Latest / Investor Exchange / Fraser and Neave Limited 1H2025 Results: Revenue Growth and Dairy Investment

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Fraser and Neave Limited 1H2025 Results: Revenue Growth and Dairy Investment · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Ever feel like understanding a company's financial health is,
• 0:11
  well, like trying to read a secret code?
• 0:13
  It definitely can feel that way sometimes. Yeah. So we want to try and crack that code for you today.
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  We're doing a deep dive into Frasier and Neve Limited F&N. You probably know
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  them looking at their latest results. That's right.
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  Specifically, the first half of their fiscal year, the six months ending March 31st, 2025.
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  And we've got the official documents right here, the results presentation,
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  the press release, and the condensed financial statements themselves.
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  Yeah, it's a pretty comprehensive set. Gives us a good basis to see what's really going on. Exactly.
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  So our mission really is to look past just the raw numbers.
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  We want to understand why things happened. The revenue growth,
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  the profitability, and crucially, what they're saying about the future.
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  What's driving performance basically?
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  The good and maybe the not so good. Okay, let's jump right in then.
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  The big headline number seems to be revenue, right? Looks like strong growth there. That's spot on.
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  The first thing that really catches your eye is that revenue growth.
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  It's up 13.2% compared to the same period last year. 13.2 percent.
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  It's pretty significant.
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  It really is. It pushed their total revenue for the half year to over $1.2 billion.
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  To $1,212.6 million to be exact, up from about $1,071 million previously.
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  Wow. Okay, so a strong start on the sales front, but revenue is only part of
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  the picture. How did that translate into profit?
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  Well, that's where it gets a little more nuanced. Their profit before interest
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  in tax, the PBIT, did increase, but only slightly. It was up 1.6% to $165.1 million.
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  Okay, so a much smaller increase than the revenue jump. Exactly.
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  And then if you look further down at profit after tax, or PTE,
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  that actually dipped a tiny bit, down 0.6% to $124.8 million.
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  Interesting. So sales are way up, but the bottom line actually went down slightly.
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  What's the story there? It looks like a key factor was tax.
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  Their effective tax rate went up a little from 15.4% to 15.8%. Okay.
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  Any reason given for that? Yeah, I mentioned a couple of things. A tax incentive expired,
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  over in Thailand. And they also faced higher withholding tax expenses.
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  So those things aid into the profit after the PBIT line. That makes sense.
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  Tax changes can definitely have an impact.
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  What about the profit that actually belongs to the shareholders and the earnings per share?
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  That side was pretty stable, actually. The profit attributable to shareholders
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  was $84.1 million, very close to last year's $83.8 million.
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  And consequently, the basic earnings per share stayed exactly the same at 5.8 cents.
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  Right. But you mentioned the PBIT increase was small compared to revenue.
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  Did that affect their margins? It did. Their PBIT margin, that's the profit
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  before interest and tax as a percentage of revenue, it did decrease.
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  It went from 15.2% last year down to 13.6% this period.
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  So they're making slightly less profit on each dollar of sales,
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  even though overall sales are up. Basically, yes.
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  That suggests maybe costs went up or the mix of products sold changed or maybe
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  pricing pressures? We'll probably see more as we break it down by segment.
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  Okay, good point. Let's do that. Food and beverage must be the biggest chunk
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  of their business, right? How did that segment perform? Absolutely.
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  F&B was definitely the main engine. Revenue there grew by a strong 15%,
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  hitting $1,072.8 million.
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  That really powered the overall group revenue increase. 15% in F&B.
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  That's solid. And within F&B, what about,
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  Beverages, soft drinks, beer, that kind of thing. Beverages had a,
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  well, a really impressive half. Revenue jumped 28%. 28%?
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  Yeah, reaching $429.4 million.
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  They put this down to a few things. Higher volumes, especially boosted by successful
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  Chinese New Year campaigns.
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  Ah, the festive season boost. Right. Plus they introduced some new products
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  that seemed to resonate, like that F&N Magnolia low-fat banana-flavored milk
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  and an F&N seasoned strawberry tea. Okay, new product innovation.
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  Helping out. Definitely.
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  And they also mentioned improved pricing strategies playing a role.
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  Oh, and they launched a new beer brand, Tapper, in Myanmar, which they highlighted as successful.
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  Lots going on in beverages then. What about the other big part of F&B Dairies?
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  Dairies also showed good, solid growth.
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  Revenue was up 8% to $643.4 million.
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  Still strong. What drove that? Mainly strong sales of their canned milk products,
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  which are big sellers in key markets. They also saw higher volumes in places like Laos and Cambodia.
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  And interestingly, they got their first contribution from Malaysia's school milk program.
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  Okay, so multiple factors contributing there. That covers F&B.
