F&N braces for add-on cost from sugar tax, aims to retain prices

Any move to increase the prices of beverages would be the company’s last resort, says F&N’s CEO


Fraser & Neave Holdings Bhd (F&N) said it is ready to absorb additional cost incurred from the proposed sugar tax, set for implementation in April.

CEO Lim Yew Hoe (picture) said the company is expected to incur extra cost in reformulating drinks to match the taxable sugar level.

Any move to increase the prices of beverages, Lim said, would be the company’s last resort.

“It depends on sugar recipe costing against soda tax and which one makes more sense. We are not doing this just to avoid the soda tax. We strive for a balanced and responsible approach for consumers, shareholders and the company,” Lim said after the company’s AGM in Kuala Lumpur yesterday.

Lim said the company is not going to compromise on the taste of its products just to avoid the taxable sugar level.

The government announced under Budget 2019 the introduction of an excise duty of 40 sen per litre on ready-to-drink beverages that contain sugar exceeding 5g per 100ml, as well as fruit and vegetable juices containing sugar more than 12g per 100ml, starting April 1.

Lim said about 90% of F&N’s products are taxable under the threshold, including its top-selling isotonic drink 100PLUS Original and various other regular fruit juices.

In November, a RAM Rating Services Bhd report estimated that the selling price of the group’s key beverage products would rise between 10 sen and 60 sen (based on the existing prices of RM1.20 to RM3.40 for 250ml to 1.5l drinks).

Lim said the company is prioritising research and development efforts on products according to the significance of impact to the group.

He added that F&N is ready for the sugar tax, though it has gone through big challenges to reformulate its products.

He said the company expects to achieve a “significant” drop in the percentage of its taxable products from the current 90% of the portfolio.

“Large portions of the product will be below 5%. A significant (drop)…more than half of the 90%, but it depends on the final reformulation,” Lim said.

F&N is going to introduce some products with original recipes in a smaller pack size, or called as “portion control packs” to meet the sugar tax threshold, in addition to reducing sugar content.

The food and beverages producer has earmarked RM30 million in capital expenditure for the fiscal year 2019 (FY19) to expand production capacity and capabilities, partly to cater product transformation in line with the sugar tax.

Lim said the group is investing in new production lines and add-ons to facilitate the group’s extension of new offerings and packaging formats.

Meanwhile, Lim announced that F&N is planning to increase its exports value to halal markets to RM100 million by 2020, riding on Malaysia’s strength as a global halal hub.

Overall, F&N targets to increase its export value to RM800 million by 2020 with a greater focus on emerging markets including the Middle East, China, Africa and South Asia.

F&N concluded FY18 ended Sept 30, 2018, with a net profit of RM385.1 million, up 19.1% from the previous year, on higher exports and effective promotions.

At the AGM, shareholders approved the payment of a final single-tier dividend of 30.5 sen per share, amounting to a total dividend of 57.5 sen a unit for FY18.

The amount is payable on Feb 15 and the entitlement date is Jan 29.