2007 - Extract of Dr Michael Fam's Address


(This was Dr Fam's last AGM Address as Executive Chairman of F&NL)

"I would now like to take this opportunity to present a concise Accountability Statement of my stewardship to shareholders. Over the past 22 years as Chairman of F&NL, I have built on the strengths of the F&N Group to expand intoets and into new business activities. Pages 3 to 6 of the FY 2005 Annual Report show some of the major strategic initiatives taken since 1983. A few of these ventures - notably our regional soft drinks and can-making joint ventures - fell short of our expectatio new markns and were divested in a timely manner. That is the nature of entrepreneurial risk taking. It would be naive to expect to succeed all the time. From these ventures, we learnt important lessons, which form part of our institutional memory, ensuring that we do better in our other endeavours.

On balance, we have been exceedingly successful.

The Board strongly supported my recommendation in 1985 to venture into the Properties business.By FY 2005, Properties accounted for 67% or about $185 million of our Attributable Profit Before Exceptional Items ("APBE") of $275 million. Outlined below are some of the key steps we took to build our Properties business:

In 1985, in the midst of a recession in Singapore, we made a bold decision to acquire an industrial site in Tuas (Singapore) for a new $80 million soft drinks plant. This enabled us to modernise our Singapore operations and free up a valuable factory site at River Valley to jumpstart our entry into the Properties business.

I was also instrumental in the decision to relocate the Anchor and Tiger breweries (in Singapore) to Tuas. With the opening of its $210 million state-of-art brewery in Tuas in 1990, Asia Pacific Breweries ("APB") was able to reap cost savings from the integration of its brewing activities and unlock the value of its former brewery sites at Alexandra Road. The subsequent sale of the former brewery sites, mainly to Centrepoint Properties Ltd, yielded APB a profit of about $293 million.

In 1989, APB's fully-owned Malaysian subsidiary, Malayan Breweries (M) ("MBM") was merged with Guinness Malaysia to form a company known as Guinness Anchor Bhd ("GAB"), which complied with the requirements of the National Development Policy ("NDP"). GAB is 51% owned by GAPL, which is an equal joint venture between APB and Guinness of UK (now known as Diageo). MBM's production facilities were moved out of Jalan Foss (Kuala Lumpur) in 1992 and consolidated with the Guinness brewery at Sungei Way. MBM sold its Jalan Foss site to our Malaysian subsidiary and this forms part of the land parcel on which Fraser & Neave Holdings Bhd ("F&NHB") is currently developing its maiden property project, Fraser Business Park.

In 1987, F&NL acquired a controlling interest in Cold Storage Holdings PLC in association with Goodman Fielders Watties. As part of a restructuring scheme, the property interests of that company were consolidated in Centrepoint Properties Ltd ("CPL"). F&NL acquired control of CPL in a General Offer in 1990.

CPL was privatised in 2002 to provide the Group with the flexibility to restructure its property assets. (The privatisations of CPL, Times Publishing in Singapore and of DB Breweries of New Zealand were also a low-risk way of improving attributable profit.)

On 23 January 2006, Centrepoint Properties Ltd was renamed Frasers Centrepoint Limited to leverage on the strengths of both companies and highlight their relationship. In China, UK, Australia and New Zealand, we operate under our new global brand name of Frasers Property Group, because Centrepoint is a name already used by other parties in these markets.

In 1986, I initiated the formation of a 50:50 regional brewing joint venture between F&NL and Heineken.These two companies have been major shareholders of APB since its formation in 1931. F&NL is the holding company of this joint venture company, now known as Asia Pacific Investment Pte Ltd ("APIPL"), and has an obligation to consolidate its accounts. APIPL owns about 65% of APB and 50% of Heineken-APB (China), with APB holding the other 50%. In FY 2005, the Breweries business accounted for about $51 million or 18% of our Group APBE. This compares with just $8 million or 27% of our Group APBE in FY 1983 when I assumed chairmanship of F&NL. I have been a Director of APB since 1979 and the non-executive Chairman of APB since 1990. I was also Chairman of APIPL from the date of its formation in 1986 until I stepped down in 2005.