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  What about their other segment, Publishing and Printing?
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  PNP faced a bit more of a headwind. Revenue there actually dipped slightly,
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  down 1% to $95.8 million.
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  Just 1% down. Why was that? The main reason they gave was the absence of some
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  one-off items they had last year, things like selling certain Hong Kong book
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  titles and some licensing income from Chile.
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  Ah, so comparing against a strong prior period in some ways. Exactly.
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  It wasn't all negative, though. They did see increased sales in packaging print,
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  specifically craft paper bags in the U.S., and their distribution sales also
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  improved a bit, which helped offset some of that decline.
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  Okay, so a mixed picture across the segments on the revenue side.
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  Now let's look at profitability for those segments, the PBIT.
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  How did that break down? Right. So for food and beverage overall,
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  PBIT grew by 5 percent. Again, slower than the revenue growth, remember?
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  Got it. 5 percent growth for F&B PBIT.
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  And within that, beverages. Beverages PBIT was up 4 percent,
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  reaching $30.3 million.
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  This was mainly driven by better profitability in soft drinks,
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  thanks to those higher sales we talked about, a better cost environment,
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  and some positive foreign exchange effects.
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  OK, so soft drinks doing well on the profit front, too. Yes,
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  but the beer division actually faced higher production and operating costs,
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  so that likely pulled down the overall beverage PBIT growth a bit.
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  Right. So even within beverages, there are different dynamics at play.
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  What about dairy's profitability?
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  Revenue was up 8 percent. Dairy's PBIT followed with a decent 6 percent growth,
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  hitting $135.2 million.
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  They actually called out really strong performance in Malaysia,
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  profit up 71 percent there, and also Thailand, up 11 percent.
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  71% in Malaysia. That's huge. What was behind that?
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  A combination, it seems. Higher sales, favorable input costs...
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  Maybe milk powder prices were better, lower marketing spend.
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  And again, positive foreign exchange impacts in those countries. Okay.
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  Strong showing from dairies in those core markets. Yes. But there's a significant counterpoint.
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  That strong performance was partially offset because the profit contribution
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  from their associate company in Vietnam, Vinamilk, was down quite a bit, 21%. Ah, Vinamilk.
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  So the performance of their investments
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  matters too. Yeah. Down 21% is a noticeable hit. It definitely is.
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  It shows how interconnected these things are. And what about publishing and printing PBIT?
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  Revenue was slightly down. Yeah,
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  P&P actually reported a loss before interest and tax of $9.4 million.
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  A loss. Was it profitable last year? It also reported a loss last year,
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  but it was smaller, $6.2 million.
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  So the loss widened this period. Ouch. Why the bigger loss? Primarily due to
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  lower contributions from both sides of that business.
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  Education suffered from not having those one-offs we mentioned earlier.
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  And the print side was hit by higher input costs for things like paper.
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  Okay, so P&P is definitely facing some challenges on the profitability front.
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  It really looks like F&B, particularly dairies and parts of beverages,
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  is carrying the load for profit growth.
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  That's a fair summary based on these numbers, yeah.
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  How does this all look when you slice it by geography? Where did the growth come from?
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  Geographically, Malaysia and Thailand really stood out for revenue growth.
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  That was driven by higher sales volumes for soft drinks and canned milk.
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  Plus, as we mentioned, positive currency impacts and forex gains in those regions.
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  Makes sense. Aligns with the segment performance.
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  What about other key areas like Singapore? Singapore actually saw a revenue decline.
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  Interestingly, this was despite higher domestic sales of soft drinks and dairy.
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  They said it was due to a strategic decision to streamline some of their export
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  businesses originating from there. Right. A deliberate move then.
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  And profitability by region. Did Malaysia and Thailand also drive the earnings? They did.
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  They were the key drivers of PBIT growth, again, thanks to higher volumes,
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  better cost environments, and favorable forex.
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  And I guess Vietnam's PBIT would reflect that Vinamilk issue.
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  Exactly. The lower share of profit from Vinamilk was the main reason for Vietnam's
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  PBIT decline in the geographical breakdown.
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  The charts in their investor deck show this quite clearly.
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  Okay. So if we were to sum up the key factors influencing this first half performance...
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  What are the main positives you'd pull out? On the plus side,
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  definitely the successful Chinese New Year campaigns, the positive reception
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  to new products, and getting their pricing strategies right. Yeah.
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  Also, the strong underlying demand for canned milk, higher volumes generally
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  in key markets like Malaysia and Thailand, and for some parts of the business,
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  a helpful cost environment and favorable currency movements.
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  Got it. And the main negatives or headwinds? Well, the big one in PNP was the
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  lack of those one-off revenues from last year, plus the higher printing costs hitting that segment.
