PETALING JAYA: The bulk of Fraser & Neave Holdings Bhd’s products will be affected by the new sugar tax from July 1 this year.
However, the company was confident of mitigating most of the risks from such tax.
F&N chief executive officer Lim Yew Hoe said about 90 per cent of its products including isotonic drink 100PLUS Original and various fruit juices would be taxable under the tax.
“We are quite fortunate that we already hedged all of our requirements of sugar for our products in the current financial year ending September 30, 2019 (FY19).
“About 70 per cent of our products will be reformulated. We have done sufficient research to ensure it will deliver the same great flavour without compromising the taste,” Lim said at a briefing on F&N’s first-half results here, recently.
While it was still early to quantify the tax implications, Lim said there would be an additional cost when it reformulated its products.
“There will be likely be some price increases to cover the products costing. The increase in prices, however, will be the last resort,” he added.
Previously slated to be enforced from April 1, the sugar tax comprises an excise duty of 40 sen per litre on ready-to-drink packaging on beverages containing sugar exceeding 5g per 100ml, milk-based drinks of over 7g per 100ml as well as fruit and vegetable juices of more than 12g per 100ml.
“We are looking at each product and evaluating how much of the cost can be absorbed and passed on to consumers. The group will be producing smaller packs, reformulating and reducing sugar content in existing offerings as well as speeding up innovations on healthier products,” Lim said.
Kenanga Research expects the sugar tax to result in a 3.0-5.0 per cent increase in prices of F&N’s products which fall above the classified threshold.
“While we do not believe the resulting tax will not be overly detrimental to demand, new product ranges could work favourably (to F&N) as a means to improve market share,” Kenanga Research said in a report recently.
Lim said F&N’s reformulation strategy would not only match the taxable sugar level but also to promote healthier beverages for consumers.
“The government’s postponement of the sugar tax (to July this year from April) has provided us more time to execute our mitigation plan, while enabling Malaysians to enjoy the Hari Raya Aidilfitri celebrations.
“We will continue to leverage on innovation and reinvention to offer healthier, affordable and delicious products that are accessible to all,” he said.
F&N will also monitor the market in anticipation of rising prices of crude oil and skimmed milk products this year.
The company’s net profit in the first-half ended March 31, 2019 rose 14 per cent to RM227.29 million from RM199.4 million a year ago.
Its revenue increase 3.8 per cent to RM2.04 billion from RM1.96 billion previously, attributed to traction gained in beverage sales and stronger uptake in Thailand and Indochina markets.