KUALA LUMPUR: Fraser & Neave Holdings Bhd (F&N), which is facing margin pressure due to escalating raw material costs, will only raise product prices as a last resort.
Chief executive officer Lim Yew Hoe said the group will absorb the rising costs for as long as it can afford to do so.
“For our financial year ended September 2021, the impact of commodity costs to us was more than RM150mil. Raising prices will be a last resort, as we know consumers’ pockets are not really full today.
“So it’ll be on a delayed basis. Meaning, we’ll get hit first and then see whether we can absorb it. If not, only then we will increase it and even if we do, it’ll be in a phased format,” he said during a virtual briefing yesterday.
Lim noted that palm oil prices had surged 100% in just one year.
“Of course we can’t increase our prices by 100%,” he said, adding that any price increases (if at all) would be done gradually.
Separately, F&N chief financial officer Lai Kah Shen said the group had undertaken several cost-cutting measures to manage the commodity price hike.
“Commodity costs were more than RM150mil but our profit in 2021 was only down by RM40mil.
“If we exclude the restructuring cost, which was RM21mil during the financial year that just passed, we have actually absorbed most of the cost increase from commodities.
“So it shows the effectiveness of the measures that we’ve taken.”
Additionally, Lim said the sugar tax hike announced by the government in Budget 2022 last month will have little impact on the group.
“Most of our products do not fall within this category, so the impact will be quite small compared with other companies.”
He added that F&N is still studying whether the Cukai Makmur or prosperity tax announced under Budget 2022 will have an impact on the group.
“At the moment, we are still checking the details to see if it will have an impact, especially on overseas income. We still need to be clear on whether the tax will affect dividends we receive from our operations in Thailand.”
The proposed prosperity tax will be imposed on companies that have a pre-tax profit of above RM100mil, whereby earnings above the RM100mil mark will be taxed at a rate of 33% instead of the blanket 24% rate previously.
Lai said the tax is applicable on a particular legal entity, rather than on a group basis.
“In Malaysia, we do have a few legal entities and I don’t think that any have a chargeable income that is more than RM100mil.
“Our concern will be more on corporate tax exemption for foreign source income. Thailand accounts for a big chunk of profits for the group and we do transfer dividends to Malaysia.
“If that part is taxable, we will have some concern, so we are awaiting more details.”
On prospects for 2022, Lai is optimistic that the global environment will improve as countries gradually open up their businesses following prolonged period of lockdown this year.
“As both Malaysia and Thailand open up, we’re confident that we can sell more, especially the categories that have been worst hit so far, such as beverages.”
Profit-wise, Lai admitted that there will still be some pressure mainly due to higher commodity costs and foreign exchange (forex) changes.
“In terms of forex, we are not too concerned, other than the conversion. As for the transactional impact, we can hedge it and manage it well.
“But the conversion between the baht and the ringgit, that’s something that we need to monitor.”
Separately, Lim said F&N is targeting to grow its export revenue to RM1bil in 2022, compared with nearly RM900mil in 2021.
“We hope to sell more volume in 2022, not sell the same volume but at a higher price due to rising commodity costs,” he said.
F&N posted a net profit of RM395.16mil for the financial year ended Sept 30, 2021, compared with RM410.38mil in the previous year.