Petra Foods Limited’s Latest Earnings

Petra Foods Limited (SGX: P34) reported its fiscal fourth-quarter earnings yesterday evening. The reporting period was for 1 October 2015 to 31 December 2015.

As a brief background, Petra Foods’ main business lies in confectionaries. It has its own stable of consumer brands – Top, Silver Queen, Knick Knacks and Goya – and also distributes a diverse mix of agency brands from other global companies.

Geographically, the majority of its sales come from Indonesia and other regional markets such as Malaysia, Singapore, and the Philippines. You can read more about Petra Foods in here and here.

Financial highlights

The following’s a quick summary of the important financial figures from the earnings release:

  1. Revenue for the reporting quarter was US$100 million, down 23.8% compared to the same quarter in the prior year. For 2015, Petra Foods recorded US$405.9 million in revenue, a 19.5% decline. On a constant currency basis, Petra Foods’ annual revenue shrank by ‘only’ 9.9%.
  2. Profit attributable to shareholders had suffered even more, plunging by 93.5% year-on-year to just US$800,000 for the reporting quarter. For the whole of 2015, Petra Foods recorded a loss of US$4.7 million. The reason for the loss was a one-off exceptional charge of US$20 million from a legal settlement with Barry Callebaut. There was a dispute between Barry Callebaut and Petra Foods regarding the sale of the latter’s Cocoa Ingredients Business to the former on June 2013.
  3. Consequently, Petra Foods’ earnings per share (EPS) saw a matching 93.5% decline from 2.02 US cents in the fourth-quarter in 2014 to just 0.13 US cents. For the full year, EPS was a negative 0.77 US cents.
  4. On a brighter note, the company’s cash flow from operations came in at US$43.2 million with capital expenditure clocking in at US$23.5 million. This puts the F&B outfit in positive free cash flow territory to the tune of US$19.7 million. This is better than the negative free cash flow recorded in 2014.
  5. As of 31 December 2015, Petra Foods had US$119.5 million in cash and equivalents and total borrowings of US$74.7 million. This is an improvement from a year ago where the group had US$172.0 million in cash and equivalents and total borrowings of US$74.0 million.

In summary, Petra Foods ended 2015 with a lower top-line and a loss. On the other hand, its free cash flow position had improved in the reporting year from better working capital management. The firm’s balance sheet also remains solid with a net cash position, though it has weakened compared to the previous year.

Petra Foods’ board of directors had determined that the company’s cash is more than sufficient for its medium term needs and has proposed to return US$60 million in cash to its shareholders. The cash-return proposal will require shareholder’s approval at an extraordinary general meeting which will be held at a to-be-announced date.

Unfortunately, there was no final dividend declared by the board of directors this time around. With its interim and final dividend per share of 1.75 Singapore cents and 1.11 Singapore cents, respectively, Petra Foods’ total dividend per share for 2015 comes up to 2.86 Singapore cents, down significantly from the 7.5 Singapore cents seen in 2014.

Operational highlights

For 2015, sales from Indonesia had decreased by 22% to US$285 million (down 12% in constant currency terms). Sales from the country was affected by a slowing economy, a high inflationary environment, and weakness in the rupiah. Meanwhile, sales from regional markets had decreased by 12.9% to US$120.9 million (down by just 3.7% in constant currency terms).

John Chuang, Petra Foods’ chief executive, had given the following detailed comments in the earnings release on the performance of his company in 2015 and the firm’s outlook ahead:

“Having resolved the dispute with Barry Callebaut we are now able to determine how much of the net sales proceeds are excess to our medium term needs and can be returned to shareholders. We are therefore pleased to be able to announce the plan to return $60 million to our shareholders.

2015 was a “Perfect Storm” in terms of the alignment of a number of negative factors that affected our business: Indonesia’s economic weakening, the depreciation of the Rupiah, the pressure on our margins, the closure of our Singapore business and the final settlement with Barry Callebaut. However we have withstood that battering and ended the year with a modest profit from our ordinary business operations, US$119 million of cash for the Group and a significant upward trend in our margins.

Looking to the future, to stay ahead of our competitors, we never rest in our relentless pursuit to build a stronger business, strengthen our brand portfolio and find new paths to grow. To sustain profitable growth over the longer term, we are taking actions to further strengthen our business to capture the significant growth opportunities.

These include ensuring our organization is efficiently aligned to our growth plans; investing to grow our key brands in our markets; and taking measured steps to strengthen our distribution infrastructure. We will prudently invest to build capacity and capabilities where there are clear expansion opportunities and we will also increase our productivity and efficiency targets in our manufacturing and distribution infrastructure.

Underpinned by the robust emerging economies in the region and its fast growing middle income classes, we are optimistic demand our products will continue to grow in the marketplace. At the same time, we remain steadfast in our efforts to grow our quality earnings by exploring opportunities to enter new markets and to extend our product categories.”

Foolish take away

At its closing price yesterday of S$2.39, Petra Foods has a trailing dividend yield of just 1.2%. It is also valued at 4 times its latest book value.

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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.