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QAF Limited’s Latest Earnings: What Investors Should Know

On Tuesday evening, QAF Limited (SGX: Q01) reported its 2017 first quarter earnings. The reporting period was for 1 January 2017 to 31 March 2017.

As a quick background, QAF’s business can be divided into four major segments, namely, Bakery, Primary Production, Trading & Logistics, and Investments & Others. One of the company’s well-known consumer food brands would be Gardenia, a packaged bread brand that is a staple in Singapore grocery stores. Geographically, majority of QAF’s revenue comes from Singapore, Malaysia, Australia, and the Philippines.

Financial highlights

The following’s a rundown on some of the financial figures for QAF for the first quarter:

1. QAF recorded revenue of $212.7 million, a 15% decline from 2016’s first quarter.

2. Profit attributable to shareholders was down 13% to $14.2 million.

3. Earnings per share (EPS) declined 13.8% to $0.025, down from $0.029 a year ago.

4. Cash flow from operations was $22.5 million and capital expenditure was $19.2 million. The firm generated free cash flow of $3.3 million. This is a decline from the free cash flow of $6.8 million recorded in 2016’s first quarter.

5. As of 31 March 2017, QAF had $124.7 million in cash and equivalents and borrowings of about $90.2 million. This is an improvement from a year ago when the group had $108.9 million in cash and equivalents and borrowings of about $86.8 million.

In summary, QAF saw its revenue and profit decline. But, the company strengthened its balance sheet compared to a year ago and recorded positive free cash flow, albeit lower than 2016’s first quarter.

Operational highlights and what lies ahead

For the reporting quarter, QAF’s revenue was down due to the deconsolidation of Gardenia Bakeries (KL). The latter is now considered as a joint venture after QAF reduced its stake to 50% to comply with regulatory requirements.

QAF included the following outlook in its earnings report:

“The Group’s performance is expected to be affected by a number of factors, including competition, currency volatility and increasing costs arising from higher flour prices and energy costs in certain markets.

In the bakery business, the Group is facing heightened competition. In response, advertising and promotional expenses are expected to increase, particularly in the Philippines.

In the Primary Production segment, Rivalea is beginning to face increased competition resulting from a general oversupply situation in the industry. As such, the company expects some pressure on selling prices and margins.

However, Rivalea is expected to mitigate this situation by its efficiency, productivity, benefits accruing from the scale of its operations, the continued development of a good product mix and lower production costs, particularly the cost of feed.”

Earlier this month, QAF started a strategic review of its Primary Production business. The firm said that it might sell the entire business or list the business in Australia.

At its closing stock price of S$1.38 on Tuesday, QAF traded at around 13 times earnings and had a dividend yield of 3.6%.

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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.