FOOD and beverage manufacturer Food Empire Food Empire : F03 +1.05% on Thursday (Mar 24) said that its auditors have flagged the uncertain financial, economic and social impact on the company arising from the Russia-Ukraine conflict.

 

Ernst & Young, labelling the issue as an " emphasis of matter" , noted that Russia and Ukraine are 2 of the mainboard-listed company' s major markets which jointly accounted for about 45 per cent of its revenue in FY2021. (An emphasis of matter is a paragraph in an auditor' s report which identifies an issue that, in the auditor' s judgment, is fundamental to users' understanding of the financial statements.)

 

The food and beverage industry is not on the list of restricted business activities, nor is it affected by international sanctions, but the auditors expect the war to have a negative effect on the financial performance and position of the group in relation to its businesses in Russia and Ukraine for the financial year ending Dec 31, 2022.

 

" In Ukraine, physical damage to public infrastructures and properties, disruption to supply chains and massive human displacement have resulted in the temporary suspension of business activities," noted Ernst & Young. It added that this could lead to " potential future impairment" on Food Empire' s assets if the conflict persists.

 

Over in Russia, international sanctions have resulted in disruptions to logistics and supply chains, which the auditors believe may require the company to look for alternative solutions to keep production running smoothly.

 

Food Empire is also economically exposed to the US dollar, and a sharp devaluation of the Russian rouble will have an adverse impact on the financial performance and position of the company.

 

" In addition, the Group may also face heightened credit risks, higher working capital requirements and issues with currency remittance due to sanctions against its financial system," said the auditors.

 

" These and the ensuing economic uncertainties in the Russia market would negatively impact the future financial performance, financial position and cash flows of the Group' s operations in Russia," they added.