energy drink (F&N had lost distributorship rights for Red Bull in 2015).

F&N’s Dairies segment did not do much better as it was also affected by currency depreciation. The segment registered a 9% year-on-year fall in revenue to S$272 million. But, the segment’s EBIT was up a strong 92% to S$37 million. This came on the back of a recovery of withholding tax, favorable commodity costs, and lower trade discounts extended.

As it turns out, Printing & Publishing segment was the least affected among the three business units. The segment saw a 4.7% decline in sales to S$84 million for the quarter. It managed to eke out an EBIT profit of S$3 million, a turnaround from a negative EBIT of S$1 million recorded in the previous quarter.

Outlook ahead

In the earnings release, F&N commented that consumer sentiment for its food & beverage segment “is expected to be affected by both the economic climate and labour market.” The firm added that “consumer confidence in Singapore appears to be subdued” while that in Malaysia and Thailand “are being challenged by slower economic growth and higher unemployment.”

The picture remains gloomy with the printing & publishing business as F&N commented that its operating environment “is likely to remain challenging in the coming months.” The company did add that it will be focusing on growing its commercial and non-traditional print jobs to offset any declines in the traditional print business.

F&N is also of the view that the Singapore dollar will remain “relatively stronger against the regional Asia Pacific currencies.” Given that F&N does plenty of business outside Singapore in other parts of Asia, a strong Singapore dollar is an unfavourable development.

Lastly, F&N thinks that its strong balance sheet has placed it in a good position to chase growth opportunities if and when any are spotted.

Foolish summary

At its closing price of $1.96 yesterday, F&N traded at 40 times trailing earnings (based on fully diluted earnings from continuing operations) with a trailing dividend yield of around 2.6%.

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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.