Gardenia bread maker QAF posted a whopping 72 per cent drop in net profit to $8.1 million for the second quarter, due to higher tax expenses and reduced profitability at an Australia-based meat-producing unit, Rivalea.

Excluding a one-off exceptional item last year, its net profit would have dropped by 58 per cent. Earnings per share slipped to 1.4 cents for the quarter, compared with 5.1 cents a year ago. The group's net asset value per share was 93.4 cents as at June 30, compared with 93.8 cents as at Dec 31, 2016.

The group is issuing a dividend of one cent per share.

For the three months ended June 30, its revenue edged up 1 per cent to $209.8 million. The group's bakery segment saw an overall increase in sales from the launch of new products and deeper market penetration, but Gardenia Singapore managed only a marginal increase in sales due to production issues at its old Johor plant, it said.

Higher distribution costs due to higher oil prices and higher sales volumes, as well as higher advertising expenses for the launch of new products, took a toll on the group's profitability in the bakery segment.

Ben Foods, a food product distributor in the group's trading and logistics business, saw a lower profit margin due to the volatility of foreign exchange rates, especially that of the US dollar and the Aussie dollar.

For the first half ended June 30, the group's revenue dropped 8 per cent to $422.6 million. This was due to a deconsolidation of the financial results of Gardenia Bakeries (KL) from those of the group as QAF was forced to sell 20 per cent of its shareholdings in the Malaysian bakery in April last year to comply with regulatory requirements.

This reduced its stake to 50 per cent. As a result, the Malaysian unit ceased to be a subsidiary.

Overall, the profitability of its bakery operations in Singapore and Johor also fell due to production issues in a one-time write-off for stock obsolescence, a one-off provision for costs relating to the closure of its old Johor plant, as well as higher staff costs.

The group expects to continue to be affected by competition, currency volatility and increasing costs arising from higher raw material, distribution and energy costs in certain markets. Staff costs, repairs and maintenance and utilities are expected to increase as a result of increased production.

In the bakery business, the group is expecting advertising, distribution and transportation expenses to increase further, especially in the Philippines and Singapore.

But the group expects performance in the second half of the year to improve as the new Johor plant is expected to begin operations in the third quarter ending Sept 30.

Shares of QAF closed 0.4 per cent or 0.5 cent lower at $1.30, ahead of the release of its results.