F&N plans strategic initiatives
Group wants to expand exports business
Salient points BEVERAGE company Fraser & Neave Holdings Bhd (F&N) will be implementing a number of strategic initiatives to aggressively ramp up its exports business, given the stiff competition in the local market.
At a briefing on the company’s financial performance for the current fiscal year ended Sept 30, 2017, chief executive officer Lim Yew Hoe said the group wants to achieve equal contribution from its local and export businesses.
Exports currently contribute around 15% to group revenue.
“We are adopting a differentiation approach and will focus on building long-term partnership with customers, customisation of product offerings and the expansion of branded products versus original equipment manufacturers,” says Lim.
“We will be leveraging on our halal status to tap fully into Muslim markets,” he adds.
Lim says F&N will also be conducting various brand-building initiatives in Laos and Cambodia.
MIDF Research points out that export of dairy products from Malaysia operations grew 26% year-on-year in 2017 as a result of the intensified focus and investment.
“Going forward, the group aims to leverage on its halal status to make further inroads into Muslim countries. As of now, export growth to Africa and Middle East grew by 30% year-on-year in 2017.
“F&N also has set a target to achieve RM800mil in export sales, in which F&N Malaysia and Thailand each targeted to contribute RM500mil and RM300mil, respectively, by the year 2020.”
Looking on its current growth trend, MIDF says exports from Malaysia will surpass the target of RM500mil sales ahead of the 2020 deadline.
CIMB Research in its report also says F&N is on track to achieve its target by 2020.
“The group plans to continue leveraging on its halal status to fully capitalise on the demand from Muslim markets. Note that both Africa and the Middle East saw export volume growth of more than 30% in 2017, albeit from a small base.”
F&N posted lower earnings of RM323.37mil in the financial year ended Sept 30, 2017 due to restructuring costs in the fourth quarter and lower revenue in the Malaysian operations.
It announced on Tuesday that FY17 earnings fell 16% from RM385.37mil in FY16. Revenue dipped nearly 1.6% to RM4.10bil from RM4.17bil.
Commenting on the Malaysian operations, it said revenue fell by 8.2% from RM2.527bil to RM2.319bil.
In the notes to analysts, F&N stated that the operations were impacted by continuing weak consumer sentiment and intense pricing pressure.
This saw operating profit fall 44.8% from RM218.8mil to RM120.7mil which was impacted by restructuring cost, lower revenue and higher input costs, especially sugar.
However, this decline was offset by lower discounts, advertising and promotions spending, and overheads.
“Excluding one-off items, operating profit declined by 21.7% to RM169.6mil,” it said.
For the Thailand operations, it said revenue rose 8.7% to RM1.781bil. It recorded double-digit growth in the Indochina market and successfully launched two new Bear brand variants and Teapot Tube. This was aided by the favourable ringgit/Thai baht translation.
The operating profit rose 14.3% to RM228mil from RM199.5mil due to the favourable input and packaging costs, as well as lower advertising and promotion spending.
In the fourth quarter, earnings fell 60.3% to RM19.65mil from RM49.59mil. Revenue was flat at RM976.27mil from RM976.50mil. Earnings per share were 5.4 sen compared with 13.6 sen previously.
At the briefing this week, Lim said he expects better earnings in its current financial year ending Sept 30, 2018.
Apart from ramping up exports, he said other strategies the company will be implementing to boost earnings include new product launches and cost reductions.
MIDF Research says the price of refined sugar, which constitutes a significant portion of input costs, is expected to be favourable for the company in 2018.
“Currently, F&N sources most of its sugar needs higher than the market price, as the Government has fixed (early in the year) the selling prices of refined sugar to top industry players at RM2,800 per tonne. This contract is expected to end in December 2017.
“Hence, moving forward, F&N will source its sugar needs at a more favourable market price of about RM2,300 to RM2,400 per tonne. In addition, the group plans to launch new products after Chinese New Year in 2018.”