10 things I learned from the 2019 F&N Holdings Berhad AGM

Fraser & Neave Holdings Berhad (F&NHB) is a listed company in Malaysia that manufactures, distributes, markets, and sells 100% halal-certified beverages and dairy products. It has a strong business presence across Malaysia, Thailand, and Singapore with eight manufacturing plants in the first two countries. As at 23 January 2019, F&NHB had a market capitalisation of over RM13 billion.

‘F&N’ is a well-known household name among Malaysian consumers and has 20 brands as follows:

Source: F&NHB 2018 annual report

F&NHB is the leader in carbonated soft drinks, ready-to-drink tea, and sweetened condensed milk in Malaysia which are market under the brands 100PLUS, OYOSHI and F&N SEASONS, and F&N respectively. It is also the market leader for evaporated milk products in Thailand.

After quick research on F&NHB, I realised its revenue grew at an annualised rate of just 1.3% over the last 10 years — from RM3.7 billion in 2009 to RM4.1 billion in 2018. Hence, I decided to attend its AGM to find out more about its plans and future prospects.  

Here are 10 things that I learned from the 2019 F&NHB AGM:

1. In 2018, revenue increased by 0.2% to RM4.11 billion while profit before tax (PBT) grew 19.5% to RM422.7 million. CEO Lim Yew Hoe mentioned that F&NHB undertook a few major internal and external reorganisation exercises in Malaysia in the past few years. The exercises which included a combination of its distribution network as well as various cost optimisation and portfolio rationalisation initiatives impacted its revenue in 2018. However, F&NHB was able to improve its cost efficiency which explains the increase in its PBT. It will prioritise revenue growth moving forward.

2. Dividend per share remained flat at 57.5 sen since 2015 despite the 19.5% increase in PBT in 2018. The CEO justified that the retained earnings would be used for additional capital expenditure which included a RM150 million investment in a warehouse in Shah Alam. In addition, F&NHB intends to incur some expenses on research and development to mitigate the impact of the upcoming sugar tax that will be implemented in Malaysia starting 1 April 2019.

3. F&NHB aims to penetrate the business-to-business (B2B) segment with their Ice Mountain drinking water product. The management added that the drinking water market in Malaysia is highly competitive because of the relative affordability of drinking water.

4. F&NHB plans to mitigate the sugar tax in Malaysia through three initiatives — smaller pack sizes, reduced sugar recipes, and portfolio transformation. Effective 1 April 2019, a sugar tax will be imposed on sweetened beverages that contain more than five grams of added sugar per 100 millilitres, and fruit/vegetable juices that exceed 12 grams of added sugar per 100 millilitres. A large portion of F&NHB’s product portfolio is subject to the sugar tax and, according to the management, the impact on the price of its products can be as high as 20%. In 2018, F&NHB introduced 13 new products and healthier options including the reformulated 100PLUS Reduced Sugar. F&NHB aims to maintain the price of beverages by reducing the sugar content while delivering the original taste. As part of its portfolio transformation, products that fall under healthy product categories are targeted to be released in October 2019.

Source: 2019 F&NHB AGM presentation slides

5. F&NHB exports products to 68 countries worldwide and total exports accounted for 16% and 14% of revenue and operating profit respectively in 2018. The management aims to achieve an export sales target of RM800 million by 2020 from their burgeoning export business. Exports have become a focus since 2015 and will continue to be a significant contributor to F&NHB.

6. F&NHB’s operations in Thailand will begin paying a 20% corporate tax (approximately RM50 million) in 2019. The domestic market environment in Thailand remains challenging and the strengthening Thai baht may dampen the export-oriented business. The management plans to mitigate the impact of the corporate tax by reducing costs and facilitating business growth particularly in Indochina. F&NHB currently covers approximately 13,000 outlets in Cambodia and Laos through its TEAPOT brand. Revenue in Indochina grew by more than 20% year-on-year in 2018.

7. Several shareholders raised the possibility of venturing further regionally into countries such as Vietnam, Thailand, and Indonesia. The management explained that Vinamilk is the largest dairy company in Vietnam and a sister company of F&NHB. As a result, F&NHB does not participate in direct competition with Vinamilk in the Vietnam market and only currently exports original equipment manufacturing products to a coffee chain there. F&NHB already has a presence in Thailand and Indonesia – it manufactures and distributes Nestlé’s dairy milk products in Thailand, and partners with its sister company, Yoke Food Industries Sdn Bhd to operate in Indonesia. The CEO added that both Thailand and Indonesia are countries with high price sensitivity. They may be able to grab market share but may not be profitable in those countries.

8. A shareholder questioned if F&NHB planned to develop the three plots of lands in Johor Bahru, Johor and Hulu Langat, Selangor with combined land areas of 2.8 million square feet. The management answered that the plan was still in the incubation stage as the property market remains soft. The land in Johor and Selangor will be used for commercial and residential property development respectively. As at 30 September 2018, revenue derived externally from the property segment only contributed to about 0.02% of F&NHB’s total revenue.

9. A shareholder asked if F&NHB had any plans to reduce its business’ footprint on the environment in alignment with Malaysian minister’s aim to reduce plastic waste. The management shared that RM90.5 million was invested in a cold-aseptic filling PET line that uses 40% less plastic resin packaging for every polyethylene terephthalate bottle produced at its manufacturing plant in Shah Alam, Malaysia. It will continue to work with suppliers to come up with solutions to reduce plastic use in its packaging in general.

10. A shareholder raised his concern about the potential impact of artificial sugar on consumer health wanted to know F&NHB’s stance towards artificial sugar. The management is prudent with the usage of permitted artificial sugar and would only use ‘very sparingly [amounts of] artificial sugar’. They are still doing further research and development to come up with healthier and tastier drinks without relying too much on additional artificial sugar which is a challenge. However, F&NHB is currently exploring alternative natural sugars that provide double the sweetness at the same amount.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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