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QAF Limited’s Latest Earnings: What Investors Should Know

QAF Limited (SGX: Q01) reported in its second-quarter earnings report on Tuesday evening. The reporting period was from 1 April 2017 to 30 June 2017.

QAF’s business can be divided into four major segments, namely bakery, primary production, trading & logistics and investments & others. It may be best known for the Gardenia bread, which is a staple in Singapore grocery stores. Geographically, the majority of its sales come from Singapore, Malaysia, Australia and the Philippines.

You can learn more about the company here or catch the previous quarter’s earnings here .

Financial Highlights

Here’s a rundown on the financial figures for the second-quarter:

1. Revenue was at $209.8 million, a 1% increase from 2016’s second-quarter.

2. Profit attributable to shareholders was down 72% to $8.1 million.

3. Earnings per share (EPS) declined 72.5% to $0.014 cents, down from $0.051 cents recorded a year ago.

4. Cash flow from operations was $21.22 million, and capital expenditure was $13.33 million. The firm generated free cash flow of $7.9 million. This is a decline from the free cash flow of $21.44 million recorded in 2016’s second-quarter.

5. As of 30 June 2017, the group had $125.8 million in cash and equivalents and borrowings of about $97.9 million. A year ago, the group had $97.1 million in cash and equivalents and borrowings of $85.6 million.

In summary, QAF saw its revenue inched up, but profits fall off a cliff. Profits fell as operating expenses rose faster than sales. Furthermore, the reporting quarter’s profits had a tougher comparable against the second-quarter last year which included a $9.7 million gain from the sale of a 20% stake in Gardenia Bakeries (KL).   

The firm strengthened its balance sheet compared to a year ago and recorded positive free cash flow, albeit lower than 2016’s second-quarter.

The board of directors proposed a dividend per share of one cent, unchanged from a year ago.   

Operational Highlights

Sales at the bakery segment grew 4% year over year to $83.2 million, but the rest of the segments saw declines in revenue. The bakery segment benefited from the launch of new products and deeper market penetration. Primary production sales fell 2% was pork prices declined 20% in the first-half of 2017.

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 raw material prices, higher energy costs and higher distribution cost in certain markets.

In the bakery business, the Group is facing heightened competition and higher raw material prices. Advertising and Promotion expense and Distribution and Transportation expense are expected to increase further, particularly in the Philippines and Singapore.”

QAF has decided on its primary production business that has been under strategic review:

“The Company had previously announced the strategic review of its options in relation to the primary production business in Australia to enhance shareholder value, including a listing in Australia or a sale of the business in its entirety. Further to such review, the Company has decided to pursue a listing of the primary production business on the Australian Securities Exchange (“Proposed Listing”).

The Proposed Listing will be subject to the approval of shareholders of the Company at a general meeting. The Company will make further announcements on the Proposed Listing as and when appropriate.”

Foolish Takeaway

At its closing price on Tuesday of S$1.30, QAF traded at 7.3 times earnings and had a dividend yield of 3.8%.

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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.