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Executive Chairman's Message

(Extracted from Annual Report 2019)

Chairman Dear Valued Shareholder,

2019 was a bountiful year for Food Empire Holdings Limited ("Food Empire" or together with its subsidiaries, the "Group") as we delivered another consecutive year of revenue growth and profitability. Despite the challenging operating environment with ongoing trade tensions between the United States and China, our team was able to traverse through adversities by seeking further expansion in our performing markets while rationalising the non-performing units. We believe the resultant leaner structure will allow a more efficient allocation of resources, for the Group's long-term growth. On behalf of the Board, it is my pleasure to present our annual report for the financial year ended 31 December 2019 ("FY2019").

FINANCIAL OVERVIEW

In FY2019, the Russian Ruble weakened from an average exchange rate of 62.6 Ruble per US dollar in FY2018 to an average exchange rate of 64.7 Ruble per US dollar. Over the same period, the Ukrainian Hryvnia strengthened from an average exchange rate of 27.3 Hryvnia per US dollar in FY2018 to 25.7 Hryvnia per US dollar in FY2019.

Notwithstanding global growth slowdown, the Group's top line continued to grow with a 1.5% increase in revenue year-on-year ("yoy") to US$288.6 million in FY2019. While the Group's Russia market posted a decrease in revenue of 0.6% yoy to US$112.6 million as a result of further depreciation of the Russian Ruble, sales in the Group's Ukraine, Kazakhstan and CIS markets increased 10.5% yoy to US$69.4 million. In the Group's South-East Asia market, sales decreased by 1.8% from US$79.7 million in FY2018 to US$78.3 million in FY2019 due to the rationalisation of underperforming markets such as the Group's Myanmar market, partly offset by the growth in the Group's Vietnam market. Similarly, sales in the Group's Other Markets saw a decrease of 3.5% to US$19.7 million in FY2019. However, the Group's South Asia market witnessed a 6.7% growth to US$8.7 million in FY2019.

For FY2019, the Group registered net profit after tax of US$25.7 million, a 44.9% growth compared to the previous financial year mainly due to the rationalisation of underperforming markets and the absence of foreign exchange loss in FY2019 as compared to FY2018.

DIVIDENDS

To thank our shareholders, the Board is recommending a first and final dividend of 1 Singapore cent per ordinary share and a special dividend of 1 Singapore cent per ordinary share, subject to approval at the upcoming Annual General Meeting. The book closure date is on 5 May 2020 and the dividend is to be paid on 19 May 2020.

STRENGTHENING OF GLOBAL MARKET SHARES

After years of hard work from both management team and staff alike, our Group has come to achieve remarkable results across all our markets. With its robust brand equity and an extensive network of distributors, our Group's flagship instant coffee brand – MacCoffee – continues to hold the largest market share in Russia's coffee mix market. Additionally, it is also the leading coffee mix brand in most of the Commonwealth Independent States ("CIS") countries. Moving forward, we strive to maintain our position in these markets in the years to come.

In 2013, the Group made its foray into the Vietnamese market with the introduction of Café PHO, an iced coffee product. Café PHO rapidly gained substantial market share and rose to become the top brand in the iced coffee segment. Currently, Vietnam is the Group's Asian stronghold and dominates the position as our second-largest market.

STREAMLINING OF OPERATIONS

Delivering value to shareholders has always been, and will continue to be, one of the Group's key priorities. To achieve that goal, the Group has embarked on an introspection journey to review our organisational structure and markets to understand and enhance our operating efficiency.

Other than streamlining our operations, we also conducted evaluations of our current holdings and subsidiaries, and are in the process of sieving out those that are no longer viable or have no purpose in remaining operational. On the business front, we have also been assessing the Group's presence in various markets and rationalising the non-performing ones. As a result, the Group has decided to cease our Myanmar operations. At the same time, the Group also decided to restructure our Philippines operations to improve performance of the Group. With this, the Group can direct more resources to develop its core businesses in other markets.

