KUALA LUMPUR (May 31): The world's fourth largest cocoa grinder Guan Chong Bhd's net profit fell 55.4% in the first quarter ended March 31, 2023 (1QFY2023) to RM23.76 million from RM53.27 million a year ago, which it attributed to reduced margins and higher finance costs.

Operating profit for the quarter dropped 25% to RM56.44 million from RM75.25 million, its filing showed. Finance costs more than doubled to RM26.46 million from RM10.59 million, while its Singapore segment turned a loss.

Earnings per share fell to 2.02 sen from 5.05 sen the year before. The group did not announce any dividend, as opposed to the 1.5 sen it declared in 1QFY2022.

But on a quarter-on-quarter (q-o-q) basis, the group saw a rebound in earnings, with net profit was up 16.93% to RM23.76 million from RM20.32 million in 4QY2022. This was despite quarterly revenue dipping 2.46% to RM1.13 billion.

The q-o-q improvement was boosted by its maiden operating profit of RM15.4 million on a revenue of RM144.8 million from its Ivory Coast cocoa grinding facility in 1QFY2023. The facility was commissioned in 4QFY2022.

"The modern facility aims to be part of Guan Chong's close-to-source strategy to grind premium grade cocoa beans and achieve competitive advantage in terms of time- and cost-savings compared to existing Asia-based factories. Moreover, Guan Chong's direct presence in Ivory Coast enables it to produce cocoa ingredients from a single-country origin," Guan Chong said in a statement.

With the new grinding facility, Guan Chong's total annual grinding capacity — which includes its grinding capacities in Malaysia, Indonesia and Germany — has increased by 22% or 60,000 tonnes to 337,000 tonnes from 277,000 tonnes previously.

“The maiden profit from Ivory Coast is only the beginning. Our establishment in the country is a linchpin to our growth plans of making Guan Chong a truly international player, producing quality ingredients to serve the world’s foremost chocolate market. The ample bean supply in Ivory Coast will not be a hindrance for our capacity expansion should we need to step up even further,” said Guan Chong managing director and chief executive officer Brandon Tay Hoe Lian.

“The group will initially allocate 40% of grinding capacity from the Ivory Coast plant to supply cocoa ingredients to our German industrial chocolate subsidiary, SCHOKINAG-Schokolade-Industrie GmbH (SCHOKINAG), to produce premium quality chocolate ingredients to meet the demand of the European market,” he added.

On prospects for the second half of 2023, the group noted that the market is expecting the return of the El Nino weather phenomenon.

"The potential effect of climate change might cause a deficit in cocoa bean supply in the near future, driving up cocoa bean prices. Coupled with the global inflationary pressure, the current macroeconomic outlook expects demand to drop, creating difficulty for the group to pass on increased costs to customers,” its bourse filing read.

Nevertheless, Tay noted that the group's forward sales for FY2023 is "near-full, indicating the demand for chocolate is still resilient".

"Our Germany subsidiary is also recording better earnings as energy prices in Europe are now at lower levels, putting less pressure on the operating costs. Besides that, Guan Chong remains prudent in managing our financial costs, while still prioritising our growth plans. Therefore, we have recently issued the second tranche of our sukuk, bringing in additional cash to finance our working capital and capital expenditure," he said, referring to the RM300 million sukuk it issued in January this year.

“Moving forward, the group will remain focused on our core business in cocoa ingredient processing. At the same time, we are determined to optimise SCHOKINAG’s production according to market conditions, while we endeavour to achieve better industrial chocolate sales margin to enhance our bottomline,” he added.

Shares of Guan Chong closed unchanged at RM2.51, giving it a market capitalisation of RM2.95 billion.