Page 11 - MFBD 1920_02Mar2020
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Amid escalating trade tensions and tighter global  nancial conditions, the Malaysian economy recorded a respectable growth of 4.7% in 2018. Growth in 2018 was further affected by unanticipated supply disruptions in the commodity-related sectors. For 2019, as supply disruptions recede and new production facilities commence, the Malaysian economy is expected to continue to expand at a steady pace. Private sector demand is expected to remain the main driver of
growth amid  scal rationalisation while the external sector would be weighed down by weaker global demand. Although sentiments have moderated from recent highs, private sector expenditure will continue to be supported by fundamental factors such as continued income and employment growth. Risks to growth remain tilted to the downside, stemming mainly from further escalation of trade tensions and tightening of global  nancial conditions.
Food & Beverage ManuFacTuring updaTes
During the Budget 2019 reading, the Malaysian government announced that a sugar tax will be imposed effective from April 2019, in an attempt to reduce the nation’s sugar consumption in light of rising obesity and diabetic rates. A RM0.40 tax per litre will be imposed on soft drinks with more than  ve grams of sugar or sugar-based sweetener per 100ml, which includes carbonated drinks,  avoured and other non-alcoholic beverages. For juice or vegetable-based drinks, a RM0.40 tax per litre will be imposed on drinks with over 12 grams of sugar per 100ml.
Many expect the proposed tax to primarily hit Fraser & Neave Holdings Bhd (F&N) because an estimated one- fth of its sales are derived from soft drinks. Chief Executive Of cer, Lim Yew Hoe, said F&N is ready to absorb additional cost incurred from the proposed sugar tax and is also expecting to incur extra cost in reformulating drinks to match the taxable sugar level. Any move to increase beverage prices would be the group’s last resort.
Currently, about 90% of F&N’s products are taxable under the threshold, including its top-selling isotonic drink 100PLUS Original and various other regular fruit juices. By reformulating its products to reduce sugar content and with portion control packs, the company hopes to halve the number of products exposed to the tax. F&N also hopes to speed up its healthy product innovations in order to alleviate the impact of the
upcoming sugar tax.The group has allocated RM30 million for its capital expenditure in its  nancial year ending September 30, 2019 (FY19), to ramp up capability in new product offerings and packaging formats in its Shah Alam beverage plant.
For the  rst quarter ended December 31, 2018 (1QFY19), F&N reported a 15% increase in net pro t to RM122.86 million from RM106.83 million in the previous corresponding quarter, supported by higher contributions from its operations in Malaysia and Thailand. Group revenue for the quarter grew 0.8% to RM1.01 billion from RM1 billion a year earlier. While F&N Malaysia’s revenue fell 0.5% to RM553.4 million amid lower export revenue, operating pro t improved 27.5% to RM52.5 million, helped by favourable input costs for sugar, palm oil and dairy-based commodity. This was partly offset by higher packaging material costs and manufacturing related costs.
Meanwhile, F&N Thailand’s revenue grew 2.5% to RM456.5 million, driven by higher export revenue amid market expansion and execution of promotional campaigns in the Indochina region, despite domestic revenue being  at due to intense competition in the sweetened beverage creamer market. Operating pro t for F&N Thailand grew by 36.5% to RM99.3 million. For 2019, the group expects the overall domestic market for both Malaysia and Thailand to remain challenging with continuing competitive price pressures and intensifying competition.

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