Turn on the tap, F&N - show what's brewing in Myanmar

DWINDLING BUSINESS VENTURES: With Thai Beverage Public Co controlling shareholder Charoen Sirivadhanab- hakdi now holding more than 90 per cent of F&N shares, its property arm could soon be spun off, leaving F&N with the beverage (above), dairy, and printing and publishing businesses.


    Nov 25, 2013

    Turn on the tap, F&N - show what's brewing in Myanmar

    The Business Times

    LOOKING at Fraser and Neave's (F&N's) latest results announcement, one would think that all is fine and dandy at its Myanmar Brewery business.

    But there is more than just beer brewing in that business, and F&N needs to shed more light on the ongoing dispute with its Myanmar partner that threatens a significant part of its beverage business.

    In its full-year results announcement earlier this month, F&N appeared to paint a fairly robust picture of its Myanmar beer business.

    Myanmar Beer "delivered record-breaking sales" and "maintained market leadership position" during the past year, the company said. The business "faces increasing competition with the opening up of Myanmar", but F&N said it would focus on strengthening the market leadership position of Myanmar Beer.

    Just looking at F&N's results- related announcement alone, one would think that it is business as usual at Myanmar Beer.

    But it's not - because F&N's joint-venture partner, Myanma Economic Holding Ltd (MEHL), has since April tried to force F&N to sell out of Myanmar Brewery in a dispute that is undergoing arbitration.

    And nowhere in its earnings- related announcement - not in the outlook statements and not in the "subsequent events" section - does F&N address this issue.

    When asked about this, F&N said it had earlier made all necessary and timely announcements, and would continue to release relevant information about the dispute in a timely manner through various announcements.

    But perhaps F&N is a tad too liberal in its interpretation of "all necessary" announcements.

    First of all, what little we know about Myanmar Brewery suggests that it is a significant contributor to F&N's beverage business.

    F&N does not break down Myanmar Brewery's results, so we will need to make an educated guess on this issue. Assuming profit margins were unchanged, and based on year-ago management guidance of $52 million in fiscal 2012 net income for the brewery, the reported 24 per cent topline growth for Myanmar Brewery this year could translate into about $64 million of net profit in fiscal 2013. Equity accounting for F&N's 55 per cent stake, that would correspond to $35 million, or 69 per cent, of F&N's beverage net profit in fiscal 2013.

    Strategically, Myanmar Brewery is the runaway leader in its space, with a last reported market share of about 83 per cent, and is F&N's only remaining alcohol business after selling Asia Pacific Breweries (APB) last year.

    How is this sizeable and promising business - and the possibility of losing it - not material enough to warrant a discussion by F&N?

    Perhaps F&N feels that it is premature to say much on this matter. After all, there are still many unknowns in the dispute - how strong is MEHL's case, for example, and if MEHL prevails, how much will it pay F&N for the brewery stake? Sometimes, it is better to keep quiet than to engage in potentially misleading speculation.

    F&N could possibly also be wary of saying too much, lest it tip its hand to MEHL's benefit in the dispute.

    But there are important issues that F&N knows, and that investors need to know in order to make informed decisions.

    Myanmar Brewery's exact contribution, for example, needs to be disclosed so that investors understand what is at stake. As it is, our best guesses are already the result of random luck; if not for the takeover battle of F&N last year and early this year, we would never have had a glimpse of Myanmar Brewery's profitability, which was given to and reported by F&N's independent financial adviser at the time.

    At the very least, F&N needs to mention the dispute in its financial reports, and explain if and why it cannot provide more details.

    With Thai Beverage Public Co controlling shareholder Charoen Sirivadhanabhakdi now holding more than 90 per cent of F&N shares, the company is also undergoing fundamental restructuring.

    The property arm could soon be spun off, leaving F&N with the beverage, dairy, and printing and publishing businesses.

    Mr Charoen, with his myriad businesses and his strong shareholdings, may not necessarily share the same objectives as the handful of minority shareholders still hanging on to F&N.

    Minority shareholders therefore need to be given as much information as possible to draw their own conclusions about the issues facing their company.

    Given the circumstances, F&N's silence is deafening.