F&N to reformulate 70% of its products impacted by sugar tax

F&N CEO Lim Yew Hoe speaking at the group's first half FY19 financial highlights briefing.

PETALING JAYA: In a move to mitigate and minimise the impact of the impending sugar tax on July 1, Fraser & Neave Holdings Bhd (F&N) will be reformulating 70% of its products that will be impacted by the excise duty.

According to F&N CEO Lim Yew Hoe, almost 90% of the group’s products are taxable under the sugar tax.

He noted that it is a big challenge for the group, given its extensive portfolio of products, but the postponement of the sugar tax to July 1 has provided the management more time to execute the mitigation plan.

“We have carried out sufficient research to ensure that the reformulated products continue to deliver the same great taste.

“Despite our efforts, there may be some variants of our products which are challenging to be reformulated. So, some of these products may incur a sugar tax.

“In the reformulation of our products, there are some production costs incurred that may result in a small increase in product prices, but it would not be as much as the sugar tax,” Lim explained, adding that it was the group’s last resort to increase the prices of its products.

The excise duty of 40 sen per litre on sweetened beverages is applicable to beverages containing sugar of more than five grammes per 100ml, milk-based drinks containing more than 7gm of sugar per 100ml, as well as fruit and vegetable juices containing sugar of more than 12 gm per 100ml.

The overall domestic market is expected to remain challenging, given the intensifying competition in the canned milk segment.

As such, F&N will focus its efforts on growing its carbonated soft drink and isotonic drink segment in Malaysia, to be driven by 100PLUS.

The group achieved a five-year record high market share spike for 100PLUS during the recent Chinese New Year, commanding a 40% market share of carbonated soft drinks.

As part of the special promotions and trade activity for the upcoming Ramadan and Hari Raya festivities, F&N has introduced the limited edition F&N Lychee Pear drink, with an improved recipe certified with the Healthier Choice logo, as well as fruity variants of 100PLUS.

Other recent new products launched in Malaysia include F&N Seasons Apple Pomegranate and Watermelon Lychee, as well as Carnation sweetened and condensed creamer.

Prospects in Thailand are expected to be better, following the improvement in the sweetened and unsweetened condensed milk segments.

Not only has the new tube packaging of condensed milk resulted in a lower cost for the group, but it has also enabled an increase in occasions with condensed milk, given the practicality of the packaging.

Over in Thailand, F&N recently launched the F&N Magnolia Plus - Lactose-Free Pasteurised Milk range and F&N Teapot Caramel Flavoured Sweetened Condensed Milk Tube.

“The lactose-free products are pretty new and would take time to grow its reception among consumers in Thailand.

“We have no near-term plans to bring this lactose-free range of products to Malaysia, as we need to have the right facilities and in-source our milk production first,” said Lim.

Going forward, the group intends to increase its in-sourcing capacity to command greater economies of scale.

To date, the first phase of can-making insourcing has been completed, with the commissioning of the new can-making line at the Pulau Indah plant that will increase F&N’s capacity and operational cost savings.

Part of the RM30mil capital expenditure allocated for the financial year ending Sept 30, 2019 is for the expansion of the group’s multi-storey automated storage and retrieval system (ASRS) warehouse in Shah Alam.

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