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Mid-Year Examination
FOOD EMPIRE: VALUATION AND INVESTMENT
Lecturer:
Putri Paramita Agritansia, S.E., M.Acc.
Rahmatdi, S.E., M.Acc.
Food Empire is a food and beverage company headquartered in Singapore. The company was
established in 1992 and launched their initial public offering (IPO) on the Singapore Stock Exchange
in April 2000. The manufacturing company had 200 different types of consumables such as instant
beverage products, frozen food and snacks. They also supply raw ingredients including instant coffee
and creamer to other food manufacturers. Some of their well-known propriety brands, namely
MacCoffee, Petrovskaya, Klassno, Hyson, OrienBites, and Kracks also contribute to the strengths of
Food Empire. The various awards that the company won, such as the Forbes’ prestigious list of “Asia’s
200 Best Under a Billion” serve as evidences of the company’s excellent performance.
Despite being headquartered in Singapore, the company does not sell their products in Singapore but
exports and sells their products to more than 60 other countries instead. These countries include Russia
– which is Food Empire’s main market, followed by Ukraine, Kazakhstan, China, Mongolia, Vietnam,
Business Risk
Business risk refers to any factor that threatens a company's ability to meet its target or achieve its
financial goals (Kenton, 2019). One of the factors include political risk from foreign exposure. From
the case, it can be seen that Food Empire earns a large proportion of their revenues overseas, for instance
Russia and Ukraine each contributed 55.77% and 10.71% of the company’s total revenue respectively.
Having heavy reliance on these two countries is risky especially because of the political tension and
After the Soviet Union's dissolution in 1991, Russia and Ukraine have undergone periods of tensions
and outright hostility (Thompson, 2017). This is worsened by the crisis in 2014 when Russia completed
the annexation of Crimea. As a result of the political dispute, both Ukrainian hryvnia and Russian ruble
depreciated especially after Russia faced several trade sanctions from the violation of various
international laws. Additionally, because of the depreciation, Food Empire was vulnerable to earnings
decline due to the worsened exchange rate of rubles and hryvnia to US$ where it has lost 54.7% and
65.7% of its value from 2013 to 2015 respectively. Unfortunately, due to the foreign exchange loss,
Food Empire reported a net loss of US$13.6 million when they could have earned US$15.6 million of
net profit.
Another possible business risk of Food Empire is the vast presence of competitors. The food and
beverage industry is a highly competitive market where manufacturers compete to develop similar
alternative products for their customers (McKewen, n.d). From the case, it can be seen that Food Empire
is not the market leader and that they have larger-sized competitors earning higher amount of revenues.
Moving on from the introduction section, the next part of the essay will consist both qualitative and
quantitative analysis of Food Empire to help investors in making decisions on whether to keep, increase
Analysis
SWOT Analysis
In this case, the SWOT analysis of Food Empire (refer to Appendix A) acts as a qualitative analysis to
help aid investors when making decisions when investing in the company.
From the analysis, Food Empire is already a well-established company offering wide array of products
with stong branding. This is evident from the various awards that they have received, including being
ranked by the Singapore Brand Awards as one of the “The Strongest Singapore Brands”. There are also
some opportunities that the company has considered such as diversifying into the upstream business
especially in Asia whereby the company had successfuly established a new production facility in
Andhra Pradesh, India in 2014 and built a non-dairy creamer plant in Malaysia. Besides that, the
company also had the opportunity to increase coffee consumption in European countries such as Russia.
The country had imported around 4.7 million 60 kg bags of coffee which is double the import level in
However, Food Empire relies heavily on foreign income. This is considered a weakness for them as
there are various threats that arise such as foreign currency loss and poor economic condition that can
be caused due to political stability, as mentioned above. Additionally, the food and beverage
manufacturers regulations in Singapore can also affect the operations of Food Empire especially now
that there are stricter regulations on the labelling and advertising of food (“Parliament: Stricter Rules
Passed for Health Claims and Sale of Food, Infant Formula Milk.” 2017).
From the common size income statement (refer to Appendix B), the company’s net income decreases
throughout the years. The sharpest decrease is experienced from 2013 to 2014 whereby net income fell
from 4.56% to -5.20% of sales. This is possibly resulted from the stark increase in the foreign exhange
loss from -0.76% in 2013 to -11.60% in 2014. The sharp increase in foreign loss is resulted from the
depreciation of Russian rubles and Ukrainian hryvnia against the U.S dollars as mentioned earlier.
