KUALA LUMPUR (April 15): Singapore-listed QAF Ltd said its 50%-owned indirect associate Gardenia Bakeries (KL) Sdn Bhd (GBKL), which reported a new sales high of RM1.08 billion in 2021, expects to mitigate the impact of Covid-19 pandemic-driven inflation that has impacted production costs through a RM79 million investment in a new state-of-the-art roll and bun combination production line.

GBKL is also contending with the impact of the December 2021 Peninsular Malaysia flood as one of GBKL's factories in Malaysia was affected and had to be substantially shut down, according to QAF’s latest annual report.

"[GBKL’s] income in 2021 was affected by the pandemic-driven inflation that has impacted production costs,” said QAF, which jointly owns GBKL with Padiberas National Bhd (Bernas), which owns the remaining 50% stake in GBKL.

"While this situation is likely to get worse in 2022, GBKL expects to mitigate it through its RM79 million investment in the new state-of-the-art roll and bun combination line,” QAF added.

According to QAF, GBKL's new combination production line, which was installed in the third quarter of 2021, has been operational since September 2021.

Looking ahead, QAF said the new production line will contribute significantly to GBKL’s income in 2022 as it will inject an additional capacity of 23,000 pieces of products an hour, hence giving GBKL the resources to tap further into the important bun and rolls market that is worth about RM630 million a year.

"GBKL will also focus on driving down costs through dismantling policies that do not add value and other cost-cutting measures. 

"However, GBKL will continue to invest in product innovation, and research and development of novel products that may open new market segments to drive revenue and income growth in the near future,” QAF said.

Looking back, QAF said that in December 2021, torrential rain in Peninsular Malaysia caused severe flooding across several states and that one of GBKL’s factories in Malaysia was affected and had to be substantially shut down.

A one-off loss adjustment of S$4.8 million (about RM14.98 million) has been made for damaged inventory and fixed assets, according to QAF.

“GBKL's management has taken measures to mitigate the impact of this factory shutdown, including ramping up production of other factories, changing product mix and temporary outsourcing of production to other contract manufacturers. 

"The financial contribution from the affected lines of production will therefore cease until the requisite replacement or reinstatement works are completed and the lines are fully operational. This will have an adverse impact on the performance of our operations in Malaysia.

"The process of seeking recovery under the material damage and consequential loss insurance policies has been initiated,” QAF said.

The Covid-19 pandemic which disrupted global economies in 2020 continued unabated in 2021.

According to QAF, the Covid-19 outbreak in Malaysia during the early part of 2021 prompted further movement restrictions in the country to curb the spread of the outbreak.

Among measures implemented by Malaysian authorities to curb the spread of the outbreak, QAF said the 60% on-site workforce requirement disrupted production of GBKL and its contract manufacturers Bakers Maison (M) Sdn Bhd and Farmland Bakery (M) Sdn Bhd.

"For Farmland Bakery, the manpower shortage situation was further compounded in June 2021 by a factory closure after staff were tested positive for Covid-19.

"GBKL has responded to the disruption by prioritising available resources for production of its bestsellers in a move to minimise income loss. Such strategy has enabled GBKL to break through the billion ringgit sales ceiling for the third consecutive year and achieved a new sales high of RM1.08 billion in 2021 despite the challenges of the pandemic. 

"GBKL has also taken initiatives to reduce outbreak of the infectious disease amongst its employees by strictly enforcing the government’s Covid-19 standard operating procedures for factories and hostels, mass vaccination of its employees and bi-monthly swab tests,” QAF said.

According to QAF’s annual report, QAF via wholly-owned subsidiary Gardenia International (S) Pte Ltd, owns a 50% stake in GBKL.

According to Gardenia’s website, GBKL was established in 1986 as a joint venture between Bernas and QAF, which also undertakes Gardenia operations in Singapore and the Philippines.