KUALA LUMPUR (Feb 8): Higher raw material costs ate into Fraser & Neave Holdings Bhd's (F&N) earnings in the first financial quarter ended Dec 31, 2021 (1QFY22), on top of the estimated loss of RM41.5 million caused by flash floods and foreign exchange loss.
The food and beverage manufacturer's net profit dropped 32% to RM92.95 million in 1QFY22 from RM136.81 million a year prior. Its quarterly revenue, however, grew 2.17% to RM1.106 billion from RM1.083 billion in 1QFY21 amidst recovery of economic activities in its core markets.
With the release of its quarterly results, F&N said it will continue to engage with its insurers to ascertain the quantum of reimbursements for property damages and loss of income under its business interruption policy.
However, the group said it expects the current challenging environment to remain due to continuing high prices of key raw and packaging materials and uncertainties arising from the Omicron variant of Covid-19.
"As a very last resort, we may adjust product pricing gradually to ease margin pressures due to further increase in commodity prices and other input materials."
F&N revealed that based on its management's assessment to date, its estimated flood damages amounted to RM41.5 million — covering inventories and property damages, repairs and other flood-related costs — with RM18 million covered by interim insurance claim receivables in respect of inventories.
"Losses recognised in 1QFY22 only reflect damages that had been quantified to date. Assessment of damages for plant and machinery, for example, is still in progress at the time of this report and subject to availability and lead time for obtaining replacement parts/components and repairs," it noted.
Revenue from its Malaysian operation grew by 1.3% to RM575.59 million compared with RM568.18 million a year ago as revenue from its food pillar cushioned the impact of the recent floods on its Shah Alam-based manufacturing facilities as well as shipping disruptions to both domestic and export businesses.
"In Malaysia, positive momentum was building up to Chinese New Year for festive sell-in. Out-of-home consumption improved with the easing/lifting of movement control restrictions in states during the quarter nationwide.
"However, from the fourth week of December, domestic sales were impacted by the floods in Selangor and other states and transportation disruptions. Exports from Malaysia continued to grow in the weeks before the flash floods inundated Port Klang, resulting in postponement of some shipments to next quarter," said F&N.
In Thailand, revenue grew 3% to RM529.84 million from RM514.4 million a year ago due to higher domestic sales and exports.
The group noted that in Thai baht terms, revenue growth stood at 10.3%, but unfavourable ringgit to Thai baht translation led to lower percentage growth in ringgit terms.
"Domestic revenue improved with easing of lockdown restrictions and reopened borders via 'test and travel' schemes and 'Sandbox concept' (welcoming travellers who are fully vaccinated to enter Thailand without quarantine). However, the quarantine-free travel scheme was suspended from Dec 22, 2021 due to the threat of the Omicron variant," it added.
Moving forward, despite the headwinds, with the encouraging momentum of recovery in economic activities in both Malaysia and Thailand, F&N said it will continue to drive sales for the coming festive seasons and for the rest of the year, particularly for beverages and ready-to-drink dairy business, and out-of-home channels.
"Exports and the halal packaged food pillar will remain a key focus for the group," it said.
F&N's share price went up 18 sen to RM24.30, giving the food and beverage group a market capitalisation of RM8.91 billion.
Prior to the latest quarterly results' announcement, most analysts were recommending the stock with an average target price of RM31.28.