These corporate exercises are a part of the Group's ongoing efforts to ensure the sustainability of our business amidst the uncertain economic climate. With a more efficient operating structure, the Group will be better poised to adapt to any challenges that may arise along the way.

BUILDING UP BRAND EQUITY

To help us stand out from our competitors in an ever-changing marketplace, the Group has undertaken steps to elevate our brand image in the eyes of our consumers. We focused our efforts on improving our customers' experience and interaction with the Group's brands, all while delivering quality products and services to our consumers. At the same time, we continued to invest in advertising and marketing to increase the salience of the Group's brands. Our collective efforts in this aspect have not gone unnoticed, and our Group is proud to have MacCoffee be once again recognised at the "Narodnaya Marka" competition as the "No.1 Brand in Russia" under the coffee drinks category. It is the Group's honour to receive the "Narodnaya Marka" title that is known to be a fiercely competitive ranking of leading Fast-Moving Consumer Goods brands in the Russian market based on consumers' choice. With the affirmation that we are on the right track, the Group continues to strive to bring new and quality products to our consumers.

THE LONG RUN

At Food Empire, we recognise and appreciate the importance of adopting a sustainable model. The need for sustainable business not only enables us to protect the environment, it also allows us to use our resources more effectively.

Since 2017, the Group has initiated sustainability practices and guidelines to further develop our business model into a holistic one. Besides implementing country-specific energy initiatives, we have also put into place stringent measures to ensure the safety and well-being of our employees. A more detailed report on the Group's sustainability strategies and performance can be found at http://foodempire.listedcompany.com/sr.html.

In recognition of our efforts, we are proud to announce that the Group has clinched our inaugural Sustainability Award at SIAS 20th Investors' Choice Award 2019. This honour is a validation of our continuous endeavours in implementing environmentally and socially responsible practices, and the Group will strive to achieve excellence in its corporate sustainability measures henceforth.

GIVING BACK

We are committed to helping those in our community. In the year, we initiated the "Give a Line, Change a Life" project which we collaborated with Industrial & Services Co-operative Society Limited ("ISCOS"). This project serves to ease ex-offenders' reintegration into society by providing modern-day mobile technology, allowing them to reconnect with their family and friends, as well as to keep them abreast of the latest happenings. Through this, we hope to help ex-offenders start afresh, rebuild their lives and reconnect with society.

OUTLOOK

While trade tensions have lessened in light of "Phase 1" trade deal between the United States and China being signed in January 2020, many tariffs are still in place and market volatility could persist in the near future, impacting the rate of growth. In the United Kingdom, with the newly elected Prime Minister in office, Brexit finally took place on 31 January 2020. This resulted in much economic uncertainty and consumer sentiments remain soft.

More significantly, the start of the new year was met with an unexpected global health emergency, the novel coronavirus disease ("COVID-19"), which was declared as a pandemic by the World Health Organisation on 11 March 2020. COVID-19 has dampened the macroeconomic outlook considerably and the global economy is widely expected to contract as many world governments reacted by initiating drastic measures to contain its spread.

Currently our core businesses are largely unaffected by the outbreak as the nature of our products are mainly for home-based consumption. However, going forward, we may encounter some temporary disruptions in both our production and sales due to the lockdown imposed in several countries which may restrict business operations and the movement of goods and people. We are also impacted by the devaluation of the Russian Ruble brought about by a sharp fall in global oil prices as a result of the disagreement between the Organisation of the Petroleum Exporting Countries ("OPEC") and Russia on oil production cuts. Nevertheless, we expect our business to remain resilient and will monitor the situation closely, as well as take the necessary steps to mitigate any negative fallout of this crisis.

APPRECIATION

On behalf of the Board, I would like to express my heartfelt appreciation to our customers, business partners and distributors for their continued support. I would also like to extend my gratitude to our management team and staff for their dedication and hard work over the past year. Last but not least, I would like to thank our shareholders for your unwavering faith in us.

Mr Tan Wang Cheow

Executive Chairman
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