Food Empire

[market-uncle]

oic, haha, didn't catch it. Anyway, fundamentals normally does not have basis for short term share price movements. So I have not idea on that. Besides, most will concentrate on its good reported profit, and care less about its quality.

[millionairemind]

40.7% Revenue Jump Sends Food Empire’s 1H Profit To All Time High

Mainboard listed Food Empire holdings – a leading food and beverage manufacturing company – announced a record first half profit of US$11.6m – a 17.7% increase on the corresponding period in 2007. Group revenue rose by 40.7% to US$113.7m in 1H08. Sales in each of the Group’s key markets improved strongly during the first half of 2008. Revenue was boosted by price adjustments as well as increased sales volume. The Group Chairman and Managing Director, Tan Wang Cheow said, “Our team had to respond to high commodity prices and currency fluctuations in order to achieve this good half year result. While the economic conditions were challenging, we kept our focus on doing what we do best – growing powerful brands.”

[market-uncle]

Hi all,
Just noticed something interesting (highlighted to me by a comment on my blog) and decided to repost my reply here:

Just bring brought to my attention by someone who commented on my blog:

With marketing service fee:
2005: 183.982m
2006: 214.651m
2007: 223.831m

Without marketing service fee:
2005: 183.982m
2006: 195.849m
2007: 180.808m

Without the marketing fee, revenue actually dip!!!

Looking at the receivables, they had actually jumped by similar amount to the marketing fees, it might be possible that the marketing fees have longer collection period, hence a higher receivables.

Anyway, its good news to learn that Food Empire had another good source of revenue (the marketing fees), but quite another
to realise its core business is not doing as well.

[helios]

yo uncle-dear,

what is this marketing fee denoted as? it is a generic term - used loosely.

u mean: the distributors/ vendors will pay "royalty fees" to the "franchiser" or principal?

FE realised this as part of their revenue? quite interesting, i never know ... how stable is this paidout? yearly or monthly?

many thanks.

[Blackjack]

Hi market uncle, I'm curious to know how this marketing fee works as well.

Where can we find these fees, as I don't seem to see them stated anywhere.

[market-uncle]

I am also as clueless as anybody. Take a look at the annual reports of the past few years. Under foot note 3 (revenue), two new items only started to appear from 2006 onwards:
1) Royalty Income
2) Marketing service fee

And in 2007, a third item is added:
3) Packaging service fee.

While this number is not found in 2006's annual report. It appears in 2007. The packaging fee is merely split from 2006's reported revenue, hence the number still adds up.

Other than foot note 3 and 2 (revenue recognition), there was no further information to shed light on these income/fees.

Since these only start to appear in 2006, there is not enough results to assess their sustainability. One fact, though, is that the marketing fee increase from 18.8m SGD in 2006 to 43.023m SGD.

Looking at the way they breakdown the revenue, to show the packaging fee, it might be possible these fees are part of past revenue and are only recently broken down since 2006. If so, there is no concern for surprise. If not, it will only go to show that the core operations are slow down.

If we look at the receivable (trade receivables) changes in 2004 to 2007:
2004/03: +7.376m
2005/04: +7.469m
2006/05: +23.920m
2007/06: +20.831m

The marked increase in receivables coincidentally occur in 2006, the year the marketing fees are added. So my guess is the marketing fees are a new thing (not broken out from revenue like packaging fee. Thus their core operations should indeed be slowing, at a time when they seems to show their sales are growing, quarter after quarter.

[helios]

3) packaging fee = for OEM "big" customers ...?

i think, somewhere, it was stated that FE supplied packaging materials for 1 of their Russia customers ... please check/ verify this for me.

many thanks.

[shaun]

If anyone has studied FE's cashflow and can offer a reasonable suggestion as to why their cashflow continues to lag behind their reported earnings by so much, I would love to hear from you.

I have followed this stock for the past 2 years or so... this is one puzzle that I cannot answer. While the common explanation given is that well, they are growing at a rapid pace there shouldn't be any issue etc, but I am still concerned.

Another point to note, their average collection period is about 6-9months IIRC and their provision for bad debts is really low percentage wise! This could be a potential concern, as there is some specific disclosure in the latest audited accounts (I am not sure if this is a case of the auditors getting cold feet and insisted on the disclosure). Heck, I've done a comparison (abeit high level), Kraft's specific provision for doubtful debt is even higher than FE's (percentage wise)! I dunno, maybe all the russian mama shops and retailers are more credit worthy than the biggest retailers like the Walmart, Costco, Tesco etc.

Having said the above, I am NOT knocking on this stock. In fact I really liked its business or otherwise I wouldn't have spent the time reading about it.

[Blackjack]

Food Empire's flagship brand MacCoffee Voted the Best Hardworking Singapore Brand -

http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_3C7B85B72C00DB87482574A900159E35/$file/FE_MacCoffees_Hardest_Working_Brand_BF.pdf?openelement

[helios]

yo, Shaun, BJackie,

you guys are simply awesome.

please bear in mind, Brand Finance was the one who audit their brand, a professional player ... they used very complex measurements to do so. (banyan tree was also audited by their hands)

Provisional accounting of acquisition:
A brand, Petrovskaya Sloboda, has been identified as an intangible asset arising from
acquisition. The Group has engaged an independent valuer to determine fair value of the
brand, which was valued as $12,020,000 as at 24 May 2008 (See Note 15).

that is for a single Petrovskaya brand, so now, MacCoffee is worthed 170mil?