The Motley Fool

Food Empire Holdings Limited’s Latest Earnings: Is the Empire Crumbling?

Food Empire Holdings Limited (SGX: F03) ended 2014 on a terrible note. Besides seeing its revenue fall 5.1% in that year, the instant coffee maker also suffered a US$13.2 million loss, a sharp reversal from the profit of US$11.7 million seen in 2013.

But with the release of Food Empire’s fiscal first-quarter earnings (for the three months ended 31 March 2015) on Tuesday, there’s a chance that this year could be even worse. Is Food Empire’s empire starting to crumble?

Financial highlights

For the quarter, Food Empire saw its revenue fall by 14.4% year over year to US$51.4 million. Its bottom-line suffered even more as its quarterly loss widened from US$3 million a year ago to US$4.4 million. Consequently, the firm’s earnings per share had slid from -0.56 US cents in the same quarter in the previous year to -0.82 cents.

The cashflow situation does not look bright either given that operating cash flow for the quarter came in at –US$5.8 million, a big decline from the selfsame figure of –US$2.3 million seen a year ago.

Food Empire’s balance sheet had also deteriorated significantly when pitted against the same quarter in 2014. As of 31 March 2015, the instant coffee outfit had US$16.4 million in cash on hand and US$43.7 million in total borrowings; a year ago, Food Empire had US$27.3 million in cash and US$37.2 million in debt.

Given that the company is still producing negative cash flow (as mentioned earlier), investors might want to note that its debt level may continue to increase if the situation does not improve.

Operational highlights

Food Empire saw a drop in sales in nearly all of its major geographical markets. Russia, its largest market, experienced a 31.2% year on year drop in sales to US$25.5 million largely due to the weakening of the Russian ruble against the US dollar.

The instant coffee maker’s sales in Ukraine, its second largest single-country market, fell even harder; revenue there dropped by 37.8% to US$4.33 million. The conflict between Russia and Ukraine and the depreciating Ukrainian hryvnia is having a toll on the company’s business in the eastern European nation.

On a brighter note, the company saw sales in its “Other Countries” segment soar by more than 120% to US$13.7 million. This was mainly due to an increase in sales in Southeast Asia and Africia. Moreover, sales from Food Empire’s non-dairy creamer plant and snack factory in Malaysia, which started production only last year, had started to contribute to the company’s numbers in the reporting quarter.

What’s next for Food Empire

Some of the things that the company can look forward to now is an increase in the production levels from its non-dairy creamer plant, snack factory, and beverage manufacturing facility in Malaysia. In addition, Food Empire is also planning to commence operations for its instant coffee production plant in India in the second half of 2015.

These projects might help to soften the weakness in the company’s core business. But, unless the geopolitical situation in Russia and Ukraine can improve, Food Empire may just continue to see falling sales in the near future.

If you'd like to learn more about investing and to keep up with the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead. Also, like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Food Empire Holdings Limited.