F&N READY FOR SUGAR TAX
Strategies in place to mitigate impact, including reformulating 70pc of products
THE bulk of Fraser & Neave Holdings Bhd’s (F&N) products will be affected by the government’s new sugar tax effective on July 1.
However, the food and beverage company is confident of mitigating the impact of the tax on most of its products.
F&N chief executive officer Lim Yew Hoe said about 90 per cent of its products, including isotonic drink 100PLUS Original and various fruit juices, were taxable.
“We are quite fortunate in that we have already hedged all of the sugar requirements for our products for the current financial year ending September 30, 2019 (FY19).
“About 70 per cent of our products will be reformulated. We have done sufficient research to ensure they will deliver the same great flavour without compromising the taste,” he said at a briefing on F&N’s first-half results, here, yesterday.
While it was still early to quantify the tax implications, Lim said there would be an additional cost from reformulating its products.
“There will likely be some price increases to cover the product costing. Increasing the prices, however, will be the last resort.”
Previously slated to be enforced from April 1, the sugar tax comprises an excise duty of 40 sen per litre on ready-to-drink beverages containing sugar exceeding 5g per 100ml, milk-based drinks with more than 7g of sugar per 100ml as well as fruit and vegetable juices with more than 12g of sugar per 100ml.
“We are looking at each product and evaluating how much of the cost that can be absorbed.
“We will be producing smaller packs, reformulating and reducing sugar content in existing offerings as well as speeding up innovations on healthier products,” said Lim.
Lim said F&N’s reformulation strategy would not only match the taxable sugar level, but also promote healthier beverages for consumers.
“The government’s postponement of the sugar tax (to July) has provided us more time to execute our mitigation plan, while enabling Malaysians to enjoy Hari Raya Aidilfitri celebrations.
“We will continue to leverage innovation and reinvention to offer healthier, affordable and delicious products that are accessible to all,” he said.
F&N will also monitor the market in anticipation of rising prices of crude oil and skimmed milk products this year.
The company reported a 14 per cent higher net profit of RM227.29 million for the first half ended March 31, 2019 compared with RM199.4 million a year ago.
Meanwhile, Kenanga Research expects the sugar tax to result in three to five per cent increases in the prices of F&N’s products that fall above the classified threshold.
“While we do not believe the resulting tax will not be ‘overly’ detrimental to demand, new product ranges could work favourably (for F&N) as a means to improve market share,” said the research house in a report yesterday.