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Food Empire Holdings Limited Annual Report 2013
49
SUPPLEMENTARY INFORMATION FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013 (SGX-ST LISTINGMANUAL REQUIREMENTS)
(cont’d)
(iii) Risk Management Policies and Processes
Dependence on the Russian Market
The Group is dependent on the Russian market, which accounted for 58.2% of its turnover in 2013. Any significant decline in the demand
for the Group’s products in this market, whether or not brought about by political, social and/or economic changes, would adversely affect
its turnover and profitability.
The Group undertakes on-going efforts to increase sales by increasing sales in other existing markets and by developing new markets,
which over time will reduce its dependency on the Russian market.
Foreign Exchange Exposure
The Group is subject to foreign exchange risk arising mainly from those sales, purchases and operating costs by operating units denominated
in currencies other than the operating units’ functional currency. Approximately 1.5% of the Group’s sales are denominated in currencies
other than the functional currency of the operating units making the sales. Traditionally, the Group has relied upon natural hedging to protect
itself against volatile foreign exchange rate movements. In view of changes in the Group’s business processes, the Group has become
more exposed to exchange risk. For FY2013, the Group has a natural hedge of 57.4% (FY2012: 86.2%) as 57.4% (FY2012: 86.2%) of the
purchases and major operating expenses are denominated in the functional currency of the operating units. The Group closely monitors its
macro operating environment and will consider adopting appropriate hedging policies to mitigate the exchange risk, if necessary.
Political and Regulatory Consideration
The Group’s sales are generated mainly from developing markets such as Russia, Eastern Europe and Central Asia, where political, social,
economic and regulatory uncertainties may have a direct impact on sales. For example, changes in policies by the respective government
authorities of these regions may have an impact through (i) changes in laws and regulations; (ii) change in custom and import tariff; (iii)
restrictions on currency conversions and remittances; and (iv) stability of the banking system.
In particular, the taxation system in the Group’s key Russia market continues to evolve and is characterised by frequent changes in
legislation, pronouncements and court decisions, which are subject to different interpretation.
The Group has representative offices in its major markets and is constantly updated on developments in government policy and regulation,
allowing it to respond promptly to any policy changes that might affect sales.
corporate governance