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What Investors Need to Know About Neo Group Ltd’s Latest Earnings

Credit: University of Exeter

Yesterday, Neo Group Ltd (SGX: 5UJ) announced its financial results for the third quarter and nine months ended 31 December 2017. Here are 10 things investors should know from the earnings announcement:

1. Revenue for the third quarter slumped 4.2% year-on-year to S$44.7 million. The fall was mainly due to revenue declines in the Food Retail business, Supplies and Trading business and Other businesses. Higher sales from the Food Catering business and Food Manufacturing business partially offset the fall in revenue.

2. Revenue at the Food Retail business declined by 8.2% to S$4.3 million mainly on the back of closure of non-performing outlets. Meanwhile, Supplies and Trading business revenue decreased 21.7% to S$9.7 million primarily due to “the ongoing business review of Supplies and Trading business to reduce the trading transactions for low margin products”.

3. Other businesses revenue fell 4.7% S$0.27 million for the quarter. This segment is involved in the “design, marketing and distribution of floral arrangements, gifts and hampers and manufacturing of bread, cakes and confectionery”.

4. Revenue at the Food Catering business rose 6.3% to S$17.85 million. This was largely attributed to Gourmetz Pte Ltd, a catering subsidiary established in November 2016 to bolster Neo Group’s recurring income stream from the elder-care and childcare market segment. The new business could also mitigate the impact of seasonality from its other catering brands.

5. Due to an increase in export sales, the Food Manufacturing business saw its revenue rise 0.5% to S$12.66 million.

6. The bottom line saw a massive improvement for the quarter mainly due to lower cost of goods sold and other expenses. Net profit soared from S$125,000 a year ago to S$2.1 million.

7. For the nine-month period, revenue grew 14.5% to S$130.6 million while net profit went up 56.9% to S$885,000. Earnings per share was 0.61 Singapore cents, an increase from 0.39 Singapore cents one year ago.

8. As at 31 December 2017, Neo Group had S$13.1 million in cash balance and S$78.5 million in total debt. This translates to a net debt position of S$65.4 million. In comparison, as at 31 March 2017, it had a slightly lower net debt position of S$63.5 million.

9. Cash flow from operations for the quarter was S$6.5 8.2 million. With capital expenditure coming in at S$4.3 million, the company generated around S$2.3 4.0 million in free cash flow. A year ago, it had a negative free cash flow of S$3.6 million.

10. The founder, chairman and chief executive of the company, Neo Kah Kiat, said:

“As we continue to grow earnings contributions from our flagship Food Catering business, it is heartening to witness a clear turnaround for our Food Manufacturing business as it enters its third consecutive quarter of profitability. Capitalising on its strong brand equity and global distribution network across 25 countries, we have identified overseas markets as the next growth driver for our Food Manufacturing segment.

The hallmark of the Group’s success stems from the management’s hands-on approach, which had also resulted in the turnaround of our Food Retail business. As part of our strategic review, selected non-performing outlets were closed, while improved systems and streamlined menus were introduced to existing outlets to drive operational and financial improvements. Our priority is to achieve bottomline improvements as part of our commitment to maximise shareholder returns.”

Neo Group ended Thursday at S$0.665. This translates to a trailing price-to-earnings ratio of 27 and a dividend yield of 1.5%.

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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 Sudhan P doesn’t own shares in any companies mentioned.


Editor's Note: The cash flow figures under point nine have been corrected after Neo Group released a corrigendum on 9 February 2018.