KUALA LUMPUR: Dairy products and soft drinks manufacturer Fraser & Neave Holdings Bhd (F&N) is exploring ways to soften the impact of losing the exclusive distribution rights for energy drink Red Bull come September on its future earnings by working on a new product.
“For this financial year [ending Sept 30, 2015] (FY15), it won’t be much of an impact because the financial year ends at the same time the distribution agreement is terminated. For FY16, [however,] there will be impact to our top line,” chief executive officer Lim Yew Hoe told reporters and analysts during a briefing on the group’s first-half financial results ended March 31, 2015 (1HFY15), yesterday.
“We grew Red Bull from a business of two million cases to a four-million-case business. That’s more or less RM200 million to RM250 million in revenue. To replace that immediately would be something that we are looking at,” he said, adding that F&N is not ruling out creating a brand of its own.
“Specifically on energy [drink], we have to find a solution. If we cannot have Red Bull, we need to have another energy drink. We are working at a replacement energy drink,” Lim said.
“At the moment this is still under tremendous research in Thailand, Singapore and Malaysia ... to work out what we think are potential winning products in the energy [drink] category. For now, nothing has been finalised,” he said.
Lim said F&N is also looking to cushion any loss of sales volume and revenue post-FY15 with the introduction of new soft drinks and dairies products such as fresh milk products and more variants of existing products.
In the meantime, F&N expects to sustain its revenue growth of 4.9% to RM1.98 billion registered in 1HFY15 for the remainder of the current financial year despite the uncertainties caused by the implementation of the goods and services tax (GST) on April 1.
“We managed to keep prices post-GST at the right levels. There was some destocking [in the second quarter ended March 31, 2015] before GST, but we saw restocking in April and that trend is expected to continue,” said Lim.
“We hope to maintain this growth level. The uncertainty is in consumer behaviour after the implementation of GST. That is the biggest unknown,” said F&N chief financial officer Soon Wing Chong.
Separately, F&N secured in January a 22-year renewal to manufacture and distribute Nestle’s liquid milk brands.
Lim said the renewal meant that F&N could now focus on expanding the production capacity in Thailand and move forward with its plans to add an extra evaporated milk processing-filling line at the facility in Bangkok. This would cost F&N 300 million Thai baht (RM32.22 million).
F&N is also planning to build a new RM85 million plant in Kota Kinabalu, Sabah, to supplement its existing facilities in the peninsula in the next three years. The plant is expected to host complete production facilities for both the soft drinks and dairy segments.
Meanwhile, F&N (fundamental: 2.1; valuation: 1.1) has delayed the launch of its integrated property development project in Section 13, Petaling Jaya, to the second quarter of 2016 to review its product offering at a time when the property market remains soft.
F&N shares closed up 1.08% at RM18.74 yesterday, bringing a market capitalisation of RM6.86 billion.
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This article first appeared in The Edge Financial Daily, on May 7, 2015.