Additionally, the common size balance sheet shows us that the long-term debt of the company generally
increases throughout the years especially from 2012 with 5.7% to 2013 with 11.8% of its total liabilities
and stockholders’ equity. Short-term debt also generally increases but experienced the sharpest rise
from 2013 to 2014 1.75% to 4.1% when it double in size. This may be because the company needs
immediate capital due to the loss that they have been experiencing and increasing their debt is an
effective way to finance business operations. However, the company’s non-current assets specifically
the net property, plant and equipment have been increasing throughout the years in relation to its total
assets. This is a good sign for investors because it shows the company’s positive long-term outlooks
and profitability, since plant, property and equipment are physical, tangible assets expected to generate
economic benefits and contribute to revenue for many years (Murphy 2019).
Financial Ratios
The financial ratios of Food Empire and its peers can be obtained in Appendix C and Appendix D
respectively.
The company’s short-term liquidity measures the ability of Food Empire to meet its short-term financial
obligation (Wohlner, 2018). The current and quick ratio generally decreases throughout the years,
especially from 2013 to 2014 where they fell by 0.8 and 0.88 respectively. This can be resulted from
the increase in short-term debt from 2013 to 2014. Comparing these ratio to the peers, the current ratio
of Food Empire in 2014 of 2.30 is better than most of the competitors except for Petra Food Ltd with a
slightly better ratio of 2.32. Same goes to the quick ratio of the company – 1.40 in 2014, where there
The solvency ratio measures the ability of the company to meet its debt obligation (Kenton, 2019). The
debt to assets ratio shows the amount of assets that is financed by debt, the higher the ratio, the riskier
it is for Food Empire. This ratio of the company increases throughout the years, especially from 2013
to 2014. This can be due to the increased number of debt as well as assets. Comparing this to its peers,
most of the peers have better and lower ratios ranging from 0.03 to 0.21.
In analysing the asset use efficiency ratio, it can be seen that the inventory period of Food Empire
increases throughout the years. In 2014, the performance worsen and compared to its peers, the
company takes longer to sell their goods or turn inventory into cash. This may be due to the increased
in cost of manufacturing.
From the profitability ratio of the company, the gross margin ratio of the company is proven to be higher
than most of its competitors with a ratio of 0.4. This ratio shows us that Food Empire can produce their
products effectively due to relatively a low and stable cost of revenue as supported in the common size
balance sheet. However, the net profit margin ratio has worsened throughout the years and it became -
0.05 in 2014. This is because the company experienced net loss because of the stark increase in foreign
exchange loss. Comparing to the competitors, Food Empire net profit ratio is one of the worst because
the other competitors generally has positive net profit ratio – except for Premier Foods plc with -0.29
ratio. Additionally, return on assets in -0.05 and return on equity is -0.09, this is because company with
net loss is bound to have negative return on equity and return on assets.
In analysing the market value ratio, three types of ratios can be used. Firstly, the price/earnings ratio
measures the current share price relative to the earnings per share (Hayes, 2019), this ratio tends to
fluctuates from 2010 to 2013. However, since Food Empire experienced loss in 2014, this ratio would
not have any value. Secondly, the price/book ratio measures the current market price to its book value
(Hayes, 2019). The price/book ratio decreases from 2010 to 2014 with the lowest ratio of 0.8 in 2014.
This can be because the decreasing book value of Food Empire from 2010 to 2014 as shown in Appendix
E. The price/sales ratio shows how much the market values every dollar of Food Empire’s sales
(McClure, 2019). The lower the price/sales ratio, the more attractive the investment. In the case of Food
Empire, the ratio generally decreases throughout the five years. This can be because the revenue of
company generally increases throughout the years despite a relatively small fall in 2014 as it can be
The net tangible asset (NTA) per share (refer to Appendix E) can also be used to value the company.
The NTA per share of Food Empire increases from 2010 with US$0.33 to 2013 with US$0.41. However,
the NTA per share drops in 2014 to $0.34. This fall may be resulted from the increased usage of debt
in 2014 as a way for the company to deal with the net loss, which resulted in an increased total liabilities.
Valuation Using Dividends
The dividends of Food Empire show an increasing trend from the year 2000 to 2007 and it generally
shows a decreasing trend in the next seven years. The fell in dividends in the year 2007 is resulted from
the 2007-2008 financial crisis. The company has the lowest dividend in the year 2014 with $0. This is
because the company experienced a net loss and therefore unable to distribute earnings to the
shareholders. From the dividend model (refer to Appendix F), the share price calculated will represent
the present value of all future dividends. Since, the share price calculated is a negative number, this
shows that shareholders may get no or very little dividends in the future.
