Operation Review

(Extracted from Annual Report 2016)

Financial Performance

Revenue for the financial year ended 31 December 2016 ("FY2016") was US$242.2 million, a year-on-year ("yoy") increase of 4.2% compared with the US$232.4 million revenue recorded in FY2015.

In FY2016, sales in the Group's largest market, Russia, increased marginally by 0.6% to US$107.9 million compared to US$107.3 million. In the Group's Ukraine market, sales declined by 5.4% from US$24.8 million in FY2015 to US$23.5 million in FY2016 due to weakening of the Ukrainian Hryvnia against the US dollar. In local currency terms, both Russia and Ukraine markets recorded higher revenue due to higher selling prices. In the Group's Kazakhstan and CIS markets, sales decreased by 24.1% from US$35.8 million in FY2015 to US$27.2 million in FY2016 due to softer consumer sentiment and the weakening of local currencies. In the Group's Indochina market, sales increased by 36.2% from US$29.4 million in FY2015 to US$40.1 million in FY2016 as a result of higher sales due to wider distribution channels, aggressive advertising and promotion activities. Sales in the Group's Other Markets increased by 24.2% from US$35.1 million in FY2015 to US$43.5 million in FY2016 due to higher sales contribution from the Group's Middle East market, non-dairy creamer plant in Malaysia and instant coffee plant in India.

For FY2016, selling and distribution expenses increased by US$4.2 million from US$38.3 million in FY2015 to US$42.5 million. The increase was mainly attributed to higher expenses for advertising and promotion activities coupled with higher manpower cost. General and administrative expenses increased by US$1.9 million from US$28.6 million in FY2015 to US$30.5 million. The increase was mainly attributed to higher manpower cost, provision for bad debts, legal and professional expenses and stock obsolescence, but was offset by the absence of the US$1.6 million impairment of an associate recognised in FY2015.

For FY2016, the Group recorded a net profit after tax of US$13.8 million as compared to a net loss after tax of US$0.1 million in FY2015 mainly due to more favourable exchange rates and better performance in key markets as a result of higher selling prices. This was partially offset by share of losses from our associate company, Caffe Bene Co., Ltd., which was acquired in 1Q2016.

Financial Position

Inventories increased from US$40.1 million as at 31 December 2015 to US$43.6 million as at 31 December 2016 due to translation gain of inventories held in currencies other than the US dollar, stock-up of inventories and a change in business processes from distributor importer to direct import model for our operations in Kazakhstan.

Investment in associates increased from US$7.6 million as at 31 December 2015 to US$15.3 million as at 31 December 2016 due to the Group's investment in Caffe Bene Co., Ltd., net of loss equity accounted during the year.

The Group's net operating cash inflow was US$12.7 million in FY2016 compared to US$15.3 million in FY2015. The Group's cash and cash equivalents was US$28.6 million as at 31 December 2016, compared to US$27.5 million as at 31 December 2015. The Group's net assets as at 31 December 2016 were US$153.9 million. The net asset value per ordinary share (excluding non-controlling interests) as at 31 December 2016 was 28.83 US cents as compared to 25.78 US cents as at 31 December 2015.