7 Things I Learned from F&N’s AGM 2014

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This AGM happened in 2015 for F&N’s 2014 financial year and is the very first meeting I fell asleep at. Really. And yes, it was rude of me!

F&N owns branded beverages such as the isotonic drink ‘100 Plus’, soya milk ‘Nutrisoy’ and other flavored drinks branded under ‘F&N Seasons’. In fact, according to the company’s annual report, these few key products are the number one brand in their categories in Singapore and Malaysia.

The kind of businesses F&N owns might explain why I fell asleep: a stable, ‘boring’ business with resilient revenues and earnings regardless of market conditions. F&N has been a stable and predictable investment allowing its loyal shareholders to sleep well for the past 130 years.

Thankfully, I fell asleep only after the Q&A session was over and here are seven key lessons I took away from the AGM:

  1. If you have never invested in a Thai company before, F&N gives you a preview to how a Thai would conduct an AGM. The new owner of F&N is Thai billionaire Chareon Sirivadhanabhakdi. He spoke Thai during the 2014 AGM. Thankfully, his speech was translated to English for the benefit of the English-speaking crowd like me. Sirivadhanabhakdi was quiet and didn’t answer any shareholder questions during the meeting which could be due to the language barrier.
  2. F&N is in the process of finding an independent valuer to reassess the valuation of its 55% stake in Limited after a disagreement on the offer price. Myanmar Brewery markets Myanmar Beer which is the best-selling beer in the country. The initial offer price valued F&N’s stake in Myanmar Brewery at only US$246 million – only 7.5 times earnings. The low price is extremely good value for the buyer but highly unfavorable to F&N the seller. Though F&N will book a one-time profit after the sale, they will lose one of its fastest growing subsidiaries that contributed 38% of F&N’s 2014 earnings before interest and tax (based on a Phillip Securities Research estimate).
  3. Even with the potential sale of Myanmar Beer, the management isn’t worried as they already have a team of senior executives from Asia Pacific Breweries and backing from major shareholders, including Thai Beverage which owns the beer brand Chang, to penetrate the Southeast Asian beer market. Non-Executive Director, Koh Poh Tiong reminded shareholders: “In business, sometimes you win, sometimes you lose. Sometimes when the door closes, another door opens. Not only in Myanmar, but also in Vietnam and Cambodia. So the business opportunities are large. F&N has the capability, experience, and vision to tap onto ASEAN market.”
  4. Printing and publishing is a drag to F&N since it requires large CAPEX, offers cutthroat margins, and is non-complementary to F&N’s core beverage business. However Sirivadhanabhakdi isn’t interested in selling the business division so the management will seek ways to grow it instead.
  5. F&N’s $96 million investment in Fung Choi Media has turned sour after the company was suspended from trading publicly last year. While shareholders will understandably question F&N’s internal investment and auditing process, the management has made the right call in writing off the investment from its balance sheet.
  6. The total capital employed by F&N in 2014 was $2.2 billion which consisted of 92% equity, 5% debt, and 2% other non-current liabilities. (Total not 100% due to rounding.) One shareholder asked: ‘Why is there a huge reliance on equity that translates to a return on equity of only 5.2%? Isn’t debt cheaper than equity?’ The management replied that F&N has generously returned excess capital to shareholders which reduced its net asset value from S$8.8 billion to S$2.2 billion. In other words, F&N’s balance sheet shrank substantially in the past twelve months and it is a much smaller company now than it used to be. If F&N’s NAV drops to a billion dollars, the company might be a target for any opportunistic acquisition.
  7. F&N’s dairy business contributed 45% of total revenue in 2014. But the division has seen earnings before interest and tax decline from $59 million to $56 million despite a 5% growth in sales year on year. The drop in profit was due to rising commodity prices and government price controls in Thailand following a change of government. However, the situation has eased now and the margin for this segment should improve in the near future.

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Rusmin Ang 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. Rusmin is on the speaking circuit for CIMB Securities (Malaysia) and has spoken at events in Penang, Sibu and Kuala Lumpur and is 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. Rusmin was actually a former SIAEC scholar who gave up his scholarship and a cushy career to follow his itch of learning how to be a better investor and ultimately lead a life of financial independence. He believes that anyone, even with a regular job, can achieve more financial peace-of-mind by investing intelligently and safely for the long term.

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