PART III
Conclusion
Solely based on the analysis above, I would suggest investors to sell off their shares, this is because the
share price calculated from the dividend model is a negative number. Additionally, the company was
not able to pay off any dividends in 2014 which is very unattractive for investors. The net profit ratio
of the company has also been worsening throughout the years and one of the lowest in 2014 as compared
to its competitors. Besides that, the company places heavy reliance on Russia and Ukraine for their
income and these countries poor economic performance will negatively affect Food Empire earnings.
Having said that, if the investors have a diversified portfolio and the investors have invested in other
industry other than the food and beverage industry, they can choose to keep their shares instead.This is
because the company is a well-established company that has attracted customers loyalty over the years.
Besides that, the company has also diversified their investments in Asia, meaning that they can reduce
their reliance on Russia and Ukraine. Additionally, the negative share price from the dividend model is
just a current assumption and it is still possible for the company to grow in the future.
PART IV
Appendices
Strengths Weaknesses
Opportunities Threats
Fiscal year ends Dec 31st 2010 2011 2012 2013 2014
Revenue 100.00 100.00 100.00 100.00 100.00
Cost of Revenue -57.39 -55.31 -55.04 -58.94 -54.80
Gross Profit 42.05 44.25 44.54 41.06 45.20
Total operating expense -93.24 -37.61 -36.55 -35.74 -39.60
Operating income 8.11 6.64 7.98 5.32 5.20
Interest expense -0.40
Foreign exchange gains(losses) -0.44 0.42 -0.76 -11.60
Other income (expense) 4.55 0.88 0.84 0.38 0.00
Income before taxes 7.95 7.08 9.24 4.94 nill
Provision for income taxes -0.44 -0.42 -0.38 1.20
Fiscal year ends Dec 31st 2010 2011 2012 2013 2014
Cash and cash equivalents 24.85 18.72 22.27 11.81 9.01
Receivables 29.59 29.41 26.07 22.36 18.02
Inventories 14.20 11.76 12.80 18.14 20.72
Prepaid expense 1.18 3.74 3.32 2.95 1.80
Other current assets 1.18 2.14 0.95 1.27 2.70
Total Current Assets 71.01 65.78 65.40 56.54 52.25
Net property, plant and equipment 10.65 12.83 16.11 26.16 30.18
Intangible assets 7.69 6.95 6.16 5.49 4.50
Other long-term assets 10.65 12.30 12.80 12.24 13.51
Total non-current assets 28.99 32.62 35.07 43.88 47.75
In SGD
In USD
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝑆ℎ𝑎𝑟𝑒 𝑝𝑟𝑖𝑐𝑒 =
𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑅𝑒𝑡𝑢𝑟𝑛−𝐺𝑟𝑜𝑤𝑡ℎ
0.00563
=
6.35 − 9.85
= 𝑈$ (−0.001608)
Hayes, Adam. 2019. “What the Price-to-Book Ratio (P/B Ratio) Tells Us.” Investopedia. Investopedia.
Hayes, Adam. 2019. “What the Price-to-Earnings Ratio Tells Us.” Investopedia. Investopedia. March 12.
https://www.investopedia.com/terms/p/price-earningsratio.asp.
https://www.investopedia.com/terms/b/businessrisk.asp.
Kenton, Will. 2019. “How to Use the Solvency Ratio.” Investopedia. Investopedia. April 8.
https://www.investopedia.com/terms/s/solvencyratio.asp.
Ketz, and Ian Tai. 2018. “Is Food Empire Holdings A Good Investment?” Value Invest Asia. July 11.
https://valueinvestasia.com/food-empire-holdings-limited/.
McClure, Ben. 2019. “How to Use Price-To-Sales Ratios to Value Stocks.” Investopedia. Investopedia.
McKewen, Ellen. n.d. “Challenges and Trends Facing Food and Beverage Manufacturers in 2016.”
https://www.cmtc.com/blog/food-and-beverage-manufacturing-trends-and-challenges-2016.
Murphy, Chris B. 2019. “How to Analyze Property, Plant, and Equipment (PP&E) with Exxon's PP&E.”
“Parliament: Stricter Rules Passed for Health Claims and Sale of Food, Infant Formula Milk.” 2017.
changes-infant-formula-milk-labels.
Thompson, Nick. 2017. “Ukraine: Everything You Need to Know about How We Got Here.” CNN. Cable
here/index.html.
Wohlner, Roger. 2018. “Liquidity Measurement Ratios.” Investopedia. Investopedia. March 20.
https://www.investopedia.com/university/ratios/liquidity-measurement/.