Operations Review

(Extracted from Annual Report 2017)

Financial Review

Financial Performance

Revenue for the financial year ended 31 December 2017 ("FY2017") was US$269.5 million, a year-on-year ("yoy") increase of 11.2% compared with the US$242.2 million revenue recorded in FY2016. In FY2017, sales in the Group's largest market, Russia, recorded an 8.1% increase in revenue mainly due to appreciation of the Russian Ruble against the US dollar. For Ukraine, sales declined 7.0% due to restructuring in the Group's distributorship. In the Group's Kazakhstan and CIS markets, sales increased by 29.1% from US$27.2 million in FY2016 to US$35.1 million in FY2017 mainly due to higher sales volume. In the Group's Indochina market, sales decreased by 5.5% from US$40.1 million in FY2016 to US$37.9 million in FY2017 due to stiffer competition and the difference in the timing of the festive season. Sales in the Group's Other Markets increased by 33.1% from US$43.5 million in FY2016 to US$57.9 million in FY2017 mainly due to higher sales contribution from the Group's non-dairy creamer plant and snacks manufacturing facility in Malaysia, and instant coffee plant in India.

For FY2017, selling and distribution expenses decreased by US$3.0 million from US$42.5 million in FY2016 to US$39.5 million. The decrease was mainly attributable to a one-off reclassification of its advertising and promotion expenses offset by higher manpower cost. General and administrative expenses increased by US$4.2 million from US$30.5 million in FY2016 to US$34.7 million. The increase was mainly attributed to higher manpower cost and transportation expenses.

For FY2017, the Group recorded a net profit after tax of US$13.3 million as compared to US$13.8 million in FY2016 mainly due to higher sales and margin offset by higher manpower cost, transportation expenses, lower exchange gain coupled with impairment of investment, loan and share of higher losses by its Korean associate, Caffe Bene Co., Ltd ("Caffebene").

Excluding the effects of the one-off impairment charge of US$7.7 million in relation to Caffebene, the Group's net profit after tax would have been US$21.0 million.

Financial Review

Financial Position

Prepaid operating expenses and other debtors increased from US$2.5 million as at 31 December 2016 to US$5.7 million as at 31 December 2017 due to deposits for the purchase of machinery, equipment and land for our new project in India.

Amounts due from associates (non-trade) decreased from US$4.8 million as at 31 December 2016 to US$0.1 million as at 31 December 2017 due to the Group's impairment of loan to Caffebene.

Inventories increased from US$43.6 million as at 31 December 2016 to US$47.5 million as at 31 December 2017 due to stock-up of inventories in anticipation of higher sales.

Trade payables and accruals increased by US$5.2 million to US$35.3 million as at 31 December 2017 mainly due to higher procurement in anticipation of higher sales and higher accruals for advertising and promotion expenses.

Investments in associates decreased from US$15.3 million as at 31 December 2016 to US$12.6 million as at 31 December 2017 due to the Group's impairment of investment and share of higher losses by Caffebene offset by the Group's investment in 101 Caffe S.r.1. The Group's net operating cash inflow position improved, with a net operating cash flow of US$29.8 million in FY2017 compared to US$17.7 million in FY2016.

The Group's cash and cash equivalents was US$42.8 million as at 31 December 2017, compared to US$28.6 million as at 31 December 2016. The Group's net assets as at 31 December 2017 were US$167.4 million. The net asset value per ordinary share (excluding non-controlling interests) as at 31 December 2017 was 31.45 US cents as compared to 28.83 US cents as at 31 December 2016.

Financial Review