The company commits a substantial amount of capex for ad hoc debottlenecking or capacity optimising projects

by MARK RAO / Pic By MUHD AMIN NAHARUL

Fraser & Neave Holdings Bhd (F&N) aims to double the capacity of its dairy manufacturing plant in Pulau Indah by removing production bottlenecks over the next 18 months.

F&N CEO Lim Yew Hoe said the company commits a substantial amount of capital expenditure (capex) for ad hoc debottlenecking or capacity optimising projects, which have been initiated since last year, at the facility.

“We are at a phase today where we think there is still substantial economies of scales for us to tap into and expand our capacity at the Pulau Indah plant,” Lim told members of the press in a briefing session in Kuala Lumpur last Friday.

“Going forward, we need to come up with a plan to completely debottleneck and increase the capacity.”

He said the company can easily double the capacity at the facility without having to build another plant to support the expansion.

Located in Pulau Indah, Klang, F&N Dairies Manufacturing Sdn Bhd is currently running at full capacity and is producing some 16 million canned milk products per annum.

F&N, the leading food and beverage manufacturer and distributor in Malaysia, announced in January this year that it allocated RM25 million in capex to add a further five million cans to its Pulau Indah production line and bring in an additional RM300 million in group revenue.

Lim said the debottlenecking programmes to be undertaken by the group will be in addition to this and will exceed RM25 million.

“We are still working out the numbers and the projects will be carried out in phases (over an 18-month period),” he said.

He added that the capex spend will be dependent on several factors, including if some equipment is to be internally or externally sourced, while several plans are still in the middle of being approved at the board level.

While helping it meet domestic food and beverage (F&B) demand, the facility at Pulau Indah will ramp up F&N’s export capability as the export market is a steadily growing base for the group.

For the first half of its financial year ended March 31 this year (1H18), the group brought in RM2.08 billion in turnover, of which 16%, or RM332.8 million, came from the export market.

Via its Malaysia and Thailand operations, F&N’s key export markets comprise China and South-East Asia.

The F&B group is aiming to bring in RM800 million in total export revenue by 2020, which is to largely be supported by its capex and expansion projects in Pulau Indah.

In 1H18, revenue for the group was flat year-on-year at RM2.08 billion, while net profit declined 14.9% to RM199.4 million over the same period.

The performance was reflective of an F&B industry marked by continued weak consumer sentiments, higher input costs, and rising raw and packaging material prices, coupled with intense competition.

Sugar and milk powder made up the bulk of the input costs, while packaging expenses also weighed on group earnings.

To offset the challenging operating environment, F&N is looking to deliver new product offerings to cater to consumers’ shift towards healthier beverage options at affordable prices.

As part of this strategy, the group introduced its 100PLUS Reduced Sugar product which has a 4% sugar content — said to be the lowest among carbonated beverages in Malaysia.

This is further part of the group’s goal to recapture half of the sparkling carbonated drink market, of which it currently commands between a 40% and 45% share.

Lim said F&N’s product launches will be purposeful in helping the group grow its business, while managing both development and marketing expenses at the same time.

“We will launch products that we believe can grow to a substantial scale and add value to our bottom and top lines,” he said.