2-pronged F & N plan to drive growth


BY ELAINE ANG

THE last two years is testimony to the resilience and stability of food and beverage giant Fraser & Neave Holdings Bhd.  

Through efforts taken to rationalise and optimise operational efficiencies, the group managed to record growth in profit before tax (PBT) despite flat revenue growth year-on-year.  

And chief executive officer Tan Ang Meng is fairly confident of the group's results this financial year. For the first quarter ended Dec 31, 2002, it recorded an increase of 26% in group pre-tax profit to RM39.5mil compared with the previous corresponding quarter.  

While the group’s current strategy had generated significant cost savings to improve profits, Tan said, the group would not be able to continue driving rationalisation in order to increase margins in the long term.  

Fraser & Neave Holdings CEO Tan Ang Meng.

“We have to grow our top-line revenue. People have to earn more to become rich, and not save more, it's the same with a company,” he told Starbiz.  

To accelerate the growth of its businesses and increase revenue to a higher level, F & N has developed a two-pronged strategy, which en- compasses its existing soft drinks, dairy and glass businesses as well as expansion plans to venture into new businesses. 

According to Tan, the group’s vision is to be a regional player in the branded food and beverage sector, and the manufacture of glass containers, drawing on its significant market position in the country.  

“Our board has approved an expansion strategy that looks at acquisition of new businesses within or outside Malaysia to grow future revenue and profitability,” he said.  

“With available cash of about RM200mil, plus our zero gearing, we have the financial capacity to acquire businesses or initiate green-field start ups.  

“The challenge is identifying opportunities in businesses which we are familiar with and possess core competencies in and which can be quickly and successfully integrated to extract the benefit of synergies,” he said. 

Tan said the setting up of a glass packaging joint venture in Sichuan, China, which went into commercial production recently, was a major part of the group’s drive towards regional expansion.  

If the group is to expand within the country, it is prepared to go into businesses it is not familiar with. For overseas expansion, the group will stick to those related to its core business, so as to reduce risks. 

“We are very interested in food-related business especially the packaged, branded food business here. We are looking for a fairly sizeable business, which we will be able to synergise with our existing businesses, especially those utilising the group's strong distribution channels,” he said.  

Tan, however, admits that the food business in Malaysia is fairly competitive as the country does not have a big population. 

“Realistically, there are very few companies in the food business for us to look into. So, we have also set our sights on regional expansion especially joint ventures in soft drinks, dairy and glass making in South East and North Asia,” he said. 

“In view of our commanding market share, organic growth will not give us the quantum leap in improvement that we are seeking. Thus, we need to look at inorganic expansion, either through acquisitions or new business ventures, for top-line revenue growth,” he said. 

He said plans were underway for an extensive upgrade and expansion of the group's hardware and infrastructure as well as further investments into new technology to drive businesses.  

“We spend an average of RM30mil to RM40mil purely on maintenance of our operations,” he said, adding that more would be invested if future upgrades were needed. 

Another area that F & N had been focusing on was how it could better “sweat” its assets.  

“By this, we mean not only more efficient working capital management but also better extraction of yields on our surplus, major landed properties which have a book value of about RM90mil,” Tan said. 

On the sale of the company’s share in Harmonic Fairway Sdn Bhd, originally set up to develop a piece of land at KL Sentral, Brickfields, to Malaysian Resources Corp Bhd, Tan said the group found that the investment was not compelling in terms of returns. 

“We worked very hard on it but it's just one of those things. The RM20mil loss incurred is considered a sunk cost. The upside is that we do not have to invest another RM100mil to RM150mil to complete the project,” he said.  

On the Severe Acute Respiratory Syndrome outbreak, Tan said so far, F & N had not seen any impact on its business.  

“A good thing about our products is that they are not on-premise, served only in food outlets, but a packaged goods business. We have not seen any drop in consumption of our products,” he said.  

F & N employs more than 4,000 employees and operates eight factories, two of which are in Vietnam and China. Its portfolio of brands consists of household names like Coca-Cola, 100Plus, Seasons, Sunkist, F & N condensed milk and F & N soft drinks. 

 

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