KUALA LUMPUR (Nov 23): Farm Fresh Bhd's net profit for the second quarter ended Sept 30, 2022 (2QFY2023) dropped 64.53% to RM11.19 million from RM31.53 million for the same quarter last year, despite higher revenue, as it recorded significantly lower fair value gain on valuation of biological assets and higher costs.

Fair value gain on valuation of biological assets fell to RM200,000 in the current quarter — as compared with RM10.5 million in 2QFY2022 — partially offset by higher gross loss, impairment loss and redundancy costs totalling RM7.1 million incurred from the IXL fruit jam business in the corresponding quarter.

"Apart from that, the group also incurred higher selling and distribution costs, resulting from the higher overall sales and specifically distribution costs incurred for the School Milk Program (SMP) which is performed by stockists and home dealers, and higher marketing spend," it said in its results filing with Bursa Malaysia.

Earnings per share dropped to 0.6 sen from 1.93 sen. A dividend of 1.07 sen was declared.

Quarterly revenue rose 32.46% to RM162.14 million from RM122.4 million, due to an increase in Malaysian revenue by 25.3% or RM27.3 million, driven by positive sales momentum accompanied by the launch of new products and further boosted by SMP. The group's Australian revenue also increased by 86% or RM12.4 million, underpinned by increasing external sales from Goulburn Valley Creamery Pty Ltd.

For the cumulative first half ended Sept 30, 2022 (1HFY2023), Farm Fresh's net profit fell 47.93% to RM26.42 million from RM50.74 million, although revenue grew 19.04% to RM306.16 million from RM257.19 million.

"Despite the increase in gross profit, operating profit and profit before tax declined by RM7.9 million, mainly due to employees' share option scheme expenses of RM4.1 million, which were first recognised during the current period upon the grant of share options to employees of the group. The decrease was also contributed by the unrealised derivative loss of RM1.8 million arising from currency (Australian dollar) forward exchange contract due to lower period end closing rate as compared to the average forward contracted rate," it said.

Going forward, Farm Fresh said it is poised to grow its revenues in 2HFY2023 with the launch of Farm Fresh Grow, a growing up milk based on a fortified fresh milk formula, in October and the November launch of Yarra by Farm Fresh, which is made from whole milk powder.

"The completion of our Taiping processing plant expected in December will also further improve our chilled milk production capacity and reduce logistics costs to supply chilled milk products to the northern states of Peninsular Malaysia," it said.

Meanwhile, Farm Fresh said it has also made progress in its expansion plans in the Philippines, having secured a site located within an hour from Manila for the group's processing plant, which is slated to be operational in the second quarter of 2023.

The growth plans notwithstanding, Farm Fresh cautioned it is still operating in a challenging environment posed by inflationary pressures from higher input prices.

Given the long-term nature of the headwinds faced by the group and to counter higher input prices, Farm Fresh has increased prices for its chilled RTD products in Malaysia effective August. "The price increase, together with the current trend of lower whole milk powder prices, is likely to result in an improvement in our gross profit margin in the second half of the financial year," it added.

Farm Fresh's share price finished unchanged at RM1.57 on Wednesday (Nov 23), bringing the group a market capitalisation of RM2.92 billion.