Strategic Direction

Over the last 120 years old, F&NL has become a household name in Singapore and Malaysia but it also recognised the constraints of growth in these markets and the need to embark on regional expansion for long-term sustainable growth. It is precisely this multi-industry, multi-location strategy that has helped F&NL survive the economic downturn and scale new heights in profitability.

F&NL remains steadfast in its multiple-core business model. Its mission is to be a leading Asian-based company focused on a balanced portfolio comprising Food & Beverage, Properties and Publishing & Printing, with significant business presence in overseas markets and renowned for its product quality, brands, sound management and reputation of delivering value to all its stakeholders.

Whilst our three core businesses may appear seemingly unrelated, we have built up market leadership positions in each of our core business as well as strategic capabilities over the years in brand management, extensive marketing expertise, distribution networks, and financial strength and discipline, which are applicable to all our businesses. F&NL is one of the few companies with brands that transcend borders.

Our priority is to drive earnings, placing emphasis on being asset-light, product extensions, growing in newer geographical markets, sound capital management and maintaining a balanced business portfolio. F&NL is looking at monetising its investment properties progressively and redeploying the proceeds to higher-yielding ventures within the three core businesses. With sustained earnings growth, F&NL can continue to pay generous dividends to shareholders.

Any new business to be considered must satisfy certain criteria mostly relating to specified earnings targets: Existing businesses should generate returns that exceed the Cost of Capital whilst new businesses should achieve satisfactory Return on Investment (ROI). Other factors taken into consideration include the ability to strengthen our market positions, distribution networks and R&D capabilities.

F&NL had in the past demonstrated great resolve when required to exit existing businesses, e.g. the exit from the Coca-Cola regional anchor bottling joint venture in the face of escalating losses, which included the sale of its interest in the Singapore plant. This painful decision was vindicated by the return of the F&NL soft drinks business to an acceptable level of profitability.

Performance Targets

Growth target: F&NL aims to achieve a long-term sustainable growth rate averaging 10% per annum.

ROE target: We are targeting to raise our ROE to above 10%. Ideally, contributions from each core business should be balanced. As part of the Group's effort to achieve an efficient capital structure, in July 2006, it reached a milestone in implementing an asset-light strategy with the launch of Frasers Centrepoint Trust ("FCT"), a real estate investment trust on the SGX. Moving forward, the Group will continue to diversify its property development and investment incomes into fee-based income, to enhance quality of earnings. FCT will be the vehicle through which the Group will participate in Retail Mall investments in the future. The Group has also recently announced its plans to launch more REITs for other classes of properties.

In addition, we will also look at more overseas projects, which yield higher returns. As these also present higher risks, we will only commit to investments where we believe we can manage such risks.

Capital is allocated within F&NL on the basis of merit. A key consideration is the ability of an investment to meet internal returns criteria. As a general guiding principle, any new investment must generate at least 10% ROI.

The recurring capital expenditure is about S$150 million per annum. Development property is practically self-financing and does not require significant capital commitments, i.e. bid for land, prepare site for sale within 12-18 months, followed by construction in the next 24 months.

Our net gearing and interest cover as at 1H2007 were 0.6 times and 11.7 times respectively. We believe that increasing gearing to 1 time will still be within conservative limits.

Listed subsidiaries such as Asia Pacific Breweries and Fraser & Neave Holdings Bhd have independent compensation schemes whilst management compensation for the rest of the Group is structured in a combination of fixed and variable compensation including share options, which is tied to corporate and individual performance targets. These are reviewed by the Remuneration & Staff Establishment Committee to ensure that compensation is appropriate and competitive.

Shareholder Value

In determining dividends, the Board balances the need for a satisfactory return to shareholders against the company's investment requirement to ensure sustainable growth in the future. Over the years, the Board has maintained a track record of generous shareholder distributions and remains committed to paying close to 50 per cent of underlying profit. For the financial year ended 30 September 2006, it recommended a final net dividend for the year of 12 cents per share, this is 9% higher than the 11 cents (on a sub-divided basis) paid last year.

Shareholding

Human Capital

Talent is key to any organisation and succession planning is obviously very important. On 7 April 2006, the Group expanded The Remuneration Committee term of reference, renamed The Remuneration & Staff Establishment Committee, to include succession planning. This dynamic process includes identifying, developing and attracting high potential employees, through mentoring, training and job rotation, for them to be groomed to take on bigger jobs and leadership roles at the appropriate time.