Stronger ringgit good for F&N as net importer

This article first appeared in The Edge Financial Daily, on January 25, 2018.
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KUALA LUMPUR: Fraser & Neave Holdings Bhd (F&N) said a stronger ringgit is a boon to the food and beverage group as a net importer.

Its chief financial officer Tan Hock Beng said this is especially so for its dairy product segment, as F&N obtains raw materials from outside of Malaysia. For the soft drink segment, there are sugar suppliers locally.

“A stronger ringgit is definitely good for the group and its overall business. For example, we import a lot of dairy products, especially raw materials, from several foreign countries and transactions are predominantly done in the US dollar,” Tan told reporters after F&N’s annual general meeting yesterday.

He said F&N expects sugar prices to be lower this year compared with that in 2017 on expectations that international sugar prices would drop and that the ringgit will continue strengthening against the greenback.

“The first quarter [ended Dec 31, 2016 or 1QFY17) was a bit tough for us as it was the peak [of raw material costs]. But now, we can breathe a little,” he said.

F&N blamed the drop in its operating profit in 1QFY17 — down 26.1% from RM81.6 million to RM60.4 million — on higher raw material costs, particularly for sugar. The decline was also due to organisational restructuring costs incurred and higher trade and consumer promotion spending.

Meanwhile, F&N chief executive officer Lim Yew Hoe said the group has no plans to raise prices of its products amid fluctuating commodity prices, and will focus on offering greater affordability to consumers.

“Our products are for the masses and for that reason, we believe increasing prices are the last thing will consider. As it is, sugar prices are moderating, so increasing prices is not on the cards,” said Lim.

He said last year, in particular, saw commodity prices rising and F&N had to absorb the cost increases but at the same time maintain the prices of its goods. This, he noted, led to a reduction in profit for the financial year ended Sept 30, 2017 (FY17).

“Now, we’re focusing on offering greater affordability to our customers. If you walk into grocery stores, you would see our 1.5-litre 100PLUS, for example, at RM2.80. We’re actually passing savings back to consumers.”

Further, Lim said there are plans to launch new products in a few months due to rising demand for healthier and less-sugar products, but did not elaborate except to say they will cater to the mass market.

“These are products with lower sugar content, and customers may find these new variants more preferable. We aim to launch this new product series in the next few months.

“We’re also addressing the issues of sugar [content] and health — concerns among the public. I hope our consumers will be receptive towards these new products. If we get things right, the numbers (sales) may be big.”

In its annual report, F&N said it had reduced the sugar index in its product portfolio, now 24% lower from that in FY07.

Separately, F&N announced a de-bottlenecking programme at its Pulau Indah dairy plant which will result in up to five million cases more in annual capacity. It is currently producing 16 million cases of canned dairy products per year.

The strategy involves a capital expenditure of RM25 million, and will address the much-needed capacity for the domestic and export markets. Outside Malaysia, F&N said it is looking to expand the capacities at its plants in Rojana and Pakchong, Thailand.