By PAULINE NG
IN KUALA LUMPUR
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SHARES of Fraser & Neave Holdings (F&N) tumbled 12 per cent to RM7.85 yesterday on news that its long-standing franchise agreements with The Coca- Cola Company Inc would not be extended.
F&N was the day's biggest loser following its announcement to the stock exchange on Wednesday that Coca-Cola does not intend to renew the agreements upon their expiry in January next year.
Coca-Cola's soft drinks, Coca-Cola and Sprite, contributed RM421 million (S$175 million) or slightly over a third of F&N group revenue of nearly RM1.2 billion in the fiscal year ended September 2008, and the impact to its profitability in 2010 would be significant.
F&N had said that it 'may be material', depending on the outcome of the post-termination transition plan.
Yesterday, group chief executive Tan Ang Meng chose to look on the positive side. 'I'm a bit disappointed, but we can't cry over spilt milk. Nothing is forever,' he said about the company's association of more than 70 years with Coca-Cola.
Without the many restrictions in the franchise agreements, or 'handcuffs' as he described it, F&N will be able to chart its own course and realise its potential faster, he told BT.
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The food and beverage player will now be free to launch new products and venture into new territories and export markets that were previously off-limits to it because of the agreements, such as coffees and fruit teas, he said, pointing to its success with the homegrown 100Plus brand - now 'the single largest brand in Malaysia in the soft drink category'.
In a statement, F&N described its relationship with Coca-Cola as 'a dynamic one', adding that in the course of collaboration, there had been differing perspectives, viewpoints and expectations.
It revealed that the average gross profit margin of the soft drink business is 35 per cent and that the soft drink division was the single largest profit contributor, accounting for nearly half of its operating profits.
On the termination at a time of global meltdown, Mr Tan quipped: 'Anytime is a bad time.'
But he said that F&N's business would still be reasonably resilient given that 85 per cent of its products cost less than RM2.50.
Short-term pain was a given, he conceded, but it would become a long-term gain eventually. The company will overcome the setback, given its fiscal position and organisational strength, he said.
Even so, its consecutive eight years of record revenue and profit would be greatly challenged, if not in the current year, in 2010.
Maybank-IB has downgraded F&N to a 'sell' on the franchise termination.
Analyst Vincent Khoo estimated that F&N's net profit could be reduced by 8 per cent in fiscal year 2010 and 18 per cent in 2011, noting there could also be a risk to its dividend yield as well as a de-rating in valuations resulting from the loss in franchise value.
1 comment:
Server them right, its god’s punishment for bullying that old man with the rotten tea pot sweetened condensed milk complaint. Anyone know what happened to that old man? The last I read he was still fighting in court with those idiots.
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