Steps taken to mitigate situation in affected markets Russia and Ukraine: Food Empire

FOOD and beverage manufacturer Food Empire said on Monday (Apr 18) that given the conflict in Ukraine, it has made changes in inventory management practices and pricing policies and is exploring various alternatives to ensure business continuity under extremely challenging market conditions.

It said this in response to questions received prior to its FY2021 Annual General Meeting to be held on Apr 22.

As to whether relocation of factories into other countries will ameliorate problems, it said relocation is a major decision with strategic implications and complex commercial ramifications. 

“The group’s decision to localise production has enabled us to shorten the supply chain and develop deep understanding of our core markets,” it said, adding that it was a key factor that helped the group overcome many past crises.

Nonetheless, Food Empire said it is monitoring the situation closely and will make appropriate changes to its business model if necessary, adding that it does not foresee any going concern issues arising from the conflict.

Russia and Ukraine are 2 of the mainboard-listed company's major markets which jointly accounted for about 45 per cent of its revenue in FY2021.

Food Empire expects profits from operations in these 2 markets to decrease in FY22 compared to FY21, with the decline dependent on, amongst other factors, how long the conflict lasts, potential impairment to productive assets and the impact of existing and/or new economic sanctions imposed on Russia.

It said demand for food and beverage products remains strong in both markets as it is dealing with essential products. The initial slowdown in sales due to disrupted supply chains and its decision to hold back sales in order to monitor and ratify market dislocation, is expected to be temporary.

Mitigating actions and higher contributions from some markets might also offset the loss of income from affected markets. While conditions will remain challenging due to the conflict, it remains cautiously optimistic and is confident in managing the crisis due to its past experience. 

Food Empire also said that its other markets and businesses are relatively unaffected by the fallout from the Ukrainian conflict and remain resilient.

“Over the past decade, the group has built up economic resilience by geographically diversifying our markets and businesses, which puts us in a good foothold to weather the current storm,” it said. “Outside of Russia and Ukraine, Vietnam continues to show growth and is expected to act as a counterweight to events in Russia and Ukraine. The group will also continue to invest in its non-dairy creamer and snacks businesses and expand its footprint regionally.”

It is also taking a prudent stance and has temporarily halted share buyback. 

As at 2.02 pm on Monday, shares of Food Empire were trading 1.8 per cent higher at S$0.54.