When war broke out between Russia and Ukraine — the two key markets of Food Empire — its business was not affected. Instead, the beverage manufacturer enjoyed a lift, with its latest 9MFY2022 ended September 2022 at a record for both revenue and earnings.
For the nine months, Food Empire generated revenue of US$286 million ($380 million), up 26.5% y-o-y. While the largest jump was from South Asia, revenue from Russia, which accounted for 39% of its total sales, was up 34%. Similarly, sales in Ukraine, Kazakhstan and other former Soviet republics increased by 50%. These markets accounted for 23% of Food Empire’s total revenue. The company attributes the better numbers to higher average selling price, as well as improved gross margins of 29%, up 3.3 percentage points.
Earnings for 9MFY2022 were up 240.9% y-o-y to US$49.6 million.
The record earnings of US$22.6 million recorded in 3QFY2022 could be attributed to a one-off gain of US$15 million from the sale of a property. If that is excluded, Food Empire was still reporting a better bottom line versus the US$3.1 million seen in 3QFY2021.
Despite making more money as a result of the conflict, Food Empire is careful to state that it is concerned about the situation and that it is closely monitoring the market and political developments and continues to maintain an adequate level of inventory to ensure minimum disruptions in operations.
In its Ukraine market, supply chain challenges continue due to the ongoing conflict and it is monitoring the situation closely.
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In Southeast Asia, it plans to increase its advertising and promotion activities and expects consumer demand to remain strong.
Overall, the company believes it has proven to be resilient despite the challenging operating environment and says that it will strive to deliver growth. Backed by strong fundamentals and a healthy financial position, it remains optimistic about its longterm prospects.
UOB Kay Hian (UOBKH) believes that Food Empire’s earnings growth will continue as demand in markets remains strong. The research house has kept its “buy” recommendation while lowering the target price to 78 cents from $1.30 to reflect the political uncertainties in Russia and Ukraine.
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UOBKH has also raised FY2022 and FY2023 core earnings estimates by 14% and 12% to $36 million and $37 million, to take into account the better-than-expected core earnings for 9MFY2022 and improving net margins from the successful increase of products’ average selling prices, as well as easing freight and raw material costs.
SAC Capital says the conflict in Ukraine may turn out to be a positive for Food Empire, given how the coffee that it sells has shown to be a “resilient” business segment despite the political tensions and that the company can make use of the situation to try and capture a bigger market share.
“We expect the team to ramp up marketing activities to push for volume growth; achieve higher economies of scale with the completion of non-dairy creamer factory expansion by 2024; and reach higher utilisation capacity from its spray-dry and freeze-dry coffee plants,” says SAC Capital.
Meanwhile, Food Empire has been buying back shares of its own from the market. The most recent buyback was on Jan 3, when it purchased 200,000 shares at 64.9 cents per share, bringing the total number of shares bought back under the current mandate to 5.53 million shares or 1.02% of its total share base. Before Jan 3, the company had bought back shares on seven trading days throughout December 2022, paying from 63.8 cents to just over 64.8 cents per share.
Photo: Albert Chua/ The Edge Singapore
