Magazines Archives - 2009 April

F&N loses rights to bottle and distribute Coca-Cola products in Malaysia
Story 9 - Food Business Asia

FRASER & NEAVE (F&N) Holdings Bhd will not get its bottling-and-distribution agreement renewed for Coca-Cola products when the contract expires in January 2010.

Its parent company, Singaporebased beverage-and-property group F&N Limited, posted a disclosure on Bursa Malaysia that the Malaysian soft-drink unit comprises up to 48% of the group’s operating profits, with sales from TCCC’s (The Coca-Cola Company) products, namely Coca-Cola and Sprite, estimated at RM421 million (US$116.28 million), or 35% of the unit’s revenue in its last fiscal year ended 30 September 2008.

However, no reason was given for the non-renewal of licensing.

Following the termination of the TCCC agreement, F&N plans to build up its own brands and presence in the Malaysian market.

“As a result of our new status, we are now able to launch new products and venture into new territories and export markets from which we were restricted in the past by the agreement,” said Tan Ang Meng, F&N’s CEO.

“We now have a whole new chapter open to us with the restrictions gone. With our financial strength and the diversity of our product mix, we are positive about our future,” Tan told the local media.

F&N’s chief executive of F&B, Koh Poh Tiong, said that it was a “very difficult decision” to sell F&N Coca-Cola to TCCC about a decade earlier, but added that “the return of the soft-drink business in Singapore is like a homecoming for our founding business from 126 years ago.”

Softened blow

Once the agreement expires, F&N stands to lose about 15 million cartons of drink sales annually, although the blow is expected to be softened by about a third with exports of 100Plus, Seasons and F&N drinks to Singapore.

“This leaves us with 10 million cartons to worry about but we will fill up the gap with new products — tea, coffee, Asian soft drinks, water, lemon lime — categories we were prohibited from doing earlier,” Tan maintained.

“We now have the whole world to ourselves. Our dairy operation in Thailand is already generating RM700 million to RM800 million in revenue, imagine what we can make with a whole range of other products to export,” Tan said.

AmResearch Sdn Bhd, however, believed the development will have a “negative impact” on F&N, adding that the group’s soft-drink division was “the most lucrative” compared with its three other divisions — dairy products, glass containers and properties.

“Based on our assumptions, the calculations show a potential earnings revision [downward] by as much as 14% for FY10 and a greater 22% for FY11,” warned Benny Chew, AmResearch’s head of research.

Still, he added: “We continue to like F&N for its sound and sustainable long-term growth, notwithstanding its generous dividend policy on the back of a cash-generating business model.”

The currently steep 13% decline in share prices is an “excellent opportunity to accumulate the stock” at a discount, Chew recommended.

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