8 things I learned from the 2020 F&N AGM

Listed on the SGX, Fraser and Neave Limited (F&N) is a leading food and beverage conglomerate with a presence in 11 countries including Singapore, Malaysia, Thailand, and Vietnam.

To curb excessive sugar consumption, on 1 July 2019, the Malaysian government imposed excise duties of 40 cents per litre on sweetened beverages containing more than 5g/100ml of sugar, milk-based drinks containing more than 7g/100ml of sugar, and vegetable juices containing more than 12g/100ml of sugar.

How will this impact F&N’s beverage business? I attended F&N’s AGM this year to find out more:

1. F&N’s revenue grew 4.0% to $1.90 billion. Most of the growth was attributed to the higher sales of soft drinks and dairies from the F&B segment. Overall, F&N posted a PBIT of $284 million and an earnings per share of 10.6 cents. Dairies led the bottom-line growth for the company this year. F&N distributed a total dividend of 5.5 cents in 2019. This included an interim dividend of 1.5 cents per share and a dividend of 4.0 cents paid out towards the end of the fiscal year.

Source: F&N 2019 annual report

2. The Food & Beverage (F&B) segment notched a 4.5% increase in sales to $1.63 billion. Despite the imposition of a sugar tax in Malaysia, F&N managed to grow its soft-drink business by 6.5% to $470.7 million. To mitigate the impact of the excise tax, F&N reformulated 90% of its ready-to-drink beverages in Malaysia by reducing its sugar content and introducing smaller pack sizes to meet the regulatory requirements. Revenue from dairies within the F&B segment increased by 3.6% to $1.54 billion, driven by higher growth in the Thai and Malaysian markets.

3. The F&B segment’s profit before interests and taxes (PBIT) increased 22% to $282.2 million. This growth was primarily due to F&N’s 20% stake in Vinamilk which brought in $110.9 million in profits, a 17% increase from last year. Lower sugar costs also bolstered the segment’s PBIT margin by 250 basis points to 17%.

4. A shift in consumer preference towards health and wellness, and an increase in regulatory pressure from the government to reduce sugar consumption pushed F&N to introduce healthier F&B options to its consumers. F&N is shifting its focus to broaden their water, tea, isotonic, and soymilk product lines such as Ice Mountain, Seasons, NutriSoy, and 100PLUS.

5. A shareholder wanted to know how the sugar tax has affected F&N’s business and what the management is going to do to tackle problems arising from this. The managers said that they are supportive of the government’s effort to reduce sugar consumption. Although F&N’s soft drinks sales will decrease, it can grow its dairy business to offset the slowdown from the soft drink business.

6. Revenue from the Publishing & Printing (P&P) segment decreased 0.6% to $277.4 million. This was due to changes in sales mix of the publishing segment and lower retail revenue from store closures. Despite the decrease in revenue, P&P’s PBIT increased by $0.1 million to $9.6 million. This was attributed to prudent cost management that drove the profitability of the business and non-operating income from the sale of non-core assets.

7. A shareholder said that printing and publishing seemed out of place in an F&B business and wanted to know if the management would consider selling or spinning off the business to unlock value for shareholders? Mr Koh Poh Tiong, who is an advisor to the board, agreed that the printing and publishing may seem out of place in an F&B-centric business. But he reminded shareholders that F&N has been in the P&P business from the very beginning and has even entered the property market. For now, F&N plans to keep the P&P business and is open to other options when the opportunity arises.

8. A shareholder questioned the management’s decision to invest in dairy farming in Perlis, Malaysia, especially when F&N has no experience and track record in the business. Lee Meng Tat, CEO of the non-alcoholic beverage division, said that there is a shortage of fresh milk in Malaysia and it’s not easy to import milk into the country. Therefore, F&N decided to develop its own source of milk in order to grow. F&N can gain expertise in this area by leveraging on consultants and experts from Vinamilk which manages 12 farms with 30,000 cows.

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

Kenny Quek

Kenny Quek is a research analyst at The Fifth Person. He graduated from Drexel University in Philadelphia, PA with a major in finance and previously managed a fund in the U.S. before returning to Singapore.

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