2 Household Names with Strong Free Cash Flow

A conglomerate is a corporation that comprise of a number of subsidiary companies or divisions in a variety of unrelated industries, usually as a result of merger or acquisition.

The management of a conglomerate often seeks to diversify its field of operations for a number of reasons:

• making additional use of existing plant facilities
• improving its marketing position with a broader range of products
• offset the business/cyclical risks pertaining to one particular sector

With that in mind, we will be looking at 2 household names which operate as a conglomerate namely Haw Par Corporation Limited (SGX: H02) and Fraser and Neave Limited (SGX: F99).

1) Haw Par Corporation Limited (SGX: H02)

Haw Par Corporation Limited (“Haw Par”) has been listed on Singapore Exchange since 1969. Haw Par has a strong consumer healthcare business that promotes healthy lifestyles through its healthcare products. The largest contributor comes from a brand that it owns — Tiger Balm. Besides consumer healthcare business, the Group also engages in:

• Leisure business (Underwater World Pattaya)
• Investments in securities such as UOB Bank (SGX: U11) & UOL Group Limited (SGX: U14)
• Property Investment (Haw Par Centre and Haw Par Glass Tower, Haw Par Technocentre, Menara Haw Par)

Financial Performance

For the trailing 12-month period, Haw Par’s revenue declined by 13.5% to S$95.99 million. The lower revenue was mainly due to the weak consumer spending from its consumer healthcare business as well as the continued weakness of its leisure business.

On the other hand, its property investment continued to hold steady with the rental income from the various investment properties remaining unchanged.

Coupled with a lower interest income from its investments, Haw Par’s profit after tax dropped by 31.7% to S$81.76 million during the same period. This decline was partially mitigated by the lower distribution and marketing expenses.

Free Cash Flow

Despite the declining financial performance, Haw Par has managed to achieve positive free cash flow across the years.

One interesting thing to note for Haw Par would be the cash flow generated from its business operations only takes up less than 50% of the total free cash flow. The remaining free cash flows are generated from the dividends received from their investment in UOB Bank and UOL Group Limited.

2) Fraser and Neave Limited (SGX: F99)

From a soft drinks base, Fraser and Neave Limited (“F&N”) ventured into the businesses of beer in 1931, dairies in 1959, property development and management in 1990 and publishing & printing in 2000. In January 2014, through a distribution in specie and re-listing of Frasers Property Limited (SGX: TQ5) by way of introduction on the Singapore stock exchange, the Group demerged its properties business.

Today, F&N is a leading Southeast Asian consumer group with expertise and prominent standing in the Food & Beverage and Publishing & Printing industries.

Financial Performance

For FY2021, F&N’s revenue grew by 2.49% year-on-year to S$1.87 billion. The higher revenue was boosted by its beverages segment, which saw a higher sales volume for Beer and Dairies, while being partially offset by the lower sales revenue from soft drinks.

Meanwhile, the Group’s Publishing & Printing segment saw a lower revenue due to lower advertising revenue and deferment/cancelation of print jobs.

Despite the revenue growth, F&N’s profit after tax shrank by 5.88% year-on-year to S$195.47 million. The fall in profit after tax was contributed by the unfavorable currency translation and a S$8.7 million one-off charge which arose from restructuring initiatives implemented by the Group to reduce costs and streamline operations.

Free Cash Flow

Despite a mixed financial performance in FY2021, F&N’s free cash flow surged by more than 700% year-on-year to S$250.35 million.

The surge in its free cash flow can be attributed to the higher net cash flow from its business operations and a lower amount of capital expenditure in FY2021.

Conclusion

To conclude, these 2 Singapore household names have diversified successfully into various business segments and generated positive free cash flow across the years.

On the flip side, over-diversification could sometimes lead to these conglomerates losing their operating efficiency and market positioning. Hence, it is important for investors to keep a lookout on the efficiency of these companies.

More than 3,600 investors are on our Telegram, what are you waiting for? Join us now for more first-hand updates, articles, events, promos and happenings. Click here now. See you on the inside.