Food Empire's AGM on 29th April 2008
To date, I had built up a portfolio of 12 companies. With limited leave, I make it a point to attend AGMs if and only if I have questions for the management.
What trigger my queries
donmihaihai left a comment on my blog, highlighting to me the disproportional growth of accounts receivables, as compared to sales. I tried to email Food Empire to enquire about it but to date, I have not receive any reply. Hence, I specifically took leave just to find out more.
Query 1 - Disproportional growth of Account Receivables compared to Revenue
In 2005, trade receivable is 35.436M, against a revenue of 184.0M, or 19.26%.
In 2006, trade receivable is 59.356M, against a revenue of 234.124M, or 25.35%.
In 2007, trade receivable is 80.187M, against a revenue of 276.859M, or 28.96%.
While revenue grew from 184.0M to 276.859M, or 50.46%, trade receivable went up from 35.436M to 80.187M, or 226%.
Is the company selling more on looser credit terms or is it facing more delays in collecting its payment?
The chairman attributed the the spike in trade receivables to a Russian plant they had set up recently, since the latter resulted in a lengthening of credit terms. They also mentioned that the growth in trade receivables would stablise soon. Since there are others waiting to query the management, I decided not to hog on to the Q & A.
However, after trying very hard to digest what I had heard, I still could not figure out how setting up a plant can cause a lengthening of credit terms. We'll see in coming quarters whether the disproportionate growth account receivables would indeed stablise before deciding my next cause of action (more aggressive queries?)
Query 2 - Reasons behind bonus shares
Giving bonus shares, in theory, does not add value to existing shareholders, i.e. the same market worth is merely divided over a larger pools of shares after bonus issue, and everybody gets the same increase, proportionately.
What is then, the rationale of giving bonus shares?
The chairman replied that the rationale behind bonus shares is to introduce more liquidity and make each share cheaper for purchase.
If the newly set up plant can lengthen credit terms is weird, this is even more bizarre. What has the liquidity in company share price got to do with the management? Company performance will ultimately reflect in the share price. If management need to raise equity and hence be concerned with the share price (not liquidity), they can easily buy back their shares, assuming it is undervalued now.
Other interesting queries (rephrased and summarized):
How has the raw material price increased and is the company able to pass on the cost to consumers.
For example, while the price of certain grade of coffee can go up from 3.5 to 5 per kg (43%) and some creamer can go up from 1 to 1.7 per kg (70%), the actual cost of raw materials in each sachet only went up by 10 to 15%. Food Empire would adjust its prices about 3 to 5% during each price review. For example, in Ukraine, it had already did one increase of 5% this year, it will perform another round of review in the 2nd half of the year.
Any update on how newly acquired Naturant Systems Inc would contribute to the bottom line?
Firstly, Food Empire is still trying to consolidate Naturant Systems Inc into its business in terms of both production and distribution network, so as to achieve further streamline in production and cost savings etc.
Secondly, Naturant Systems Inc have already start to contribute profits to Food Empire, about $2m for this year is mentioned, I believe the figure refers to profits.
How much does it cost to produce the Annual Reports?
About 30 to 35K is budgetted for churning out Annual Reports annually.
Other interesting facts about the AGM
I've been to many AGM's of penny stock companies and most only had finger food. This one had finger food before the AGM commenced and complete buffet lunch catering (salads, staple foods, deserts, soup and fruits) after.
Maybe I should start attending AGMs of even larger companies to do some food tasting surveys.
Conclusion
Though I did not find out exactly what I wanted (regarding the accounts receivables), I walked away with more knowledge than before I walked in. At least I knew they are able to pass on the rising cost of production to the consumers. Given what I know from the AGM, the annual reports and announcements made so far, I still have faith in the company and to stay invested.
Labels: AGM, Annual General Meeting, EGM, Extraordinary General Meeting, Food Empire