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Food Empire Holdings Limited Annual Report 2014
CORPORATE GOVERNANCE
SUPPLEMENTARY INFORMATION FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 (SGX-ST
LISTING MANUAL REQUIREMENTS) (cont’d)
(iii) Risk Management Policies and Processes
Dependence on the Russian Market
The Group is dependent on the Russian market, which accounted for 54.8% of its turnover in 2014. Any significant
decline in the demand for the Group’s products in this market, whether or not brought about by political, social
and/or economic changes, would adversely affect its turnover and profitability.
The Group undertakes ongoing efforts to increase sales by increasing sales in other existing markets and by
developing new markets, which over time will reduce its dependency on the Russian market.
Foreign Exchange Exposure
The Group is subject to foreign exchange risk arising mainly from those sales, purchases and operating costs
by operating units denominated in currencies other than the operating units’ functional currency. Approximately
2.1% of the Group’s sales are denominated in currencies other than the functional currency of the operating units
making the sales. Traditionally, the Group has relied upon natural hedging to protect itself against volatile foreign
exchange rate movements. In view of changes in the Group’s business processes, the Group has become more
exposed to exchange risk. In FY2014, the Group has a natural hedge ratio of 41.9% (FY2013: 57.4%), which
indicates the level of purchases and major operating expenses that are denominated in the functional currency
of the operating units.
The Group closely monitors its macro operating environment and will consider adopting appropriate hedging
policies to mitigate the exchange risk exposure, if necessary.
Political and Regulatory Consideration
The Group’s sales are generated mainly from developing markets such as Russia, Ukraine, Kazakhstan and CIS
countries, where political, social, economic and regulatory uncertaintiesmay have a direct or indirect impact on sales
and profitability.
During the financial year ended 31 December 2014, escalating sociopolitical tensions in two of its key markets,
Russia and Ukraine triggered off significant foreign exchange devaluation of their respective currencies, the
Russian Ruble and Ukrainian Hryvnia. Consequently, the Group experienced significant foreign exchange losses
for the year.
The political conflict is ongoing and has resulted in economic difficulties for both countries. Its largest market,
Russia, was affected by certain international sanctions and weak global oil prices, while Ukraine has suffered
economic degradation due to conflicts with armed separatists in its Eastern region.
The Group will closely monitor ongoing events and may consider rationalising some operations if the situation
deteriorates further.
The Group is also subjected to changes in policies by the respective government authorities of these regions,
which may have an impact through (i) changes in laws and regulations; (ii) change in custom and import tariff; (iii)
restrictions on currency conversions and remittances; and (iv) stability of the banking system.
