FINANCIAL MANAGEMENT

1.0 Introduction

The aim of this study is to compare three companies in terms of ratio,

performance and give recommendations to the investors to invest. Therefore, we have
chosen the best three companies in Malaysia in the food and beverages industry,
Nestle Berhad, Dutch Lady and Fraser & Neave Holdings Bhd based on the following
criteria: maximizing shareholder's wealth, minimizing the cost, maximizing the profit, in
terms of growth potential and sustainability, and maximizing the price of a share. Both
the organizations belong to the food industry and are trading in food production for
many years. The organizations have really good status in the market and trade in a very
extensive range of food merchandise. In the following report, we are going to scrutinize
the annual reports for the mentioned companies for 2015 and 2016.

2.0 NESTLE BERHAD MALAYSIA

2.1 Nature of business

Nestle Malaysia Berhad is a company that manufactures and sells food and
beverage products overall in Malaysia and also worldwide. Nestle Malaysia Berhad was
established in 1912 and is headquartered in Petaling Jaya. Nestle Malaysia Berhad is a
subsidiary of Nestle S.A. which is located in Vevey, Switzerland (Nestle Berhad
Malaysia, 2016).

2.2 Nature of products or services

Nestle has more than 8000 brands. This company provides infant foods,
powered milk and drinks, breakfast cereals, soups, juices, instant noodles, instant milk,
chocolates, seasonings, yogurts, pet food and etc. Milo, Maggi, Kitkat, Bear Brand,
Nescafe, Smarties and Nesquick are some of the brand names of Nestle (Nestle
Berhad Malaysia, 2016).

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2.3 Future prospects.

Nestle (M) Bhd is emerging as a strong and formidable food giant after 104 years in
Malaysia with a substantial investment of about RM1.1billion over the last five years.
After forging a strong presence in the country since 1912 and embarking on an
aggressive new product innovations several years ago, the Malaysian unit of
Switzerland-based Nestle S.A. is now ready to roar and further engage the hearts and
minds of Malaysians.

Its managing director Alois Hofbauer said Nestle Malaysia has invested substantially in
manufacturing capabilities over the last five years and would continue to invest in
product categories and new launches next years. The hub, Hofbauer said, is slated to
be launched in early 2017 in Selangor. Nestle will also support markets with managing
local expenditure and will create high-income jobs in Malaysia,” he said. Hofbauer said
Malaysia is an attractive investment destination based on long-term fundamentals, good
strategic location and abundant resources. “After 104 years in Malaysia, we are gaining
the trust of the people and consumers millions of times every day and delivering quality
products such as Milo with more than six million cups served every day,” he said.

According to Hofbauer, Nestle Malaysia employs over 5,000 people and produces
more than 500 halal products with made-in-Malaysia and the company exports its
products to more than 50 countries in the world and its expected to increase its products
to the middle east and Africa.

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Hofbauer said product innovation by continuously delivering quality products with

superior taste would continue to fuel growth, especially in a volatile market environment
as volatility in oil prices and commodities would persist. Hofbauer revealed that today,
Nestle Malaysia is not just innovating products but is also innovating business model to
provide cost-effective business solutions and deliver affordable products in the market.
This has enabled the company to harvest big savings of RM129mil in 2013, RM134mil
in 2014 and RM188mil in 2015, which were reinvested into the brands, he said. By
reinvesting the savings, he said, Nestle could give more value to the consumers. After
delivering a set of respectable financial results for the nine months ended 2016,
Hofbauer said, Nestle Malaysia is cautiously optimistic of its earnings outlook next
year.For the nine months ended Sept 30, 2016, pre-tax profit increased to RM685.02mil
from RM609.03mil in the same period last year. Hofbauer, an Austrian, is optimistic on
the future outlook of Malaysia with its strategic location in Asia and being an important
halal hub for the Nestle group globally.

3.0 DUTCH LADY MALAYSIA

3.1 Nature of business

In Malaysia Dutch Lady is the leader in the quality of the branded dairy business.
Dutch Lady was the first dairy company in Malaysia that was established in 1963 and
listed in Bursa Malaysia in 1968. Dutch Lady is the subsidy of the Dutch multinational
organization named Royal Fries land Campina, which holds a premium brand image in
the dairy business across the globe (Dutch Lady Malaysia, 2016).

3.2 Nature of products or services

Dutch Lady Malaysia manufactures and sells a wide range of quality dairy
products and fruit juices for the home and export market such as Infant Formula,
Powdered Milk, Condensed Milk, Yoghurt and Fruit Juice Drinks. The Company's dairy
products have a strong consumer following and are represented by strong brands such
as Dutch Lady, Frisolac and Friso etc.

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The products of Dutch Lady Malaysia are all halal-certified whereby Muslim can
consume their products without feeling any hesitation. Except that, their products also
fulfill quality standards requirement like ISO 9001. In 2010, Halal Policy statement was
introduced by Dutch Lady Malaysia. This is because the company wishes to delineate
the commitment to supply Halal products to Muslims (Dutch Lady Malaysia, 2016).

2.3 Future prospects.

Dutch Lady, in trying to grow its business to mitigate thinning margins, could face
intense competition from competitors such as Nestle (M) Bhd and Fonterra Brands (M)
Sdn Bhd, which are also embarking on similar strategies. Dutch Lady plans to spend
some RM240mil this year to expand its production capacity. Fonterra recently unveiled
its power brand strategy in line with the company's aggressive growth plan moving
forward whereby the company will focus on three high-performing brands – Anmum,
Fernleaf and Anlene – for faster growth, better margins and greater market appeal.
However, The Company aims to increase innovation and marketing investments on
these three brands by 30% in financial year 2017. Nevertheless, analysts believe Dutch
Lady is in a strong position to defend its turf and even grow market share via its growth
strategies.

