QAF Limited (SGX: Q01) is a food production company which organises its business into four segments, namely, Bakery, Primary Production, Trading and Logistics, and Investments. Some of the more prominent brands the company has in its portfolio are Gardenia, Cowhead and Farmland.
The company recently released its full year results for the financial year ended 31 December 2017 (FY17). Given the diversity of QAF, it might be useful for investors to assess each business segment’s performance separately.
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In this article, we will have a quick overview of the performance of QAF’s second biggest business segment, Primary Production.
Source: QAF Limited FY17 Full Year Results Release
As a quick introduction, QAF’s Primary Production segment is involved in an integrated pork production operation in Australia. It is involved in all stages of the meat process, from stockfeed milling and livestock breeding, to meat processing and distribution.
From the numbers above, we can see that the Primary Production business had a challenging FY17.
The weaker revenue was driven by lower selling price, offset by higher sales volume on a year-on-year basis. The low selling price was due to oversupply in the industry, which affected the margins of all players within the industry.
EBITDA (earnings before interest, tax, depreciation and amortization) declined 54% year-on-year mainly due to the reason mentioned above, write-down of biological assets, and one-off professional fees on the proposed listing of this segment, which has been put on hold.
As for its future outlook, the company expects the current challenging situation to extend into FY18 which will continue to exert pressure on its selling price. Moreover, the company faces the risks of reduced demand from its main distribution channel, supermarket chains, as a result of the oversupply situation and potential higher energy costs.
To counter the above risks, QAF is engaging in a number of initiatives that include: 1) developing value-added products; 2) improving productivity and cost effectiveness by upgrading its Melbourne processing plant; and 3) installing bio-gas co-generation facilities to reduce energy costs further.
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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.