Food Empire

[sinned]

1Q08 FEH

BS:
Cash up
Receivables down
Borrowings down

PL:
Revenue up
Profit up

[LenaHuat]

Hi SanSan and Sinned
Thanks for both of your contributions.
It's their 'hold' on the Russian and Ukrainian market that I like.
Declaration : I've no interest in FE now but it's definitely on my radar screen.

[sinned]

FEH reports in USD starting from 2008.
The improvement in Revenue and Profit if converted into SGD is actually lower.

USD rate of 1.53 (1Q07) vs. 1.36 (1Q08)

[winston]

Not vested. From Westcomb:-

Food Empire Holdings Limited – 1Q08 Results on track, at 27.8% of our FY08 earnings estimate

• Group revenue increased 29.8% to US$52.1m in 1Q08 on the back of a 48.2% increase in revenue from Russia led by an organic growth of MacCoffee branded product lines as well as Petrovskaya Sloboda branded products which the Group acquired in FY07. Eastern Europe and Central Asia market expanded 6.5% to US$17.1m. Growth in Kazakhstan and the other CIS countries remain strong despite lower sales to Ukraine where importation was temporarily affected by industrial actions in January.

• Pre-tax profit margin maintained at above 14% in 1Q08 due mainly to proactive managing of input cost.

~ Staff costs increased 40.7% in 1Q08 as the factory in Russia was fully operational from 3Q07, resulted in higher staff costs in 1Q08. Salaries, affected by depreciation of US dollar where staff costs are paid in local currencies of the countries it operates, were also adjusted to reflect the current wage levels and the impact of inflation in the Group’s major markets.

~ Other operating expenses rose by 50.4% in 1Q08, mainly attributable to the Group’s continued investment in brand building initiatives, additional branding expenses & merchandising costs in preparation for the launch of new product packaging in the Group’s key market of Russia as well as rising fuel prices which led to higher logistics costs in 1Q08.

• Raw coffee bean prices pulled back in Mar~April 2008, as shown in the table below, expected to benefit Food Empire. Based on the indicative price from the International Coffee Organization, prices of Arabica and Robustas are down 11.2% & 3.6% respectively since Feb 08, mainly due to a larger than expected yield by Brazil. The Brazilian Government estimated a 35% increase in coffee harvest in 2008/2009 season with the steady weather condition and increased fertilizer usage. Hence, Food Empire is likely to benefit from the improved raw coffee bean supply
conditions.

Maintain BUY with revised target price of S$0.925. We maintain our FY08E & FY09E estimates, translated to US Dollar forecast. We continue to value Food Empire at 12x FY08E earnings, given its market capitalization and leadership in Russia and Eastern Europe, deriving our price target of S$0.925 per share, an 8.5 Sg ct decrease resulting from
translation of US dollars earnings with a weaker exchange rate, providing an upside potential of 17%. Maintain BUY.

[LenaHuat]

i've divested my interests in SuperCoffee Mix but am looking to pick some lots up when the opportunity arises. I've placed FE in the closet until I can lay my hands on their coffee. Must drink and see the real brew b4 placing $$ in the counter.

(Note: some Russian interests could be looking for back-door listings in the local bourse)

[market-uncle]

Hi SanSan and iam802

Thanks a million for responding to this thread.
Both of U are holding very interesting jobs??? Me, only an otiose housewife. I am behind the curve abt branding and trademark issues. So I find both of your postings very educational. Please keep them up whenever U can at your comfortable pace.

There are lots of internet postings abt FE in Russian, Polish and Turkish. But I don't understand a word of them.

More to say abt FE :-
(1) The Indonesian conglomerate group, Salim, owns a 21.6% stake in FE. Bought it in 2006.
(2) Found something interesting from SGX's international roadshow slides when SGX launched the Catalist board. FE was listed on 7 Apr 2000. IPO price : US$0.076 Current : US$0.55. That's a CAGR of 27%!. PE is 10.61. Capitalization is US$242m (as at end Feb 2008).
(3) Juz broke into the Indian market via Chennai.
(4) Market-uncle's blog contain some interesting concerns abt FE's accounts receivables. He attended FE's recent AGM and solicited an unsatisfactory reply from the Chairman, who is a graduate of NUS School of Accountancy. Pretty strange for an accountant to muddle through an AR question?? It's pointless selling loads of stuff but unable to collect the cash.

