SINGAPORE (May 8): QAF, the manufacturer of Gardenia sliced bread, reported earnings of $3 million for the 1Q18 ended March, down 79% from earnings of $14 million in 1Q17 on lower revenue and higher costs and expenses.

Revenue for the quarter fell 5% to $102.9 million from $105 million a year ago on lower contributions from the primary product and distribution & warehousing segments.

While the bakery segment achieved overall increase in sales, its EBITDA fell over the quarter due to higher operating costs and higher advertising and promotional expenses.

Meanwhile, in the primary production segment, the group’s integrated producer of meat in Australia, Rivalea, reported lower revenue due to lower selling prices which the group attributes to continued oversupply.

Distribution & warehousing, too, posted lower revenue as domestic sales were affected by an ammonia leak that occurred at a warehouse in Jan 2018 which resulted in losses.

Additionally, the segment was impacted by higher material costs, especially in dairy prices.

In constant currency terms, QAF says group revenue would have decreased by 3% instead.

Amortisation and depreciation grew 16% to $9 million in 1Q post the completion of additional bakery production lines and facilities in FY17, while utilities expenses grew 15% to $6.3 million due to higher electricity and gas prices faced by Rivalea.

Other operating expenses grew by 20% to $18.2 million from $15.2 million in 1Q17.

The group also recorded a foreign exchange (forex) loss of $1.8 million compared to its gain of $0.9 million a year ago, due to the depreciation of its AUD-denominated intercompany loans against the SGD in 1Q18.

In its outlook, QAF says it intends to focus on achieving a balance between long-term growth and earnings.

Segment-wise, QAF says its primary production segment is expected to remain challenging this year due to its exposure to commodity markets and unbranded sales, although it believes Rivalea is well-positioned to pursue growth.

As for the distribution & warehousing segment, QAF says it is anticipating an $3.3 million impact on its profit and loss for FY18 due to additional expenditure, of which about $1.8 million will be recorded in the subsequent two quarters.

Shares in QAF closed flat at $1 on Tuesday.

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