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Fraser and Neave Limited’s Latest Earnings: Margin Expansion Drove Profit Growth

Yesterday, Fraser and Neave Limited (SGX: F99) reported its full-year earnings for its financial year ended 30 September 2016 (FY2016).

As a quick background, Fraser and Neave, or better known as F&N, organizes its business in 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 from its prior quarter here.

Financial highlights

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

  1. For FY2016, F&N’s revenue from continuing operations fell 6.7% to S$1.98 billion.
  2. But net profit from continuing operations jumped 101% to S$165.6 million; this compares with the S$82.4 million recorded a year ago.
  3. Based on continuing operations, F&N’s diluted earnings per share (EPS) was 7.5 cents, up from 4.3 cents a year ago.
  4. Cash flow from operations was S$184.7 million while capital expenditure was S$65.5 million. F&N thus registered positive free cash flow of over S$119 million. This is down from the S$168.8 million seen a year ago (S$224.8 million in cash flow from operations and S$56.1 million in capex).
  5. As of 30 September 2016, F&N has over S$1.04 billion in cash and equivalents and S$137 million in total debt. This is a minor increase from the S$961 million in cash and equivalents and S$100.5 million in total debt recorded at the end of the last fiscal year.

In sum, F&N recorded lower revenue for the full fiscal year. But, profit from continuing operations was healthy and increased over 100%. The food and beverage outfit also generated positive free cash flow and maintained a strong balance sheet.

The board of directors recommended a final dividend of S$0.03 per share, which brings the total dividend for FY2016 to S$0.045 per share. This is a decline from FY2015’s dividend of S$0.05 per share.

Operational highlights

F&N’s Beverage segment recorded revenue of S$572 million for FY2016, 10.5% lower compared to the year before. The segment’s earnings before interest and taxes (EBIT) also fell by nearly 40% to S$23 million.

For the same period, F&N’s Dairies’ segment saw its top-line dip 3.7% to S$1.1 billion. The segment’s EBIT did better though, soaring over 72% to S$119 million. Lower input costs helped drive margin expansion in the Dairies business.

F&N’s Printing & Publishing segment experienced a 9.8% fall in sales, ending the fiscal year with S$308 million in revenue. The segment also recorded a loss of S$5 million in EBIT.

Koh Poh Tiong, F&N’s chairman, added his comments on the company’s performance in FY2016:

“F&N has achieved strong performance for FY2016. Notably, our Food & Beverage division F&N’s profit doubles in FY2016 recorded volume gains and double-digit earnings growth in our core markets, on the back of effective consumer and trade programmes and strengthened route-to-market, and despite negative translation effects of the weakening Malaysian Ringgit and Thai Baht.”

A future outlook

Koh also shared the company’s outlook in the earnings release:

“Despite the strong performance in this financial year, there are downside risks that the weaker outlook for global economy and volatility in financial markets could weigh on consumer confidence and demand. In addition, intensifying competition and rising raw material costs are other factors we are contending with.

Nonetheless, we remain confident about our overall prospects given our leadership positions in our core markets. To further increase our competitiveness in delivering sustainable revenue and profit growth, the Group will continually evaluate investment opportunities while keeping our focus on deepening our presence in the new markets of Indonesia, Myanmar and Vietnam.”

At its closing share price of S$2.12 on Monday, F&N traded at 29 times trailing earnings and has a trailing dividend yield of around 2.1%.

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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.