Food Empire's net profit halved to US$3.1m in Q3 on higher commodity, freight costs

RECORD high ocean freight rates and higher commodity costs have eaten into the profits of instant food and beverage manufacturer Food Empire, despite registering higher revenue for the third quarter ended September.

Despite an 8.8 per cent increase in revenue to US$76.4 million, the group's net profit after tax fell 50.6 per cent to US$3.1 million in Q3, from US$6.3 million in the year-ago period.

This brings net profit after tax to US$14.6 million for the first 9 months of FY2021, down 25.2 per cent from US$19.5 million in the corresponding period a year ago.

In a quarterly update on Tuesday (Nov 9), Food Empire said the decline in Q3 was mainly due to lower profit margins due to commodity and freight costs, partially mitigated by lower foregin exchange loss.

In addition, the group said it is also facing supply chain delays due to a shortage of shipping container slots and port congestion.

For the 3-month period, gross profit margin fell 12 percentage points to 25.7 per cent, while net profit margin dropped 4.9 percentage points to 4.0 per cent.

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Gross profit for the quarter was 26 per cent lower at US$19.6 million, compared to US$26.5 million a year ago.

Food Empire said that the situation currently remains fluid in Russia and Ukraine, which had recently witnessed new waves of Covid-19 infections after a few months of gradual recovery. It added that Russia, the group's largest market, had recently imposed a "short lockdown" to curb the spread of the virus as daily infection rates spiked.

Meanwhile, in Vietnam - the group's second-largest market - Food Empire said growth in Q3 had been impeded by a surge in Covid-19 infections during the quarter.

The group said it remains optimistic of its longer-term prospects, and expects to be able to fulfil its near-term obligations, meet its debt covenants and service its debt obligations.

Shares of Food Empire closed flat at S$0.81 on Nov 9, before the business update.