KUALA LUMPUR (May 30): Farm Fresh Bhd’s net profit dropped 72.35% in the fourth quarter ended March 31, 2023 (4QFY2023) to RM4.89 million from RM17.68 million a year ago, despite delivering an all-time high revenue, as elevated raw material costs and foreign exchange rate fluctuation ate into its profit.

This is the group's weakest quarterly earnings since its listing in March 2022, as the group’s profit margin dropped to 3.03% from 13.81% in 4QFY2022.

Earnings per share fell to 0.26 sen in 4QFY2023 from 1.08 sen a year ago, the milk producer’s filing with Bursa Malaysia showed. No dividend was declared.

The drop in quarterly earnings was also due to higher distribution costs and higher salary expenses following the 25% hike in minimum wage that took effect from 1QFY2023, and a fair value loss on the valuation of biological assets of RM1.27 million — as compared to a fair value gain of RM128,403 a year ago.

Its bottomline was also affected by the recognition of employee share option scheme (ESOS) expenses of RM882,920, and an annual fee of RM1.11 million to the University Putra Malaysia (UPM) for the use of the latter's site under a collaboration agreement with the university to set up an Industry Centre of Excellence to foster interest in dairy farming and agriculture among the younger generation.

The group's revenue for 4QFY2023, meanwhile, grew 26% to RM161.36 million from RM128.07 million a year ago, led by positive Ramadan sales, school milk programme sales and sales increase from its Australian operations.

For the full FY2023, Farm Fresh’s net profit shrank 37.31% to RM50.08 million from RM79.89 million in FY2022, while full-year revenue expanded 25.46% to RM629.69 million from RM501.92 million.

It said the higher revenue was driven by higher school milk sales, coupled with higher sales in the ready-to-drink milk products as well as the positive impact of new products.

In a statement, Farm Fresh group managing director Loi Tuan Ee said the group is seeing some indications that the cost pressures the group is facing have started to ease.

“In particular, milk ingredient costs and feed costs are lowering down for us recently and in the coming second half of 2023," it noted.

In terms of production expansion, Loi said the group's Taiping processing plant will begin production in June 2023, which will help improve its chilled milk production capacity and reduce logistics costs to supply to the northern states.

“In addition to that, we have a new processing line operational at Muadzam Shah Facility [in Pahang] which has helped to alleviate our capacity constraints, allowing us to focus more on our geographic expansion into Philippines whereby we have recently secured the location for our processing plant which is slated to be operational by the second half of 2023,” Loi added.

Farm Fresh shares closed one sen or 0.64% lower at RM1.55 on Tuesday (May 30), giving the group a market capitalisation of RM2.88 billion.