Fraser & Neave Holdings Bhd Annual Report 2019

WWW . F N . C O M . M Y 050 F R A S E R & N E A V E H O L D I N G S B H D st rategic report > CHIEF EXECUTIVE OFFICER’S STATEMENT In addition to the reformulations, this year saw 10 exciting launches which helped to expand our range of products certified by the Healthier Choice Logo of Malaysia’s Ministry of Health or Thailand’s Ministry of Public Health. From 20 such products in FY2018, we now have 41. In Malaysia, the new F&N Lychee Pear, F&N SEASONS Apple Pomegranate Tea, F&N SEASONS Watermelon Lychee Tea and F&N SEASONS Pu-Erh Chrysanthemum contain less than 5g of sugar per 100ml. Meanwhile, the F&N Magnolia Plus Lactose Free milk launched in Thailand caters to the health needs of lactose intolerant consumers. Our current focus in Thailand is on expanding the range of ready-to-drink milk, the natural choice for consumers seeking nutritious beverages, especially senior citizens who are expected to make up 20 per cent of the population by the year 2022. CAPEX: SETTING UP FOR THE FUTURE For the year as a whole, we invested RM150 million on capital expenditure (capex). Among our major ongoing projects are: • Shah Alam Warehouse: This new integrated warehouse with the RM78 million Automated Storage Retrieval System (ASRS) has a capacity of over 50,000 pallet space. To be completed in FY2021, this capex is expected to increase operational efficiency, provide savings as well as reduce the carbon footprint of our warehouse operations. • New Product Development Transformation programme in Shah Alam: A total of RM30 million has been allocated for new equipment to enable the production of healthier products; and in smaller can format (180ml-250ml). Products such as F&N Classic series (original recipes with full flavour) will be produced in smaller cans and to be launched in time for Chinese New Year 2020. • Kota Kinabalu Industrial Park (KKIP) drinking water line and finished goods warehouse: We have allocated RM20 million capex and started construction work on our first drinking water line in Sabah. The plant, which also houses a finished goods warehouse for products shipped from our Peninsular Malaysia plants, is expected to be completed in FY2020. • Solar roof in Rojana plant: The RM4 million system, with a capacity to produce 1MW of electricity, will be up and running in 2020. • In addition, the development of a RM40 million fresh milk line in Pulau Indah is ongoing and is expected to be completed in FY2020. CAPTURING VALUE ALONG OUR SUPPLY CHAIN Cost Competitiveness is critical in the current climate of cost-conscious consumers. Thanks to the various efforts to drive cost efficiencies along the entire supply chain, we have managed, for example, to launch a series of 250ml and 1.2 litre value products that resonate well with consumers – with very encouraging sales during the Hari Raya season. In response to the increasing competition in Thailand, we introduced the 2kg flexible pouch format for both Carnation and TEAPOT sweetened beverage creamer a few years ago. As they offer greater value for money compared to the can format, they have proven to be extremely popular with restaurateurs as well as hawkers, resulting in all the eight lines currently operating at our plant in Rojana, running at full capacity. Our employees have been the key drivers of greater efficiencies through innovations to reduce consumption of resources, improve productivity and/or enhance product quality. Initiatives presented under the ‘Excel As One’ programme this year delivered cost savings or cost avoidance of 18.44 million Baht (RM2.52 million) per annum. In addition, the Quality Excellence team at Rojana Plant developed an initiative that reduced the quarantine period of finished goods, enabling fresher products to be released to the market while achieving annual cost savings of 6.5 million Baht. The initiative has been expanded to our plant in Pulau Indah. We also drive cost-competitiveness through selective in-sourcing. In the last quarter of FY2019, we completed one of the two additional new empty can making lines at our plant in Pulau Indah. When both lines are in full operation, we would only need minimal external supply for our condensed milk empty cans, providing our Export team with a more cost competitive position.