KUALA LUMPUR (Aug 30): Farm Fresh Bhd’s net profit for the first quarter ended June 30, 2023 (1QFY2024) dropped 58% year-on-year amid escalating costs of dairy raw materials, coupled with higher finance cost and marketing spend on new product launches.

Net profit fell to RM6.37 million or 0.34 sen per share for 1QFY2024, from RM15.24 million or 0.82 sen per share a year ago, according to the group’s stock exchange filing on Wednesday. 

Farm Fresh said earnings for 1QFY2024 were also dampened by professional fees incurred for the acquisition of The Inside Scoop Sdn Bhd. 

Revenue for 1QFY2024, however, grew 29% to RM185.46 million from RM144.02 million a year ago, driven by stronger sales in both its Australian and Malaysian operations, coupled with positive impact from its launching of new products. 

It was the strongest quarterly revenue since Farm Fresh's listing in 2022. On a quarter-on-quarter basis, net profit grew 30.31% from RM4.89 million in 4QFY2023, while revenue was 14.93% higher from RM161.36 million. 

Going forward, Farm Fresh said certain factors are pointing towards a turnaround as far as input costs are concerned, as it has seen a reduction of the average Australian farmgate milk prices that the group is paying, by 3.8%.  

“We are also continuing to see reduction of the Global Dairy Trade whole milk powder prices, from the record highs recorded in early 2022 to the lowest prices since 2018. We have seen corn prices taper off as well, from 10-year highs of 2022. 

“All those developments are expected to result in the lowering of input costs beginning the second half of 2023,” it said.

On its ready-to-drink growing-up milk based on a fortified fresh milk formula, the group is planning to leverage on the awareness created by its marketing campaigns on the use of pure ingredients in growing-up milk, by launching growing-up milk in powder format by end-2023. 

Farm Fresh also said that its Taiping processing plant has commenced production in June 2023, increasing its chilled milk production capacity and reducing logistics costs to supply chilled milk products to the northern states of Peninsular Malaysia. 

In addition to the new portion pack filling and packaging line at the Muadzam Shah facility operational in November 2022, the group updated that it has installed an additional UHT processing line in April this year, with another UHT processing line installed in August to improve throughput at the facility.  

“This will alleviate the capacity constraints that we have currently for portion packs within the ambient category. Increasing demand for both the commercial and Horeca (hotel, restaurant, café) markets has necessitated a second filling and packaging line for the family pack or one-litre ambient category, expected to commence operations in September 2023,” it said.

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

“Additionally, the completion of the Taiping processing plant will free up some capacity at our Larkin processing plant, enabling us to focus on our exports to Singapore, which have already grown strongly over the last three years,” it said. 

Shares of Farm Fresh, which have fallen 25.47% year-to-date, fell three sen or 2.44% to close at RM1.20, giving it a market capitalisation of RM2.25 billion.