Food Empire

Food Empire: 4Q14 net loss widened to US$12.1m from a net loss of US$0.2m the previous year, taking FY14 net loss to US$13.2m (FY13 net profit at US$11.7m). Excluding currency effects, FY14 net profit would have been US$15.6m.

Revenue for the quarter fell 22.3% to US$57.6m, dragged by weaker performances from Russia (US$26m, -36.2%) and Ukraine (US$5.6m, -42.0%), as a result of the depreciation of the ruble and hryvnia against the USD. Russia and Ukraine made up 54.7% of top line.

Other markets contributed US$13.3m (+49.9%, 23% of top line), as beverage sales grew in SEA markets, plus a general increase in contribution from China, Europe and Middle East.

Aside the slump in ruble and hryvnia, Food Empire’s net loss was due to higher staff costs, start-up costs, and a US$3m impairment charge on one of its brands Petrovskaya Sloboda. This was partly mitigated by a US$2.6m tax credit.

The non-dairy creamer plant, snack factory and beverage manufacturing facility in Malaysia had commenced operations, and management would focus on intensifying brand acceptance in Malaysia.
Food Empire is a well-run company, with a track record of delivering growth across various markets. Their ability to deliver net profit growth (ex-FX effects) also reinforces that their brands are well accepted in core markets.

Nevertheless, the massive tailwind from Russia and Ukraine might force Food Empire to rationalize operations, posing significant risks in the immediate term, with respite not coming in the near-term.
Food Empire is currently trading at 0.83x P/B.