OK, must try to lay my hands on some satchets of MacCoffee. Can't invest unless my palate confirms it's good coffee. Maybe visit its office in Geyland.

Thanks for quoting my blog .

FE's account receivables growth is still pretty much a point of concern.

To raise another point of concern, FE and Supercof's cash flow from operations in the cash flow statement are way below their declared net profit in the income statement. Only Tsit Wing's cash from operations exceed their declared net profit. Its either FE and Supercof's accounting is too aggressive or Tsit Wing is too conservative. But comparing the 3, FE and Supercof show speculator growth in the past few years, while Tsit Wing does not. I do wonder whether the growth is 'real' or 'accounting generated'.

Nonetheless, I would continue to monitor them and quiz them if possible in the next AGM (or EGM if available).

By the way, seems like I had an obsession for coffee (I'm vested in all 3 ... but I didn't deliberately screen for coffee) and maybe I should start looking a vizbrandz ?

[helios]

i juz saw FE advertised for overseas sales manager, n branding persons. Quite aggressive.

[8percentpa]

Anybody has any thoughts on their recent bonus issue/stock split or was it some sort of equity financing? I dislike companies that keep asking shareholders for money...

[helios]

8%pa,

Glad to see u here; u've to wait for lena & market-uncle to be back in e coffee showbiz.

1. e recent bonus 1:5 is on 3rd-June. (one wonders why this period in June?)

2. fr a marketer's opinion, FE kept emphasis'g on brand equity coz i know they spent sum-of-$$$ to a UK Brand Finance cum evaluation company to justify their Brand as their intangible assets. below is extracted from their financial report'07:

Intangible assets acquired separately are measured initially at cost. The cost of intangible
assets acquired in a business combination is their fair value as at the date of acquisition.
Following initial acquisition, intangible assets are measured at cost less any accumulated
amortisation and accumulated impairment losses.

Intangible assets with finite useful lives are amortised over the estimated useful lives
and assessed for impairment whenever there is an indication that the intangible asset
may be impaired. The amortisation period and the amortisation method are reviewed
at least at each financial year-end.

Intangible assets with indefinite useful lives or not yet available for use are tested for
impairment annually or more frequently if the events and circumstances indicate that
the carrying value may be impaired either individually or at the cash-generating unit
level. Such intangible assets are not amortised. The useful life of an intangible asset
with an indefinite useful life is reviewed annually to determine whether the useful life
assessment continues to be supportable.

The brand was acquired in a business combination. The useful life of the brand is
estimated to be indefinite because based on the current market share of the brand,
management believes there is no foreseeable limit to the period over which the brand
is expected to generate net cash inflows for the Group.

>>> TOL: this's something i do NOT see in BreadTalk brand justification ...

2.1. Please take note how much their Brand valuation is worth? it's point 12 in their '07 financial report:

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 (Note 15).

3. since they've recently embarked on recruitment drive, i think e staff costs r expected to increase significantly in 2Q as they r employ'g salespeople (singaporeans) to go russia/ & station overseas.

[helios]

2.2. During the year, the Group acquired through business combination a brand name “Petrovskaya Sloboda”, as disclosed in Note 12. The brand is regarded as having indefinite useful life and is not amortised. The brand value recognised will be tested for impairment annually.

2.3. Goodwill and Brand acquired through business combinations have been allocated to the
Group’s cash-generating units (“CGU”) identified according to each individual business
unit for impairment testing.

The recoverable amount of the CGUs have been determined based on value in use calculations
using cash flow projections from financial budgets approved by management covering five
year period (2006: five-year period). Management have considered and determined the
factors applied in these financial budgets which include budgeted gross margins and average
growth rate. The budgeted gross margins are based on past performance and its expectation
of market development.

The pre-tax discount rate applied to the cash flow projections is 6.10% - 7.58% (2006: 6.10%
to 7.58%). The weighted average growth rate used to extrapolate the cash flows of each
CGU is 5.00% (2006: 5.00%), which is consistent with the forecasts included in industry
reports.

>>> Brands once impaired, one will need to maintain e Brand Health ...

>>> & i like e idea of CGU.