Fraser & Neave Holdings Bhd Annual Report 2021

Market Review FY2021 has been significantly more challenging than FY2020 for our Malaysian, Thai and Export operations for three main reasons: Covid-19, the increase in price of commodities, as well as that of freight charges. In both Malaysia and Thailand, after a period during which Covid-19 cases seemed to be coming under control, the numbers started increasing again from the beginning of 2021 and then again from the middle of the year. Each wave of the pandemic led to supply chain disruptions, reduced production, and softened consumer demand, the overall e$ect being to dampen the economy. Although gross development product (GDP) for Malaysia and Thailand improved in 2021 compared to 2020 – with predicted growth coming in at between three per cent and four per cent in Malaysia, and one per cent in Thailand 1 – this is from a very low base in 2020, when GDP shrunk 5.6 per cent and 6.1 per cent in both countries, respectively. Overall, the economies of Malaysia and Thailand have yet to reach pre-pandemic levels. The price of commodities, meanwhile, increased for several reasons, including reduced output. Reduced stockpiles of crude palm oil in the world’s two largest producers – Indonesia and Malaysia – led to a price rally starting in 2020, which hit a high of RM4,572 per tonne in May 2021 2 . The price of raw sugar increased more than 60 per cent as of September 2021 from end of 2020. This can be distilled to reduced production in Brazil, the world’s largest exporter of sugar, which was hit by both severe drought and frost. 3 Meanwhile, as China’s economy recovers, the country has been increasing its imports of milk, pushing up the price of the commodity in the international market. As for shipping, limited capacity has been pushing up the cost of freight since the last quarter of 2020, the increase further accelerating from the beginning of 2021. 4 1 According to the World Bank, https://www.reuters.com/ world/asia-pacific/world-bank-cuts-thai-gdp-growth-outlook- 1-this-year-2021-09-28/ 2 According to the CPOC, https://www.cpopc.org/wp-content/ uploads/2021/07/2021_PALM-OIL-SUPPLY-AND-DEMAND- OUTLOOK-REPORT-WITH-REFINITIV-1.pdf 3 https://www.wsj.com/articles/sugar-prices-soar-after- brazilian-cold-snap-11630659234 4 According to THINK Economic and Financial Analysis, https://think.ing.com/articles/the-rise-and-rise-of-global- shipping-costs Consumers’ expectations of companies have evolved significantly over the years. Whilst, initially, consumers were focused on products and the lifestyles they stood for; today, they are more swayed by how the products were made, and the values of the producing companies. Consumers today actively seek brands that play their part in making the world cleaner, healthier, more resilient and equitable. One of the discernible outcomes of the global pandemic has been a greater sense of solidarity with others – people are not only concerned about their own well-being, but they also want to know the society and the planet are being cared for. Although social restrictions are relaxing globally, many are still wary of going out, especially to crowded places, including restaurants. People are cooking and eating more at home. This has seen increased spending on groceries and food for home consumption. For everyday needs, people seek convenience in food preparation, while for those special meals, they are prepared to splurge on more expensive ingredients. At the same time, as people start returning to work, demand for convenient foods and beverages that can be consumed on-the-go will increase. Key Trends Our Response • We source for raw materials that are certified with eco-credentials, including Roundtable for Sustainable Palm Oil (RSPO), VIVE, BONSUCRO and Forest Stewardship Council (FSC) to ensure that they are produced in an environmentally and socially responsible manner. • We have increased the use of recycled material in our packaging to 22% and aim for all our beverage and dairy packaging material to be 100% recyclable. To further promote recycling and post-consumption waste management, we are a pioneering member of the Malaysian Recycling Alliance, an industry coalition taking the lead in Extended Producer Responsibility (EPR) in Malaysia. • This year, we have conducted a human rights risk assessment to uphold the human rights of all stakeholder groups across our value chain. • Sri Nona Companies which dominate the ready-to-cook ketupat market, and is No. 2 in the oyster sauce segment, provide us with a strong base to supply halal packaged food for home consumption and meet the rising demand for convenience and ready-to-eat food products. We are looking into expanding our product range and production capacity to support this segment. • In line with the fact that people are cooking more, we focused our marketing efforts on in-home consumption, and especially our dairy products as these have multiple applications in food preparation. • For consumption on-the - go, we introduced TEAPOT 25g duo sachets; and mini packs of F&N Magnolia lactose-free milk. VALUE CHAIN IMPACTS EATING IN & GRABBING OUT 046 S t r a t e g i c R e v i e w