Rising Material and Energy Costs Weigh on Earnings Despite Revenue Growth
SINGAPORE: Fraser and Neave (F&N) reported a 20.8 per cent drop in net profit for the first half of the financial year, as higher material and energy costs impacted its bottom line. Net profit for the six months ended March 31, 2022, fell to S$65.3 million, despite a 2.2 per cent rise in revenue to S$1.01 billion, driven by growth in the beverage segment.
The beverage unit was the only business segment to report higher turnover, with beer and soft drinks benefiting from price increases, festive demand, product launches, and exports. Beverage revenue from external sales increased by 15.3 per cent to S$288.5 million, which helped boost profitability in this sector, particularly as beer profits more than doubled.
However, the key dairies business saw a decline in external revenue, falling by 2.6 per cent to S$602.1 million. F&N attributed the drop to currency effects in Thailand, lower export orders from Malaysia due to shipping disruptions, and high freight costs. Despite price increases and contributions from Malaysia and Vietnam, the dairies segment experienced a 20.6 per cent fall in operating profit. In Thailand, earnings fell by 37 per cent due to rising input costs and price controls on certain products.
The printing and publishing segment also posted a larger operating loss of S$11.6 million, compared to a loss of S$2.8 million in the previous period. This was attributed to higher input costs, freight charges, and a 6.7 per cent decline in external revenue to S$107.7 million due to softer textbook adoption and reduced print volumes from a plant in China.
F&N also recorded an exceptional provision of S$13.1 million for inventory and asset impairments following flash floods in Malaysia. Earnings per share dropped to 4.5 Singapore cents from 5.7 Singapore cents in the same period last year, while net asset value rose slightly to S$2.09 per share, compared to S$2.08 as of September 30, 2021.
Chief Executive Hui Choon Kit acknowledged that the soft start to FY2022 was expected, citing the impact of raw material shortages, inflation, supply chain disruptions, and rising energy prices on financial performance. However, F&N remains optimistic about its future prospects, with a focus on exports and the halal packaged food segment. The company also plans to drive festive sales, particularly in beverages and ready-to-drink dairy products.
Looking ahead, F&N is hopeful that the easing of pandemic restrictions in Southeast Asia will stimulate economic activity and release pent-up demand. Additionally, the company is expanding into the upstream dairy business with an investment in oil palm producer Ladang Permai Damai.
An interim dividend of 1.5 Singapore cents per share was declared, in line with the previous year, and will be paid on June 6, 2022. The books will close on May 23, 2022. F&N shares closed at S$1.36 on Friday, before the results were released.