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Dutch Lady Milk Industries Berhad (Dutch Lady Malaysia) continued to register revenue
growth in 2016 despite lower total market dairy demand and competitive pressures.
Revenue was higher at 2.1% from RM980.1 million in 2015 to RM1,000.2 million in
2016, passing the RM1 billion mark for the first time. Profit-before-tax was lower at
RM148.4 million due to the higher dairy raw material prices, coupled with the weakening
Ringgit. For the financial year ended 31 December 2016, the Company paid out a total
of RM140.8 million of interim and special interim dividends to shareholders.

Dutch Lady Malaysia’s Managing Director, Ms Saw Chooi Lee, said: “Despite the
challenging market environment, the company were able to strengthen its market
leadership in the category of Formulated Milk Powder for Children, and protected the
company’s strong hold as the No 1 brand in Ready-To-Drink milk category.” she
explained that as a result of Malaysia’s economic slowdown, the Malaysian consumer
confidence level last year was the lowest in three years (2014 to 2016)*. Chooi Lee
continued: “The dairy industry was also affected by significant increases in global dairy
raw materials prices in the first half of 2016. As most of our dairy raw materials were
procured in US Dollar, the increasing currency exchange rates amplified the pressure
on our profitability.”

According to Ms Saw Chooi Lee she said “We will continue to leverage on the
strength of the Dutch Lady brand, focus on our mission to help Malaysians and the
countries that the company exports to, move forward in life with trusted dairy nutrition
through various activities such as our Drink.Move. Be Strong campaign, and strengthen
our operational efficiency to sustain top-line growth for the company and maintain
shareholder value based on the plans that the company came out with. The company
planed also to increase the number of countries that it exports to whereby the revenue
that the company expected to achieve will be appreciated by 9% comparing to 2014.

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4.0 FRASER & NEAVE HOLDINGS BHD.

4.1 Nature of business

Fraser & Neave Holdings Bhd is one of the prominent companies in Malaysia;
it is a listed company in Bursa Malaysia. The company produces and sales soft drinks,
dairy goods, property enhancement activities and the provision of administration
services. The corporation has established in 1883 by John Fraser and David Chalmers
Neave and the board of director is located in Kuala Lumpur, Malaysia. ( Fraser & Neave
Holdings Bhd, 2016).

4.2 Nature of products or services.

The company is an investment corporation, that engages in producing and

selling of soft drinks, dairy products, property development activities and the provision of
management services. It operates through the following fragments: Soft Drinks, Dairies
Malaysia, Dairies Thailand, Property, and Others. The Soft Drinks fragment
incorporates brands F&N NutriSoy, F&N SEASONS Teas, F&N Fun and 100PLUS
Flavors. The Dairies Malaysia and Dairies Thailand fragments emphasizes on the dairy
production sales such as pasteurized milk, evaporated milk, UHT milk , sweetened
condensed milk, ice cream and juice.

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4.3 Future prospects.

Fraserand Neave Holdings Bhd (F&N) recorded a net profit of RM385.4 million in the
full-year ended September 30, surging 37.6 per cent from RM280.1 million in the same
period a year ago, due to favorable milk-based global commodity prices and
manufacturing efficiencies. The group maintained its year-on year growth despite
challenging market conditions with higher revenue of RM4.17 billion in the full year
period, which rose 1.5 per cent from RM4.11 billion a year ago. However, its net profit
declined 13 per cent to RM49.59 million in the fourth quarter ended September 30 from
RM56.72 million a year earlier, mainly due to softer market conditions and consumer
confidence.

Chief executive officer Lim Yew Hoe said the group would remain vigilant and
respond to changing market dynamics while proactively focusing on appropriate
measures to maintain its competitiveness. “In the immediate term, the softer domestic
and global economic environment, and escalating commodity prices do pose a
challenge to sustain the pace of growth. Lim expects a consistent single digit growth in
the financial year ahead driven by its flagship product 100Plus, expansion in Thailand
and new marketing initiatives to ride on the Southeast Asian Games

Fraser and Neave chief executive officer changing market dynamics. “We are
expanding to the north east of Thailand. We are looking for distributors and wholesalers
in the area to expand our products there, “Thailand has about three times the population
of Malaysia. There is a lot of scope for us to grow our business there,” he said. F&N
has spent a total capital expenditure (capex) of RM300 million over two years and will
spend another RM70 million to increase its capability across the group to capitalize on
future market growth. The RM70 million capex will include a new 600 barrels per minute
water line; expansion of the warehouse, production building and infrastructure says the
group will at its existing plants.

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CIMB Research previously had a “hold” call on F&N with a target price of RM26.50
while TA Securities had a “sell” call on the company with a target price of RM25.62.

The company bought 21.3 acres of land within the Kota Kinabalu Industrial Park (KKIP)
Halal hub with the goal of bulling a new beverages plant. In addition to that, the
company renew its licenses in order to manufacture and distribute Nestle products in
Brunei, Malaysia , Thailand, Laos and Singapore until 2037. Another future plan of the
company is that, the company wants to invest more in packaging line for Evaporated
Milk.

The Highlight of 2015 The yeah of 2015 has been of the prosperous yeah for F&N. in
this year, the company expend its portfolio by adding new products and introduced
variety of packaging. As one of the most established beverages companies in Malaysia,
with strong trade and consumer relationships, we are privy to market insight that helps
us discern changing tastes and craft differentiated new drinks to satisfy these. Coco
Life, a refreshing drink made from 100 per cent coconut water and packed with naturally
occurring electrolytes was launched in May 2015. It has since acquired double digit
share of the coconut juice category as of August 2015.

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