8 things I learned from F&N’s 2017 AGM

This year I count myself lucky that I’m still able to share the insights I gleaned from Frasers and Neave’s (SGX: F99) recent AGM because I mixed up the location of the meeting and ended up in the wrong place. (I was probably half asleep while commuting!) Fortunately, the actual location was nearby and I rushed there quickly.

I did not want to miss the F&N AGM because it is one of the few AGMs I love to attend. I always learn new insights on how the business is doing and how the management plans to grow the business regionally. Based on my experience, the management team is rather shareholder-friendly in terms of dividends and communication with shareholders.

Here are the eight things I learned from F&N’s FY2016 AGM.

  1. F&N’s printing & publishing business unit has improved from a $15.3 million loss the previous year to $5.2 million loss this financial year. To further strengthen the business, F&N recently announced the possible acquisition of Penguin Random House’s two business units which are subject to regulatory approval. If this deal goes through, it will give F&N the rights to distribute Penguin Random House books in Singapore and Malaysia.
  2. During the meeting, a shareholder asked the management whether F&N will divest its printing and publishing business and focus on the food & beverage segment which accounts for 87% of the total revenue. The management replied that Khun Charoen, who is the major shareholder of F&N, will never sell his business. They agreed that the F&N printing business is serving a traditional market that is in a tough environment. Instead, the management is looking to expand into new businesses and is currently exploring the packaging business.
  3. There is a lot of overlap and synergy between F&N and their sister company Thai Beverage. A shareholder suggested to the management that it is more rational in the longer term to merge the companies and grow the business as one large conglomerate group. Koh Poh Tiong, who is the advisor to the board, agreed that there’s a lot of synergy and overlap between the two companies. In reality, cooperation between the two companies has already taken place over the years. F&N is in the process of streamlining both companies but the management did not want to comment on how they are going to do it.
  4. The traditional beverage segment has shrunk due to a number of factors including foreign exchange loss and loss of Red Bull distributing rights in Malaysia. The segment’s profit before interest and tax fell to $23 million from $38 million. The dairies segment is growing well and has become F&N’s biggest segment; profit before interest and tax has grown from $69m to $119m. Management mentioned that operating in the beverage industry is not easy because many products contain sugar and the world is consuming less sugar. F&N will be focusing their effort on branding this segment of the business better.
  5. 100Plus is doing well in Malaysia, it outsold every beverage including Coca-Cola. F&N has since brought 100Plus to Thailand, Vietnam, and Myanmar – where it is now the number 1 isotonic drink in the country. All these markets are in a gestation period and the management believes that in the longer term, these markets will contribute well in terms of 100Plus sales. Moving forward, the management will only build factories in countries where there is good sales volume.
  6. F&N’s stake in Vinamilk is worth about $2 billion; F&N’s entire market cap is $3 billion. The management’s strategy was very simple: F&N invested in Vinamilk because it is one of the best consumer brands in Vietnam and will help F&N to grow regionally. Since F&N has such a large stake in Vinamilk, any fluctuation Vinamilk’s share price will affect F&N’s net asset value. The management wants to emphasise that they prefer to focus on how the company is being run rather than the movement of share prices.
  7. The acquisition of vending machines partner Warburg helped F&N grow its vending space by three times. Vending volume is less than 10% of their traditional business but management views it as an important segment.
  8. F&N is planning to move into the food retail sector (restaurants) as a complement to their F&B business. F&N will be growing this segment through acquisition. The management revealed some acquisitions are in the pipeline which they will announce to shareholders when completed. I personally raised a concern to the management and highlighted that Thai Beverage previously acquired Oishi Green Tea, only for the founder of Oishi Green Tea to leave after three years to start a new green tea drink company and compete with Thai Beverage. The management assured that this will never happen again. They have already included a non-competing clause in the agreements to ensure that the founder cannot start a business to compete with F&N for a number of years after leaving.

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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.

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