Higher marketing spend and packaging cost see F&N's decline in operating profit

Fraser & Neave Holdings Malaysia (F&N Malaysia) saw a 29.4% decline in operating profit to RM28.2 million during the second financial quarter ended 31 March 2019. This was due to higher marketing spending, higher packaging material costs, lower canned milk contribution and offset by "favourable" input costs mainly for sugar, palm oil and dairy-based commodity.

Although F&N saw a 6.9% increase in group revenue to RM1,025.4 million for both Malaysia and Thailand this year, Malaysia in particular saw a 0.9% decline in revenue to RM546.3 million. This was mainly due to its softer canned milk business. Meanwhile, the financial statement said that current quarter sales volume for Malaysia increased by 6.5% due to "healthy contribution" from beverages offset by softer canned milk sales. The company added that strong Chinese New year festive activations and promotions, as well as improvement in the route-to-market in East Malaysia also spurred growth in the domestic market, particularly for beverages.

Export volume excluding Malaysia also grew in the second quarter, as sales to ASEAN, Middle East and Northern Africa countries gained traction.

In the meantime, revenue for Thailand grew by 17.1% from RM413.0 million to RM483.6 million due to the successful execution of push and pull programmes in all sales channels in the domestic and Indochina market. Higher sell-in for the Songkran festive season also contributed to revenue growth.

F&N said in the financial statement that it expects the overall domestic market for Malaysia to remain challenging, given the "intensifying competition" especially in the canned milk segment. Propects for Thailand are predicted to be better, following improvement in both sweetened and unsweetened condensed milk segment. However, the management plans to increase investment in brand building to strengthen its product portfolio in Thailand in the second half of 2019.

The group said it will prioritise on strengthening its commercial strategies, route-to-market execution, accelerating innovations and improving operational efficiencies across the business to generate profitable and sustainable growth. The management will also focus efforts on expanding the global reach for the exports pillar by increasing its presence in new markets.