F&N foresees challenging FY19, 1Q profit up 15%

It expects Malaysian and Thailand markets to be challenging due to competitive price pressures

By MARK RAO / Pic By TMR

Fraser & Neave Holdings Bhd (F&N) anticipates challenging market conditions on price pressures and higher competition despite starting its fiscal year on a higher earnings base.

The leading food and beverage (F&B) company in Malaysia posted a 15% year-on-year (YoY) jump in net profit to RM122.86 million for its first quarter ended Dec 31, 2018 (1Q19), due to higher contributions from its Malaysian and Thailand businesses.

Revenue for the quarter grew by 1% to RM1.01 billion over the same period as lower turnover from Malaysian exports kept gains in check.

Despite the improved growth, the company expects the overall domestic market for Malaysia and Thailand to be challenging due to continuing competitive price pressures and intensifying competition.

“In Malaysia, the management will assess and closely monitor the impact of the imposition of excise duty at 40 cents per litre on ready-to-drink beverages that contain sugar exceeding 5g per 100mm,” it said in an exchange filing last week.

The excise duty will be imposed starting April 1 this year and will thus have an impact on F&N’s business from 3Q19 onwards.

In the meantime, the company said it is aiming to accelerate innovations and the development of healthier options
for the Malaysian market.

For its F&B business in Thailand, the company noted that it commenced paying corporate taxes this fiscal year after fully utilising promotional privileges granted by the country’s board of investment.

“The group will prioritise on initiatives to capture revenue synergies by focusing on its three growth drivers, namely innovation, excellence in execution and cost competitiveness, to generate profitable and sustainable growth,” it said.

“The board and management will continue to be vigilant and take decisive actions in managing the changes in external environment.”

Revenue from F&N’s Malaysian operations declined marginally by 0.5% YoY to RM553.4 million in 1Q19 on lower export revenue which resulted from the absence of a one-off contract packing business.

This was mitigated by higher domestic revenue following the earlier Chinese New Year festive sell-in for beverage
products and lower discounts organised by the company.

Operating profit from the segment rose 27.5% YoY to RM52.5 million, owing to favourable input costs for sugar, palm oil and dairy-based commodities, although this was offset by higher packaging costs and manufacturing-related expenses.

Revenue and operating profit from F&N’s Thailand business improved by 2.5% and 36.5% respectively to RM456.5 million and RM99.3 million.

Turnover from the segment was supported by higher export revenue from market expansion and promotional campaigns carried out for the Indochina region.

In contrast, domestic revenue was flat due to an intense competition in the sweetened beverage creamer market segment.

Higher export revenue coupled with favourable input costs for raw materials bolstered profit from Thailand. This was partially offset by higher packaging costs and advertising spending.