Username
Password
Forget Password?
  1. Indices
  2. Commodities
  3. Currencies
Straits Times 3,126.14 -8.57 -0.27%
Hang Seng 26,848.49 +184.21 +0.69%
Dow Jones 27,047.12 +45.14 +0.17%
Shanghai Composite 2,977.33 -1.38 -0.05%
Food Empire – Developing Great Products…Building Powerful Brands
Corporate Digest | 28 September 2012
Related stocks:
F03
By: Ernest Lim
Articles (134) Profile

Food Empire has typically been known for its focus on brand building. It is one of Singapore’s Top 100 Brands with its three key brands, MacCoffee, Kracks and Petrovskaya Sloboda, valued at US$130.5 million by Brand Finance in 2007. Against the backdrop of its strong brands and large market share for its products in Russia, Ukraine and Kazakhstan, I took the opportunity to meet up with Food Empire chairman and managing director Tan Wang Cheow for an exclusive interview. Below are the key takeaways.

Food Empire – What Does It Do?
Food Empire is a food and beverage company with 94 percent of its FY11 sales coming from beverage sales. It manufactures and sells instant beverage products (e.g. instant coffee beverages), frozen convenience food (e.g. tail-on shrimp dumplings, butterfly seafood wantons), and snack food (e.g. potato crisps).

In terms of its geographical reach, Food Empire’s largest market is Russia, followed by Eastern Europe and Central Asia. Currently, it does not have a presence in Singapore. (See Table 1)

Source: Food Empire

1H12 Results Summary
Food Empire’s revenue rose 3.4 percent from US$107.1 million in 1H11 to US$110.7 million in 1H12. This was attributed to a broad-based revenue growth in all three markets. Net profit attributable to equity shareholders amounted to US$8.8 million, a 25.8 percent increase vis-à-vis 1H11. The increase in net profit came on the back of an improvement in margins due to a drop in raw material prices such as coffee, sugar and creamer, and a tax write-back in 1Q12.

Food Empire’s trade receivables dropped from US$63.1 million as at 31 December 2011 to US$59.6 million as at 30 June 2012. This was the result of the management’s rigorous efforts in managing their debtors. Food Empire also generated strong cashflow from its operations. 1H12 saw a positive operating cash flow of US$11.1 million, compared to a negative operating cash flow of US$13.1 million for the same period in 2011.

In the second quarter results announcement, the management affirmed their continual focus on brand-building and would also constantly expand their distribution network to reach more customers and markets.

Growth Drivers Ahead
Firstly, although Food Empire already enjoys strong brand recognition among its target markets, it continues to strengthen efforts on brand-building and marketing. Depending on the target market, it will launch different kinds of advertisements so as to obtain the best mileage for the advertisements. These activities have yielded favourable results. In Ukraine, the MacCoffee brand was awarded the status of a “Well-Known Mark” which placed it on par with the other global brands such as Yahoo, Google and many others. In Russia, Food Empire was voted Number One brand for 3-in-1 coffee last year.

Secondly, the company’s management is constantly developing and extending its distribution network in terms of breadth and scope so as to increase their business.

Thirdly, Food Empire is exploring the option of venturing upstream to build its own manufacturing facilities for both instant coffee and non-dairy creamer. This would allow it to ensure quality of supply for its products and to increase the group’s margins.

Notwithstanding the above growth drivers, the management is cognizant of the potential challenges which they face in this industry.

Firstly, Food Empire is exposed to the prices of its raw materials and consumables such as instant coffee powder, sugar and creamer and others. which comprised about 56 percent of its FY11 sales. Any sharp and rapid price increase in the raw materials and consumables is likely to have an adverse impact on Food Empire’s profits.

Secondly, 57 percent of Food Empire’s FY11 sales was contributed by its Russia market. Any problems in Russia which results in a decline in demand for Food Empire’s products are likely to be detrimental to the group.

Thirdly, Food Empire operates in foreign markets where it faces foreign exchange risk, political and regulatory risks. However, as Food Empire has already been operating in the food and beverage industry in Russia, Eastern Europe and Central Asia since 1993/1994, it is likely that they do have experience in operating in such countries.

No Formal Dividend Policy But Probably Maintain The Payout Around 30%
The dividend payout ratio was around 30 percent for the past two years. According to the management, barring unforeseen circumstances, it is likely to recommend to the board a similar payout ratio for FY12. Besides cash dividends, the company has also bought back about 751,000 shares since the share purchase mandate was obtained and expired on 11 September 2012.

Innovation – Seen In Multiple Areas
The management has customised their marketing approach depending on their target markets. Besides their innovation in advertising, promotional and packaging, Food Empire is also innovative when it comes to publishing the annual reports for their shareholders. It outdoes itself annually, presenting the annual reports in different formats, year after year. In fact, Food Empire has consecutively won awards at the world’s largest Annual Reports Competition seven times, after taking into account the win this year.

Food Empire Vis-à-Vis Its Peers
Food Empire has one of the lowest estimated price-to-earnings ratio, estimated price-to-book ratio and dividend yield amongst its peers. (See Table 2 below)

Source: Bloomberg 20 September 2012

Last Takeaway
The last takeaway that I gathered is that Food Empire will continue to innovate to develop good products and build powerful brands. This is similar to what they have been doing since almost two decades ago. It is likely that we shall see Food Empire’s brand in Brand Finance’s Top 100 brands in the years to come.

Ernest Lim is a CFA, CA and has worked at GIC Special Investment. He has a solid feel of the markets and financial world and is now a remisier.

Please click here for more information about this author.

Food Empire Hldgs  0.520 -- --   
Business: Manufacturer of instant F&B products. [FY18 Geographical] Russia (39.9%), other markets (20.4%), Indochina (17.7%), Kazakhstan & CIS markets (13.1%), Ukraine (8.9%).

Insight: 28 Feb-19, FY18 revenue rose 5.5% underpinned by h... Read More


Join The Conversation
The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

All Rights Reserved. Pioneers & Leaders (Publishers) Pte Ltd. Best viewed with Mozilla Firefox 3.5 and above.