7 things I learned from F&N’s 2016 AGM

In August 2015, F&N sold their 55% stake in Myanmar Brewery Limited to Myanma Economic Holdings for US$560 million and realized a net gain of US$542 million. Interestingly, Myanma Economic Holdings resold Myanmar Brewery to Kirin Holdings for the same amount of US$560 million the same month! The deal had many investors scratching their heads. The only reason I can think of for the transaction is a political one but I shall not elaborate further and leave you to ponder about it ;)

So with F&N divesting their stakes in Asia Pacific Breweries in 2012 and Myanmar Brewery in 2015, the company now only owns one brand of beer – Thailand’s Chang Beer. Moving forward, I wanted to know how F&N’s management was planning to grow its business so I attended their most recent AGM to find out more.

Here are the seven things I took away from F&N’s FY2015 AGM:

  1. F&N’s printing & publishing business segment incurred a loss of $15.3 million in FY2015. The loss is due to a restructuring of the business unit. High operating costs in Singapore has forced the management to move manufacturing to China, Indonesia or Malaysia to reduce costs. The latter is favorable right now due to the weak Ringgit. Many international publishers are also moving their manufacturing from China to Malaysia as well.
  2. Printing & publishing business segment consists of three divisions: publishing, retail and book printing. The board mentioned that the publishing business division is profitable while the retail division is rather flat. Moving forward, the retail division will focus on the children’s market and enhancing shoppers’ experience. Personally, I feel this change in strategy will see them compete head on with Popular Holdings who has the first-mover advantage in the children’s retail publishing market. Lastly, their book printing division is their most challenging and the management has admitted they are to pursuing ways to revamp it.
  3. F&N is keeping the US$542 million proceeds from the sale of Myanmar Brewery for future acquisitions. Recently, F&N confirmed their bid for two beer brands — Peroni and Grolsch. The management mentioned that Asia Pacific Breweries’ strategy in Southeast Asia is to own a regional beer brand (Tiger Beer) and an international brand (Heineken). F&N is following the same strategy: It already owns Chang beer but they seek an international brand, which is why F&N is putting priority on acquiring Peroni – the no. 1 beer brand in Italy.
  4. One of the shareholders was concerned about management deploying money in Europe when F&N’s key strength is in Southeast Asia. In reply, the management stated they need grow the company’s bottom-line as it will be below $100 million after the exit of Myanmar Brewery from its portfolio. There’s a scarcity of top brands in the beer industry and not many are for sale even if you have the money. The management views that the beer industry is undergoing consolidation at the moment and if F&N wants to be in this industry, it needs to acquire the top brands. Hence, bidding for Peroni is an opportunity they want to work on.
  5. F&N has a standard dividend payout policy of 50%. But due to the divestment gain from the sale of Myanmar Brewery, F&N’s dividend payout for FY2015 is higher than 50%. The management emphasized that they are not shy to return money to shareholders and they have a track record of doing just that the past three years. They indicated to shareholders that the rest of the capital will be reinvested for future growth and if they are unable to do so, they will return excess capital to shareholders.
  6. Volume growth of F&N’s isotonic drink, 100 Plus, is zero percent for FY2015 despite management ramping up marketing for the product. 100 Plus is the no.1 isotonic drink brand in Singapore, Malaysia, and Myanmar and no. 2 in Thailand. Majority of 100 Plus sales are contributed from Malaysia as Singapore is a small market. Unfortunately, F&N did not perform well in Malaysia last year. There are number of reasons: Firstly, floods in Malaysia affected their bottling plant. Secondly, the introduction of goods & services tax in Malaysia dampened overall consumer sentiment. Lastly, competitors are fighting to gain market share through lower prices which is the reason why F&N did not see much growth in Malaysia for FY2015. Sales grew in Myanmar and Thailand, but revenue contribution from these two markets are relatively small at the moment.
  7. F&N has embarked on a collaboration project with Thai Beverage. The Thai Beverage-owned Oishi brand is marketed by F&N in Singapore, while 100 Plus is marketed by Thai Beverage in Thailand. Both companies are thinking of ways to work even closer together with each other.

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Victor Chng is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Victor is also the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple’s iBooks. On a personal note, Victor represented Singapore in the 2008 TAFISA World Games in Busan, South Korea and was the 2008 IFMA World Muay Thai Championships bronze medalist, kicking some serious ass along the way.

4 Comments

  1. abc

    February 12, 2016 at 1:03 pm

    So funny – they were the ones who sold off a good beer brand which they created – Tiger Beer – and now regret and want to search for good brands to add to their portfolio.
    If that is how they work, then probably don’t touch this share.

    • Victor Chng

      February 12, 2016 at 1:51 pm

      Hi abc,

      Tiger Beer is (still) owned by Asia Pacific Breweries and not F&N :)

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