2017 was a challenging year for Fraser and Neave (F&N) as revenue fell 4% year-on-year to S$1.9 billion. Likewise, profit before interest and tax (PBIT) fell 2.8% to S$173.6 million. Results might have been worse if not for the higher contributions from Vinamilk, the largest dairy company in Vietnam. During the year, F&N increased its stake in Vinamilk from 10.95% to 18.74% which helped boost F&N’s profit.
F&N has been on our watchlist for some time and it was with great interest that I attended the 2018 F&N AGM to gain insights from the management and their outlook for 2018. Here are five things I learned from the 2018 F&N AGM.
1. F&N’s Beverages segment made PBIT losses of S$3.9 million due to rising commodity prices and weak consumer sentiment. The management added that the consumer trend of cutting down on sugar has affected its business and F&N’s worst hit category was fruit juice which saw a double-digit decline in sales. In response, F&N has gradually reduced the sugar content in its beverages over the years and introduced low sugar options like F&N Orange Zero and Sarsi Zero.
2. Singapore is too small a market which is why F&N wants to continue expanding overseas. The management’s strategy is to export beverages to a country until they hit significant enough volume to invest in a manufacturing plant there. Oishi Green Tea is the number one green tea beverage in Malaysia, and the management aims to have 100PLUS as the number one isotonic drink in Thailand and Myanmar. In the long term, F&N chairman, Khun Charoen, plans to expand F&N into ten countries in Southeast Asia.
3. F&N is the largest producer of condensed milk in Malaysia. The country is hub for halal products and the company exports condensed milk to Islamic countries like Saudi Arabia and Iran and F&N plans to build a condensed milk plant in the Middle east if the volume becomes significant.
4. A shareholder asked if F&N was looking to divest its Printing & Publishing segment, since it made losses of S$5.2 million and S$4.5 million in 2016 and 2017 respectively. The management replied that the segment is ‘turning around’ and have no plans for divestment at this point. This was consistent with the reply the management gave at its 2017 AGM.
5. Another shareholder asked if F&N planned to increase its stake in Vinamilk to 50%. Vinamilk is a high cash-generative business and pays 80% of its earnings as dividend. The management replied that would be interested in increasing their stake, but Vinamilk is a state-owned company and depends on whether the Vietnamese government is willing to sell. Since increasing their stake in Vinamilk, F&N has two representatives on the board.
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