F&N sees rising commodity price pressures as a major challenge
05.05.2021 (www.thesundaily.my) - PETALING JAYA: Fraser & Neave Holdings Bhd (F&N) has identified rising commodity price pressures, which have accelerated since last year amid the Covid-19 pandemic, as a key challenge for the sector.
However, F&N CEO Lim Yew Hoe is confident that is long-term strategies are well placed to manage the risks in the current landscape while keeping it on track for growth.
“Nonetheless, we remain cautious on the commodity prices that are on the uptrend and are expected to rise further,” he told the media at F&N’s virtual media briefing today.
To illustrate the price escalation, the group cited that its commodities input has seen a significant uptick ranging from about 15% to 75% in April 2021 from the preceding 12 months. The highest of which is palm oil, which has seen prices rising from RM2,668 a tonne in April 2020 to RM4,636 last month.
Lim pointed out that the rise in commodity prices started even before the movement control order but, since April last year, prices have escalated at a higher-than-usual pace.
In terms of F&N’s ability to absorb the price increase, he said its hedging measures have helped control the uptick.
“It has always been our policy that price increase is our last resort. Until today, we have not really done such a price increase. Going forward, there will probably be a need for us to increase prices and we have to examine products by category to ascertain whether they are more price sensitive,” Lim said.
On average, should there be a need for a price increase, it will be kept within a single digit.
Although the group could not disclose its hedging position for competitive reasons, CFO Lai Kah Shen revealed that in general the commodities are hedged between three and 12 months, depending on the outlook and prices.
To mitigate the impact of rising prices, F&N has been prudent in its marketing spend, discounting and manufacturing cost to manage the pressure.
“Of course there is a limit to what we can do in terms of cost management, if costs remain high or go even higher, we may have to pass on some of this cost to consumers to balance the interests of all stakeholders,” he said.
Based on the current price trajectory, Lai estimates it may see a more pronounced impact in the second half of the year, particularly on the dairy segment.
Similarly, the rising commodity prices have affected the group’s exports as well. However, he noted that exports have to contend with a higher freight cost which is further compounded by a lack of containers and a slower turnaround.
“It is not only an issue of cost but we also take a longer time to fulfil our orders,“ the CFO said.
In the first half of the year, he noted, the freight cost has seen a phenomenal increase of between 200% and 300%, depending on the shipping route.
To cope with the spike, Lai said, F&N is trying to convert the shipping terms to a free-on-board basis, in which the customer bears the freight cost, but for commodity prices it is looking at adjustments to selling prices to maintain its margin.
Despite the situation, F&N is still looking at a topline growth for exports, he said. “In general, there will be some pressure on our margins for exports.”