In 1989, APIPL made its first investment (a Shanghai brewery), in an equal joint venture (known as Sino-Brew) with a third party. APB acquired the 50% interest of the third party in Sino-brew in 1998. Sino-Brew was re-named Heineken-APB (China) ("HAPBC") in 2004, following a restructuring of APB and Heineken's operations in China. HAPBC was then licensed to produce and market Heineken lager in China.

Besides China, the APIPL joint venture has enabled APB to extend its reach to Vietnam, Cambodia, Thailand, New Zealand and more recently, to Sri Lanka and Mongolia.

From 5 breweries in 3 countries in 1986, APB has now invested in 23 breweries in 9 countries, excluding a greenfield brewery to be constructed in Mongolia.

If you read APB's FY 2005 Annual Report, you will note that about 62% of its APBE (before corporate office expense) came from markets that it ventured into after 1986.

In 1996, we completed the restructuring of our Malaysian soft drinks and dairy operations in compliance with the NDP. This involved the acquisition by Malaya Glass Bhd (then a listed associate of F&NL) of all the Company's soft drinks and dairies interest in Malaysia in exchange for new Malaya Glass shares. F&NL then divested part of these shares to Bumiputra and other investors, retaining an initial 56% in Malaya Glass Bhd, which was re-named Fraser & Neave Holdings Bhd ("F&NHB").

We reaped a capital gain of $178 million in FY 1996 from the divestment of some of our shares in F&NHB.

Our compliance resulted in a sharp short-term fall in profit contribution from our Malaysian operations due to our reduced shareholding, but it improved our longer-term prospects in that important growth market as licences and approvals were more forthcoming thereafter.

Since its NDP compliance, F&NHB has relocated to a new soft drinks plant at Shah Alam, upgraded its soft drinks and dairies' production capacity and capabilities, restructured its distribution, acquired another domestic glass factory and diversified into property development in Malaysia. In addition to an existing joint venture in Vietnam, it has also embarked on new glass making ventures in China and Thailand.

In FY 2005, F&NHB recorded an APBE of RM135 million; compared to about RM75 million in FY 1995 (before NDP compliance). Its Net Asset Value per share in FY 2005 was RM3.04 compared to RM1.59 prior to NDP compliance.

As indicated earlier, F&NHB's first property project - Fraser Business Park - is being developed on our former soft drinks and brewery sites in the heart of Kuala Lumpur. This replicates the successful strategy in Singapore of relocating and modernising our production facilities, and subsequently, re-developing vacated sites to unlock value.

F&NHB's soft drink subsidiary - F&N Coca-Cola Malaysia - continues F&NL's close association successful of 70 years with The Coca-Cola Company, which retains a 10% interest in this subsidiary.

In 2000, we acquired control of Times Publishing Ltd ("TPL") and privatised that company in 2002, giving us Printing & Publishing as our third core business. In FY 2005, this core business made a modest contribution of about 9% (or $26 million) to Group APBE but foundations have been laid for a stronger growth momentum in the future.

We have upgraded the printing plants in Malaysia, Singapore and Australia and have established a network of plants in China.

The intellectual capital of TPL's publishing business has opened up an opportunity for further development of the "software" side of the fast-growing knowledge and information industry. In FY 2004, TPL completed a re-branding exercise. The Marshall Cavendish brand is now used in its publishing business to promote a common identity.

We embarked on a capital management programme from FY 2000 to FY 2003 in a drive to optimise our capital structure. This involved share buybacks, two pro-rata capital reduction and a selective capital reduction. These schemes returned $579 million to shareholders.

The success of our strategic initiatives has enabled F&NL to consistently raise its dividend payments. A payout of up to 50% of APBE has been adopted by the Board. Barring unforeseen circumstances, it is the Board's intention to maintain the after-tax dividend at not less than the normal after-tax dividend of the previous year.

The market has recognized the growth potential of our "multi-core" business model, which has proven its resilience despite major upheavals in recent years. The share price of F&N has performed well. As indicated on Page 6 of the FY 2005 Annual Report, a $1,000 investment in F&N shares since October 1983 would have grown to $5,894 by end September 2005, a return of 489%."