Breadmaker Gardenia to mitigate higher production costs as pandemic-driven inflation set to worsen in 2022

KUALA LUMPUR (April 15): Singapore-listed QAF Ltd said its 50% indirect partner Gardenia Bakeries (KL) Sdn Bhd (GBKL), which recorded a new high turnover of 1.08 billion RM in 2021, expects to mitigate the impact of inflation caused by the Covid-19 pandemic which has impacted production costs through an investment of RM79 million in a new production line of state-of-the-art rolls and buns.

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

“[GBKL’s] revenues in 2021 were affected by pandemic-induced inflation which impacted production costs,” said QAF, which jointly owns GBKL with Padiberas National Bhd (Bernas), which owns the remaining 50% of GBKL.

According to QAF, GBKL’s new combined 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 revenue in 2022, as it will inject an additional capacity of 23,000 pieces of product per hour, giving GBKL the resources to operate more the important buns and rolls market which is worth around RM630 million per year.

“GBKL will also focus on cost reduction through decommissioning policies that do not add value and other cost reduction measures.

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

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

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

“GBKL management has taken steps to mitigate the impact of this factory closure, including increasing production at other factories, changing the product mix and temporarily outsourcing production to other contract manufacturers. .

“The financial contribution from the affected production lines will therefore cease until the required replacement or refurbishment work is completed and the lines are fully operational. This will have a negative impact on the performance of our operations in Malaysia.

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

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

According to QAF, the Covid-19 outbreak in Malaysia in early 2021 led to new movement restrictions in the country to curb the spread of the outbreak.

Among the measures implemented by Malaysian authorities to curb the spread of the outbreak, QAF said the 60% on-site labor requirement has disrupted production at GBKL and its contractor Bakers. House (M) Sdn Bhd and Farmland Bakery (M) Sdn Bhd.

“For Farmland Bakery, the labor shortage situation was further aggravated in June 2021 by the closure of a factory after staff tested positive for Covid-19.

“GBKL reacted to the disruption by prioritizing the resources available for the production of its bestsellers with the aim of minimizing lost revenue. for the third consecutive year and achieve a new sales record of RM1.0.08 billion in 2021 despite the challenges of the pandemic.

“GBKL has also taken initiatives to reduce the outbreak of infectious disease among its employees by strictly implementing the government’s Covid-19 standard operating procedures for factories and hostels, mass vaccination of its employees and swab testing. fortnightly,” QAF said.

According to QAF’s annual report, QAF, through its wholly owned subsidiary Gardenia International (S) Pte Ltd, holds 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 handles Gardenia’s operations in Singapore and the Philippines.