F&N Announces RM210 Million Investment In Key Capex Projects

• RM 180 million warehouses in Shah Alam to meet growth projections of core products
• Aseptic cold-filling PET line to facilitate the Group’s product expansion and environmental commitment with 40 percent reduction in resin packaging material
• RM30 million investment on a new UHT line in Kuching, Sarawak

Fraser & Neave Holdings Bhd (“F&NHB” or “the Group”) will invest RM210 million in a new warehouse, a state-of-the-art Aseptic Cold-Filling Polyethylene Terephthalate (PET) line in Shah Alam and a UHT line in Kuching to meet its capacity expansion and business growth projections.

The projects are part of over RM300 million capex budgeted for 2 years in line with the Group’s commitment to achieve the lowest cost to market and be the best-in-class player in cost efficiency and productivity.

The new investments follows the Group’s announcement of its financial performance for the first half ended 31 March 2016 in which it reported a solid performance despite challenging market conditions, during which revenue grew 3.9 percent to RM 2.05 billion from RM1.98 billion in the previous half while profit before tax increased substantially by 66.5 percent to RM279.5 million.

The RM180 million integrated four-level warehouse facility to be built on a 2.2 acre site within its existing Shah Alam plant will offer a four-fold increase in storage capacity and house an aseptic cold-filling PET line to facilitate the Group’s extension into new offerings and packaging formats.

“The project will commence in the third quarter and is expected to be completed within the next 24 months,” said Lim Yew Hoe, F&NHB’s chief executive officer at an analyst and media briefing in conjunction with the review of the Group’s first half financial results for the year ending 31 March 2016.

Lim said the Group, in operating its own warehouse, will save RM10 million annually leveraging on cost efficiencies while the new aseptic cold-filling PET line will reduce PET resin packaging material by 40 percent, resulting in more savings and a smaller carbon footprint.

The Group will also invest RM30 million in a new UHT line at its plant in Kuching, Sarawak to meet growing demand in East Malaysia. The line is expected to be operational this October.

Earlier in the year, the Group had announced the 300 million Baht evaporated milk processing, filling and packaging line in Rojana, Thailand plant, which has been operational since February; and a RM45 million PET line in Shah Alam to be operational in June this year.

Lim added that the capex investments will enable F&NHB to sustain itself as one of the lowest cost producers in the industry, achieve projected volume growth for its core products and further extend its product offerings and packaging formats.

“It also mirrors our objectives of keeping ahead of the curve and our confidence in the future of the increasing role and position we have in the industry,” he said.

Meanwhile, for the first half ended 31 March 2016, Food and Beverages Malaysia segment delivered a positive top-line growth, up marginally to RM1.27 billion from RM1.26 billion in the corresponding period last year despite the absence of contributions from Red Bull, the impact of higher cost of living post GST, Government subsidy rationalisation on consumers’ discretionary spending behaviour and an increasingly competitive trading environment.

Operating profit of Food and Beverages Malaysia jumped 39.5 percent to RM145.9 million on the back of higher sell-in from Chinese New Year festivity-driven marketing programmes which helped eased competitive pricing pressures, coupled with a favourable product mix, lower milk based global commodity prices, and recovery from East Coast flood insurance claims.

Food and Beverages Thailand revenue grew a strong 9.1 per cent to RM780 million boosted by the continuing higher than market demand for all its products along with a good response to its newly launched UHT milk products. Distribution coverage also grew supported by effective branding and consumer trade campaigns.

Operating profit of Food and Beverages Thailand almost doubled to RM107.8 million from RM56 million aided significantly by lower milk based commodity prices, lower trade discounting, recovery of withholding taxes on royalties paid in previous years, equivalent to RM8.5 million and realisation of manufacturing efficiencies along with the favourable Thai Baht foreign currency conversion.

Pursuant to re-allocation of staff costs resulting from the realignment of the Group’s operations and management structure, the Others segment experienced an operating loss of RM12.9 million compared to operating profit of RM23.7 million in the corresponding period last year.

On prospects for the next two quarters, Lim said the market is expected to continue seeing higher trade price competition and end consumer campaigns and programs which will impact contribution margins.

“The Group will diligently monitor the market and consumer dynamics with a view of adopting appropriate competitive strategies to enable it to maintain and sustain its market leadership position and profitability in this challenging environment,” Lim added.

In line with the Group’s performance, the Board declared an interim single tier dividend of 27 sen per share (2015: 22 sen) for the year ending 30 September 2016. The dividend amounting to about RM99.0 million will be paid on 15 June 2016.