How Profitable Are Fraser & Neave Holdings Bhd’s Different Businesses? (Hint: Fraser and Neave Limited Investors May Want To Know Too)
Fraser & Neave Holdings Bhd (KLSE: 3689.KL) is listed in Malaysia and it is an important subsidiary of the Singapore-listed Fraser and Neave Limited (SGX: F99). In the 12 months ended 30 September 2016, Fraser & Neave Holdings accounted for around three-quarters of Fraser and Neave’s profit after tax.
The Malaysian company generates revenue from its three business segments, namely, Food & Beverage Malaysia, Food & Beverage Thailand, and Property & Others.
What I want to do here is to look at how profitable each business segment of Fraser & Neave is.
More specifically, I want to understand how well each segment is doing when it comes to making a profit on each dollar of Fraser & Neave’s equity that they employ. In other words, I want to calculate the return on equity for each segment. (The return on equity is found by dividing each segment’s profit with its net assets, or equity.)
The following table shows the operating profit, equity, and return on equity for each of Fraser & Neave’s business segments in its fiscal year ended 30 September 2016 (FY2016):
Source: Fraser & Neave annual report
We can see that the Food & Beverage Thailand segment is the most profitable one within the company.
One reason that contributed to the relatively higher profitability in the segment is due to the strong growth it experienced in FY2016, as opposed to a marginal decline in revenue in the Food & Beverage Malaysia segment, which suffered from the absence of Red Bull products.
Fraser & Neave is implementing measures to improve its operational efficiency and grow its export sales. Both initiatives should improve the profitability of the Food & Beverage Malaysia business in the future.