By The star
Shares in Fraser & Neave Holdings Bhd (F&N) plunged yesterday after the company lost the rights to sell Coca-Cola and Sprite soft drinks, tumbling RM1.15 or 12.78% to RM7.85.
About 4.2 million shares changed hands.
About 4.2 million shares changed hands.
The selldown was sparked on concerns about the beverage maker’s prospects after The Coca-Cola Co decided not to extend its bottling and distribution agreements with F&N.
Although F&N said the non-renewal agreement was not expected to have any material effect on the operating performance for this financial year ending Sept 30 (FY09) as the agreements only expired in 2010.
In a filing with Bursa Malaysia on Wednesday, F&N said Coca-Cola Co was not extending the bottling and distribution agreements with F&N when they expired on Jan 26, 2010.
Sales revenue of Coca-Cola Co products, mainly Coca-Cola and Sprite, amounted to RM421mil, or 35% of F&N’s soft drinks division’s revenue in FY08.
Sales revenue from this division stood at RM1.2bil in FY08, or 48% of the entire group’s revenue.
Group chief executive officer Tan Ang Meng said in a statement yesterday the non-renewal of the Coca-Cola franchise agreements would give the group the opportunity to further build on the F&N brand equity, and realise a potential which was unavailable in the past.
“As a result of our new status, we are now able to launch new products and venture into new territories and export markets from which we were restricted in the past by the agreements,” he said.
Tan said the relationship between Coca-Cola Co and F&N was a dynamic one and, in the course of the collaboration, there had been differing perspectives, viewpoints and expectations.
“The group’s financial position is sound, our business sustainable and diversified and coupled with our resolve and determination, we will overcome and withstand any eventualities. While challenging, our future is indeed bright and we are confident,” he said.
Analysts were surprised when the agreements were terminated after decades-long partnership between the two companies.
Maybank Investment Bank Bhd head of research Vincent Khoo said the expiration of F&N’s 73-year union with Coca-Cola Co was unexpected.
“This is likely to de-rate F&N in terms of sentiment, as well as operationally,” he said, adding that the loss of Coca-Cola and Sprite revenues were estimated to be RM229mil in FY10 and RM475mil in FY11.
This would translate into an estimated 8.1% and 18.1% reduction in the beverage maker’s FY10 and FY11 net profit forecasts.
AmResearch said it viewed the development as negative for F&N, as its soft drinks division was the most lucrative compared with its three other divisions - dairy products, glass containers and properties.
“Assuming F&N is unsuccessful in obtaining new contracts with Coca-Cola Co, this will have a negative impact on our forecast earnings for FY10 and FY11.
“Based on our assumptions, the calculations show a potential earnings revision by as much as 14% for FY10 and a greater 22% for FY11,” it said.
