QAF Limited profits down 72% to $8.1m in Q2

Blame it on heightened cost pressures in its primary production segment.

It's a dreary harvest for QAF Limited after its profits fell 72% to $8.1m in Q2.

According to OCBC Investment Research, revenue only rose by 1% to $209.8m. There was a slightly mixed sales performance across its segments. Bakery reported a 5% rise, Primary Production fell by 2%, whilst Trading and Logistics did not report any growth.

Meanwhile, EBIT fell across its segments, due to higher distribution and A&P expenses for Bakery. Primary Production had lower prices and weaker profit margins.

Here's more from OCBC Investment Research:

The management had guided for potential cost pressures this year, particularly for the Primary Production segment. The group expects performance to be affected by several factors including competition, currency volatility and higher costs from raw material prices, energy and distribution costs as well as other operating costs.

The Bakery business has been facing heightened competition and higher raw material prices. The new plant in Johor will replace the old plant that had production issues, with operations to commence in 3Q17. On Primary Production, Rivalea saw lower average selling prices despite higher volume, due to a general oversupply situation that left significant pressure on prices and margins. The group has seen some signs of price stability now.

All considered, the near term outlook looks challenging. Nonetheless, the group is also making meaningful expansion plans and strategic initiatives. Following an earlier announcement of a strategic review, the group has decided to pursue a listing of the Primary Production business on the Australian Securities Exchange, which is intended to increase shareholder value as well as enhance Rivalea’s business profile in its core market. Rivalea will not cease to be a subsidiary. There is no assurance that the proposed listing will materialize.