Food Empire

[tycoon]

If the adjustment was made under the "currency exchange losses/non-cash item" level then I can understand. But the adjustment here now occurs at the "working capital changes" level, is misleading.

Under normal circumstances, if receivables decrease, we can assume cash is recouped, hence cash should increase which explains the normal adjustments.

Under current situation, receivables decreased but was not recoup in cash. It evaporates. Hence it can not be added back into cash.

If not for the 'cash credit', cash holding should be $7mn+ instead of $19mn. A dubious 270% cash it is.

[(cy)]

not sure if anyone else is following this counter but given that management guided during the AGM that the company will return to profitability if USD/Ruble is in the range of $50-$55. looking at how the two currencies have traded in Q2 (range of $49-$57) the median is in the range of low $50s. as such, it makes sense that the company should trend upwards as per UOB KH' s report published previously to its normalised levels of more than 30 cents.

[(cy)]

good set of 2Q2015's financial results despite the ruble turmoil. the company streamlined operations and reduced OPEX resulting in a US$7mil profit for 2Q2015. with an instant coffee plant in india to start production by 3Q2015, would be nice to see the company maintain growth momentum in other new emerging markets apart from Russia and Ukraine.

[sykn]

Yes, it looks like the start of a turnaround if they can continue to improve efficiency and expand other markets in SE Asia; I can see improvements on quite a few aspects of the financial figures. I had earlier nibbled a bit of this company, but by the time I finished analysing the latest set of results today, the stock price already rose more than 10%! I will have to study deeper and see if this is truly an upturn or just a flash in the pan, before I load up a bit more.

[boochap]

A few things that caught my eyes..

* In local currency terms, both Russia and Ukraine recorded higher revenue due to higher selling prices... management had said earlier they will increase price and will be profitable if fx stay within the same range, so they did it.

* Ukraine sale up 11.3% in Q2..Hryvnia was relatively stable over Q2.

* The Group has taken some measures to mitigate its currencies’ impact by forward hedging of the Russian Ruble and through selective price increases of its products.

* Other Markets up 68.2% in Q2. this is now 2nd biggest contributor to profitabilty.

* The Group intends to bring up the utilisation levels of the plants and intensify marketing efforts in FY2015 to achieve better operational and financial performance. The Group’s other project, an instant coffee plant in India, is expected to commence commercial production by the third quarter of 2015.

looking fwd to the next two quarter...

[Shovel4farmers]

Date               Quantity         Price
11/22/16        2.5M              0.432
11/17/16        2.5M              0.417
11/15/16        1.35M            0.403
11/14/16        1.558M          0.325

CEO Sudeep Nair has taken a huge position in Food Empire over the last 2 weeks. This is just like how Sam Goi had bought shares of Super Group on several occasions in Aug and Sept before the takeover deal was announced in Nov 16. Could this be a sign of possible M&A deal in the making? Share your thoughts people!

[cyclone]

Food Empire opens state-of-the-art instant coffee manufacturing facility in India

Highlights :
• Adopts the latest instant coffee technology to produce 10 different types and qualities of spray dried instant coffee and granulated coffee
• Fully automated, the production of instant coffee is in accordance with customized specifications and internationally recognized standards
• Allows Company to move up the value chain and expands its coffee product offering.

More details in http://infopub.sgx.com/FileOpen/FoodEmpi...eID=454105

[JanQuin]

Turnaround continues. http://infopub.sgx.com/FileOpen/2Q%2017%...eID=466784

[Squirrel]

It seems like this thread has been inactive for a long time. Is there any long time holder of this stock with comments on company? Took a look at the company and it looks like its at a rather interesting price point at the moment. Would be great to hear about any comments from the crowd!

[Squirrel]

Let me kick this off with some comments on the company itself. Suffice to say, I find it to be at an interesting price point.

Brief Intro of the Company
Food Empire is a global branding and manufacturing company specialising in the food and beverage industry. The Group’s portfolio of products includes instant beverages, frozen convenience food, confectionery and snacks. Some of the most notable brands in their portfolio are that of instant coffees. Back in 2014, with the Russia Ukrainian conflict, international sanctions were levered on Russia. Coupled with a steep drop in oil prices, the Russian Ruble faced a sharp devaluation. In turn this resulted in Food Empire, which has its largest businesses in Russia and Ukraine, rack up losses for financial year 2014.

