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The Good And The Bad: Important Takeaways From QAF Limited’s Latest Earnings

Credit: Simon Cunningham

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 GardeniaCowhead, and Farmland.

In early May, QAF reported its 2017 first quarter results. There are both positive and negative takeaways from the announcement that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:

1. The overall result

The following’s a table showing some of the important items from QAF’s income statement for the first quarters of 2017 and 2016:


Source: QAF 2017 first quarter earnings release

It’s clear that QAF’s performance in the first quarter of 2017 was weaker than in the first quarter of 2016. This was mainly driven by the deconsolidation of the results from QAF’s previous Malaysian subsidiary, Gardenia Bakeries (KL). QAF had to reduce its stake in Gardenia Bakeries (KL) to 50% to comply with regulations in Malaysia.

2. The positives

Firstly, if the effects of the deconsolidation of Gardenia Bakeries (KL) were stripped away, QAF’s revenue in the reporting quarter would have been higher across all its business segments. The company’s segments are namely, Bakery, Primary Production, and Trading & Logistics.

Secondly, the company strengthened its balance sheet when compared to a year ago. At the end of the reporting quarter, QAF had S$124.7 million in cash and equivalents and borrowings of S$90.2 million; in the same quarter a year ago, the company had S$86.7 million in cash and equivalents and total borrowings of S$86.8 million

3. The negatives

Firstly, QAF’s bakery operations in Singapore and Johor experienced a profit decline. The main culprits were a write-down of inventory, higher staff costs, and costs related to the closure of an old plant in Johor.

Secondly, QAF reported a 31% year-on-year jump in taxes in the reporting quarter. That’s because the company’s meat production business in Australia, Rivalea, had fully utilised its tax losses in 2016 and now has to incur taxes for its operations.

Lastly, QAF expects its business performance 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.”

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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.