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The Good And The Bad: What Investors Should Know About QAF Limited’s Latest 2016 Results

QAF Limited (SGX: Q01) is a food production company. Its business activities include bakery operations, pork production, food processing and distribution, feed milling, food trading and distribution, food manufacturing, wine distribution, and the ownership and leasing of warehouses.

Some of the more prominent consumer food brands the company has in its portfolio are Gardenia, Cowhead, and Farmland.

In late February, QAF reported its 2016 full year results. There are both positive as well as negative takeaways from the company’s latest earnings that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:

1. The overview

You can see below a table showing some of the important financial numbers for QAF from 2016 and 2015:

QAF financial statement 2016
Source: QAF company website

In all, the company had a positive performance in 2016. Although revenue appeared lower on the surface, that’s mainly due to the deconslidation of a Malaysia-based subsidiary, GBKL (Gardenia Bakeries (KL) Sdn Bhd). If the deconsolidation was excluded, revenue for QAF would have been higher.

The profit increase in 2016 is partly due to the corporate action with GBKL. But, even if the one-off event was excluded, QAF’s diluted earnings per share in 2016 would still have been 10.9 cents, up 16% from 2015.

2. The positives

Firstly, QAF’s revenue saw broad-based growth as all its segments – namely, bakery, primary production, and trading & logistics – saw their top-line increase (after adjusting for the GBKL deconsolidation).

Secondly, all the segments recorded higher EBIT (earnings before interest and tax) if one-off events were excluded. This is particularly evident in the primary production segment, in which its EBIT for 2016 grew by 151%.

Lastly, QAF also announced that it is establishing two new bakery plants in Philippines and another two in Malaysia. The plants in Malaysia are expected to start production by 2017 and 2018. With the addition of the four new plants, QAF has a total of 16 bakery plants around the world.

3. The negatives

Firstly, the company warned in its latest earnings release that increases in its costs of production – such as raw material costs, energy and fuel costs, and distribution costs –  will continue to be a challenge in the near future.

Secondly, the company’s China venture (Gardenia Fujian) continued to incur losses in 2016, resulting in an impairment of the venture’s asset value during the year.

Lastly, QAF expects increased competition in its various markets. For example, in its bakery business, the company sees tougher competition from an existing competitor in Singapore, while in the Philippines, a new player has entered the fray.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.