Freed of Coke restraint, F&N eyes acquisitions

REGRET: Mr Ng said F&N was not allowed to expand regionally because of its partnership with Coca-Cola.


    May 05, 2014

    Freed of Coke restraint, F&N eyes acquisitions

    THE lion is awake, and it is thirsty.

    Freed from the constraints of its long association with Coca-Cola and newly backed by one of Thailand's richest men, Fraser and Neave (F&N) will be aggressively making up for lost time on the mergers and acquisitions (M&A) trail.

    And its strategic thrust will be aimed at the fast-growing South-east Asia and non-carbonated drinks markets, in addition to continued focus on its 100Plus isotonic brand, Ng Jui Sia, F&N's chief executive for non-alcoholic beverages, told The Business Times last week as the company inked its acquisition of a 70 per cent stake in Malaysia's Yoke Food Industries (YFI).

    "We're a bit late now...," Mr Ng said. "But my aim is that in the next few years, if the opportunity arises, we will buy. We have to buy."

    Before the YFI acquisition, F&N had rarely been in the market as a buyer of non-alcoholic drinks businesses.

    "My biggest regret is when we were part of the Coca-Cola system," Mr Ng said. "Although we grew 100Plus, we couldn't grow regionally because of Coke. As a result... we never seriously took a position. As a part of the Coke system, we were not allowed to buy brands, not allowed to go regional."

    But Coca-Cola and F&N ended their relationship in 2011, freeing F&N to pursue its own ambitions.

    China would have been intriguing, but Mr Ng acknowledged that it might be a little late to that party, and would only be opportunistic investors there for now.

    "We're too late for China," he said. "They have created their own giant."

    F&N's chief focus is therefore in developing and emerging South-east Asia, where the company sees positive demographics fuelling a bright outlook.

    In this vision, carbonated drinks will be a key pillar for growth, matching local preference for still beverages. The 100Plus brand will play a critical role as a unique segment-straddling product, while other carbonated drinks will remain stable cash generators.

    "The larger market growths are in the Philippines, Vietnam, Thailand and Indonesia. These are the future markets," Mr Ng said.

    Thai tycoon Charoen Sirivadhanabhakdi's investment in F&N in 2012, culminating in a takeover last year, has given the firm a regional boost through his control of listed drinks maker Thai Beverage (ThaiBev).

    But even with their combined size, F&N and ThaiBev will find it tough to export to other regional markets.

    "For many of these markets, it's not so much the manufacturing," Mr Ng said. "You can always put up a new plant. It's the distribution. All these outlets are created by the local players over the years."

    There is also a sense of urgency. To begin with, other rivals are homing in on F&N's backyard in South-east Asia.

    "The Japanese are coming in," Mr Ng observed.

    CIMB analyst Kenneth Ng said that the company's next set of results will shed more light on its balance-sheet strength - and its ability to buy - after taking out the debt held by now-spun-off property unit Frasers Centrepoint.

    "Even if they want to do M&A, consumer names around the region are not easy to find and buy," the analyst said. "And obviously if they could buy, it will not be cheap."

    The analyst reckoned that a lot could hinge on this strategy because of an ongoing dispute that threatens F&N's partial ownership of a fast-growing brewery in Myanmar.

    Losing that stake - still a wildcard possibility - would deprive its overall beverage business of significant revenue and a key driver of growth, the analyst said.