What's happening in 2019
The company has undergone an intensive diversification strategy since 2014 in a bid to avoid history repeating itself. In 2014, the percentage of sales coming from Russia + Ukraine amounts to 65.5%. In 2013, the same category took up 71.6% of revenue. In 2019 as of 1H19, Russia and Ukraine makes up 49.1% of sales with much higher contribution from other countries. The risk with Russian Ruble and Ukrainian Hyrvnia fluctuations still remains though less so. The company is currently undergoing rationalisation of underperforming segments (which in my interpretation is shutting down or reducing exposure to loss making segments). During the AGM in 2019, it was mentioned that in Myanmar itself, the company lost $4m in 2018. Subsequently, analyst reports were highlighting reductions in A&P costs in Myanmar and Philippines. I see a very similar scenario here to what had happened to Auric Pacific prior to its privatisation whereby it closed off loss making businesses in a rationalisation push (Delifrance etc).

Balance Sheet Strength
Net Asset Value of the Group is at USD$190.5m (SGD262m or 49.3 cents per share). Loans have increased in the past year to fund the building of a second instant coffee plant in India. At first glance, there is nothing to shout about with regards to balance sheet strength, but the fact that the share is trading near to book value for a consumer staple is notable (51.5 cents at the point of writing). The strong cashflow gives comfort in the ability in repaying the loan.

Earnings
Post rationalisation exercise, the trailing twelve months earnings come in at USD21.443m (SGD29.484m or 5.48 cents per share giving 9.4 P/E ratio). Close to home, Super Group was taken private at 32.69x PE Ratio and 16.10x EV/EBITDA with a mean on the comparable companies at 16.69x PER and 10.83x EV/EBITDA. Current EV/EBITDA ratio on Food Empire is at 6.93 x as per WSJ.com. Another interesting comparison, Power Root Bhd which is behind Ah Huat white coffee, is trading at 27.62x PER and 21.55x EV/EBITDA. I am not saying that Food Empire should be valued at those levels, but it goes to show that the current valuations are not demanding.


Catalysts for Profit Growth
The manufacturing facility in India is expected to commence operation in FY2020 (expansion of Indus Coffee manufacturing facility). If you look at the Annual Report, the segment under others is where the India instant coffee manufacturing facility's sales would go. That segment is has the highest profit out of all the segments, and has a high inter segment sales. I interpret the breakdown to mean that the ingredients business (both providing instant coffee powder as B2B raw ingredients business and providing them internally) is highly profitable. Commencement of the expanded facilities, would thus in my opinion provide a boost to earnings.

The Wildcard
Back in 2016, the company acquired a stake in Caffe Bene in a bid to diversify businesses and in the process hopefully create synergies in the coffee industry. The company was already in trouble for expanding too quickly and couldn't turn its fortunes around. It finally got approval for a court led rehabilitation scheme to help the company get out of insolvency. This included debt to equity swaps that resulted in the shareholding of Hallyu Ventures (Which Food Empire holds 51%) to be diluted to 37.6%. In Oct 2018, Caffe Bene graduated early from the rehabilitation scheme. However it is currently still registering losses as of 1H19 even though revenue seems to have stabilised from years of decline. From the whole boom and bust cycle, there used to be 600 stores in China alone, with the China JV now having gone bankrupt. The company seems to be actively managing the business such as reducing the franchising costs, tying up with well known brands to refresh the menus, and rebranding the name in Korea. Most importantly, Food Empire has fully written off the 18.8% ownership in Caffe Bene and holding the investment at zero. This is effectively a free option.

Insider Transactions and Share Buy Backs
The company has commenced share buybacks since 30 Sep. While share buybacks are not an indication of a share being undervalued (Lehman was buying back shares all the way till it went bust), insider transactions definitely indicate management's view that the business is undervalued. Mr Sudeep Nair has been buying shares over the years and increasing his shareholding of the company.

I would say that this is an opportune time to pick up a consumer staple business that's not embroiled in the US China Trade War and in my opinion undervalued at the current traded price.