FOOD EMPIRE: Insights into business, potential of new coffee plant

Excerpts from Q&A between shareholders of Food Empire and the company in connection to the AGM for FY2020. For the full Q&A that was uploaded to the SGX website, click here.

Congrats on the completion and start of operation of Food Empire's second coffee plant. Could you share with us
a) the business model of the plant
b) where coffee beans are sourced from, the key processes inside the plant
c) the target customers
d) the potential annual revenue based on maximum capacity & recent coffee selling price, assuming 100% of production is sold to 3rd parties
e) What was the capex of the plant and how much was the debt incurred to finance it?

Following the successful commissioning of the Group’s first Spray Dry coffee plant in 2015, our second plant will produce Freeze Dry coffee, which represents a further expansion into the food commodities manufacturing space as part of the Group’s vertical integration strategy.

The Freeze Dry coffee plant is an enhancement to our existing capability and will produce a higher value-added range of coffee products.

These factories not only support our branded beverage business, it also opens up a new B2B market for the Group.

Coffee beans used for the production of coffee powder are mainly sourced from Vietnam, Africa, India and South America.

Key processes involve Roasting, Grinding, Extraction, Evaporation, Freezing and Packing.

Around 30% to 40% of the finished products will be supplied to entities within the Group and the remaining will be sold to external parties such as Brand Owners and Traders.

The Group is looking to market them to customers in Russia, Ukraine, Eastern Europe, Middle Eastern countries and the Asia region.

Coffeeplant machinery5.21

Our Freeze Dry plant is a long term capital investment that will provide the Group with greater procurement flexibility, better margins and a recurring income stream.

Commodity prices tend to move in cycles and coffee prices are currently at a low.

Based on prevailing market rates, if the entire capacity of our Freeze Dry coffee plant is sold to 3rd party, revenue uplift to the Group would be between USD25 million to USD30 million, depending on product mix.

Total Capital Expenditure (“CAPEX”) for the Freeze Dry plant is around USD50 million. About 70% of the CAPEX is debt funded.

What are downside risks to the group continuing on its growth track in the year ahead? What could go wrong or is worrisome to management?

The Covid-19 pandemic continues to be a near term challenge to the Group with possible disruption to areas such as factory operations, logistics and activities involving social interaction.

The uneven pace of vaccination programmes in various markets, coupled with the emergence of new variants of the Covid-19 virus may prolong the recovery process and could affect the Group’s projects if the situation worsens.

For example, our plan for a second Non-Dairy-Creamer factory in Malaysia was delayed by about 12 months because of the pandemic, while our Freeze Dry factory was commissioned at a time when India is facing a severe new wave of Covid-19 infections.

In the longer term, on-going trade war between US and China, as well as the unresolved tension between the West and our key Russia market will weigh on business sentiments.

We expect prevailing and possibly new US sanctions against Russia over a raft of allegations over cyberattacks and electorate interference to be detrimental to the Russia economy and the Russian Ruble.

Nonetheless, the Group has overcome many crises in the past and we expect our business to remain resilient in the face of adversity.

FOOD EMPIRE: Insights into business, potential of new coffee plant

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