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  Then you had the higher production and operating costs for the beer division,
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  partly linked to the weaker currency in Myanmar, the Kayat.
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  And of course, that significantly lower profit contribution from Vina Milk.
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  Oh, and the slightly higher overall tax rate. Quite a few factors pulling in
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  different directions then.
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  Before we look ahead, any quick notes on their balance sheet?
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  How's their financial position looking?
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  Let's see. As of March 31st, cash was a bit lower than at the end of their last
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  full year, around $471 million.
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  Borrowings were also slightly down, about $1.15 billion.
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  Total equity was stable. Their gearing ratio, which is debt relative to equity,
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  ticked up slightly from 18.8% to 19.9%. But overall, it still looks like a pretty
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  solid capital structure.
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  They also noted their debt maturity profile is well spread out.
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  So fundamentally sound, it seems.
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  Okay, let's shift to corporate developments and the outlook.
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  There was some big news about a dairy farm project, wasn't there?
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  Yes, a really major development.
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  Just after this reporting period ended, in April, the first batch of dairy cattle
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  arrived at their new FNN Agri Valley in Malaysia.
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  Agri Valley. Sounds ambitious. It really does.
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  They're billing it as Malaysia's largest integrated dairy farm.
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  This first batch was 2,500 cattle, but the plan is to scale up to 20,000 milking
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  cows eventually. 20,000. Wow.
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  What kind of output are they expecting? They're projecting around 200 million
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  liters of fresh milk annually, which they plan to sell under their FNN Magnolia brand.
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  They expect commercial production to start before the end of this calendar year, 2025.
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  It's a massive investment. It must be costing a lot. It is.
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  They mentioned phase one investment could be up to two billion Malaysian ringgit,
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  with the total potentially exceeding three billion.
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  They're framing it as a big commitment to sustainability and also enhancing
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  food security for both Malaysia and Singapore.
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  A huge long-term play on dairy then.
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  Anything else significant happening? They also mentioned good progress on another
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  new facility, this one, a dairy plant in Cambodia.
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  That's on track to start operations in early 2026.
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  Expanding geographically, too. Seems so. They'll start with canned milk there
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  and then likely expand the range. It shows that push into the Indochina region.
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  And on a smaller scale, they highlighted some limited edition product launches,
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  like that banana milk again and a wafer ice cream in Singapore.
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  The strawberry tea in Malaysia just showing continued innovation.
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  So, big strategic investments alongside ongoing product development.
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  What's the overall tone from management about the outlook?
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  They acknowledge it's a challenging market. Their commentary focuses on navigating
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  it through sales growth, managing costs carefully, and dealing with foreign exchange volatility.
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  They definitely flag ongoing global uncertainties, geopolitical stuff,
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  trade issues. So, aware of the risks.
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  Very much so. For publishing and printing, they express sort of cautious optimism
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  for the long term, mentioning strategic initiatives in education,
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  sustainable packaging, expanding international sales and efficiency drives.
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  But for the rest of this financial year...
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  What's the expectation? They seem to be bracing for potentially weaker consumer
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  sentiment in their main markets, and they expect continued headwinds from those
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  global trade tensions and financial market volatility.
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  So perhaps a more challenging second half compared to the first.
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  Right. Managing expectations there. OK. And finally, dividends. Any news for investors?
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  Yes. They declared an interim dividend of 1.5 cents per share.
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  That's the same as the interim dividend paid last year. Consistency there. Exactly.
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  It's tax-exempt and payable pretty soon, on June 6th.
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  Shareholders likely appreciate that stability.
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  Okay, so let's try and wrap this up. What are the main things you'd want someone
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  to take away from this deep dive into F&N's first half?
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  I think the key points are, first, that really strong revenue growth,
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  clearly driven by the food and beverage side, especially beverages and dairies.
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  Second, profitability showed resilience but faced pressures from tax,
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  from P&P challenges, and from that VinaMilz contribution.
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  Third, they're making very significant strategic bets for the future,
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  with Agra Valley and the Cambodia plant focusing on dairy, sustainability, and regional presence.
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  And fourth, despite forecasting some near-term headwinds, they're maintaining
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  that consistent interim dividend payout.
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  It really gives you a solid picture based directly on what the company itself reported. Absolutely.
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  You see the strengths, the challenges, and the direction they're heading.
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  It's fascinating, isn't it?
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  Seeing how a large company like F&N balances delivering results today,
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  that strong revenue growth,
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  while also making these huge long-term investments like AgriValley,
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  especially when they see potential economic headwinds coming. It really is.
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  That tension between short-term performance and long-term strategy is always
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  a crucial dynamic to watch.
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  Definitely food for thought. Thanks for walking through all that detail with
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  me. My pleasure. Good to dig into the numbers.
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  Music.