This Is Why Fraser and Neave Limited’s Business Has Just Become More Stable

Fraser and Neave Limited (SGX: F99) has not been in the headlines much since it restructured its property and beverage business.

Last week though, the company made an important announcement. Its Malaysia-listed subsidiary, Fraser and Neave Holdings Bhd, has signed agreements with the Nestlé Group to manufacture and distribute consumer food brands such as Carnation, Bear Brand, Bear Brand Gold, Ideal Milk, and Milkmaid in ASEAN nations including Singapore, Thailand, Malaysia and Brunei.

The new agreements, which are an extension of previous licenses granted by Nestlé in early 2007, allow F&N to continue manufacturing, promoting, selling, and distributing products from the aforementioned brands for a period of 11 years and 7 months, with a right to extend the contract for another 10 years till 31 January 2037.

F&N is the leader in condensed milk products in Malaysia and Thailand, thus the new agreements are very important for the company. In fact, dairy products contributes around 45% of F&N’s total revenue and 20% of profits. The new licenses with Nestlé would ensure that F&N can continue to enjoy the profits from a stable business for the next 11 years or more.

There’s another layer to the importance of the new agreements for F&N since the company had recently lost a court fight and might be forced to sell its stake in the fast-growing Myanmar Brewery.

With F&N’s spinoffs of its stake in Asia Pacific Brewery in 2012 and its property-related business in 2014 (and most recently the issue with Myanmar Brewery), the company is in need of some stability for its remaining businesses. Now that investors can be certain that its dairy business has found firmer footing, there is less to be worried about.

Foolish Summary

F&N has three business segments, namely, beverages, dairy products, and publishing. The beverage business is currently the company’s largest profit-contributor. Investors looking at F&N should analyse all three of its segments and understand the economics and prospects for each of them.

F&N has also started experimenting with new products to boost its earnings. Last year, it launched a new ice cream brand called Jwel. The strategy makes sense as the company already has established food manufacturing capabilities and distribution networks. If the firm is able to add new products into its pipeline, it might serve as a new source of growth. However, it is still too early to say if the strategy is panning out well.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.