Rising commodity prices may impact F&N in H2

The group’s CEO Lim Yew Hoe noted that commodity prices were on an uptrend and expected to rise further.

KUALA LUMPUR: Food and beverage maker Fraser & Neave Holdings Bhd remains cautious about its prospects for the second half ending Sept 30,2021 (H2) due to rising commodity prices and the Covid-19 pandemic situation.

The group’s CEO Lim Yew Hoe noted that commodity prices were on an uptrend and expected to rise further.

Lim added that the group had been able to manage rising commodity prices by hedging activities.

“We have benefitted from hedging, and we have not really reflected the spot price increase into our prices adequately, ” he said in an online media briefing.

However, Lim cautioned that the situation was very fluid and the group may need to raise the prices of its products should the uptrend in commodity prices continue.

F&N bottles and cans are filled automatically and sealed at high speed so as to retain the correct amount of carbon dioxide and to assure the cleanliness of the drinkF&N bottles and cans are filled automatically and sealed at high speed so as to retain the correct amount of carbon dioxide and to assure the cleanliness of the drink

“Even before the (first) movement control order (MCO), skim milk powder prices were going up and from April last year, we saw prices had escalated at a higher speed than usual, ” he noted.

The group’s chief financial officer Lai Kah Shen, added that rising commodity prices may have to be passed on to consumers.

“We have been facing the (rising) costs for some time, and we may see a more pronounced impact, especially on the dairy side, in H2 onwards, ” said Lai.

Lim pointed out that price increases were always the group’s last resort.

“If there were a need to increase prices, we probably would have to look at products by categories as well as by whether they were more price-sensitive. On average, we would like to keep (price increases) at single digits, ” said Lim.

For its second quarter ended March 31,2021 (Q2), F&N’s revenue grew 8.6% to RM1.09bil, supported by steady domestic sales and higher exports.

Net profit was little changed at RM103.5mil, or 28.2 sen a share.

For H1, net profit was 4.2.% higher year-on-year at RM240.3mil while revenue was 2.8% higher to RM2.175bil.

Earnings per share grew 2.6 sen to 65.5 sen.

An interim single-tier dividend of 27 sen per share was declared (similar to a year earlier).

Meanwhile, due to the higher net cash from operating activities, the group also saw its net cash growing 44.1% to RM578.8mil at end-March 2021 (compared with RM401.7mil six months earlier).

Lim said the positive H1 performance was due to a stronger Q2, driven both by domestic sales and exports as well as maiden contribution from the newly acquired Sri Nona companies.

In January 2021, to spearhead its expansion into halal food, the group completed the RM60mil cash acquisition of three companies under the Sri Nona group, namely, Sri Nona Food Industries Sdn Bhd, Sri Nona Industries Sdn Bhd and Lee Shun Hing Sauce Industries Sdn Bhd.

The principal activities of the Sri Nona companies are the manufacture, distribution and sale of rice cakes (ketupat), condiments (oyster sauce and paste), beverages (ginger tea powder), desserts (pudding and jelly powder), jams and spreads under the NONA and Lee Shun Hing brands owned by the relevant Sri Nona companies.

Lim also pointed out that exports contributed 21% of group revenue in H1.

Group export revenue remained strong (5.7% higher) fuelled by growth in the Middle East and African markets despite Covid-19 uncertainties.

Revenue from halal markets contributed close to RM100mil (35% of exports from Malaysia) in H1.

Regarding the group’s H1 results, Lim said, “Against a challenging backdrop, we built on our adaptive route-to-market execution and channel strategies to reach out to consumers and meet their expectations. We are also fortunate to have strong brands such as 100PLUS which are the must-haves during the festivities.”

“Meanwhile in Thailand, the team supported the trade with value offers and attractive promotions to help hawkers, café and restaurant operators to quickly restart their business activity as economic activities begin to pick up, ” Lim added.

Regarding its ongoing investments, several warehousing and manufacturing projects are due for completion by end-2021.

These include an integrated warehouse building in Shah Alam, Selangor with automatic storage and retrieval system (ASRS) with capacity to store over 50,000 pallets.

This integrated warehouse can maximise storage efficiency, reduce operational costs, shorten delivery lead time to customers and reduce carbon footprint as it largely eliminates the use of forklifts, resulting in less fuel usage and emissions.

Another ongoing project is a production plant for drinking water and warehouse in Kota Kinabalu Industrial Park, which will mark the group’s entry into the drinking water market in Sabah.

Also expected to be operational in 2021 is a new 20,000 sq metre regional distribution centre (RDC) in Rojana, Thailand which has a RM57.4mil ASRS.

There is also a solar photovoltaic (PV) system for three plants in Malaysia (Shah Alam, Pulau Indah, Bentong), which is part of a RM30mil commitment over two years into renewable energy programmes and projects that contribute to energy efficiency and carbon emission reduction

The 10MWp of solar energy capacity, once completed by end-2021, will generate enough clean energy to power 3,700 typical homes.

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