Keytone Dairy Corporation Limited (ASX:KTD)
Keytone Dairy has bagged another order from the Nouriz (Shanghai) Fine Food Co Ltd. The latest order for Keytone’s products is for around $1.4 million. Nouriz orders whole and milk powders, which are customised for the Chinese market.
The new order from the related party of Chinese State-Owned Enterprise, Nouriz, is significantly larger than the earlier two orders received by Keytone Dairy. Products that are delivered to Nouriz are high-quality premium NZ foodsand nutritional products.
New orders would be manufactured in KTD’s NZ manufacturing facilities through August 2020, i.e. second quarter of the financial year 2021. Danny Rotman, Chief Executive of Keytone Dairy, stated that the follow-on orders from the strategic clients represent growing size and frequency.
The manufacturing facility in NZ is online and is well-equipped to deliver growing orders from strategic clients, including Nouriz. Management will continue to work with strategic clients to grow orders and product offerings.
Licensing agreement with BaileysTM
In late May, the wholly-owned subsidiary of Keytone,Omniblend Pty Ltd, signed a licensing agreement with R & A Bailey & Co Ltd. Under the agreement, the company would distribute BaileysTMpremium coffee flavoured milk drinks and powdered beverages.
In the initial period to 31 December 2020, KTD would need to pay a royalty of $280k for the licensing of products. It expects sales to be higher than the license cost, and products are manufactured in the company’s Melbourne plants, providing margin benefits to the business.
Source: KTD Announcement
Under the license, the company will commence production for three flavours (above image), and new product development is underway to deliver additional products over the near term. It anticipates delivering new products to market by August 2020.
In addition to existing distribution, the company is looking to expand its range through its national distribution footprint. It also believes that distribution opportunities in NZ, Taiwan, and Hong Kong present additional growth prospects over the course of the future. And, these expansion opportunities present additional market penetration possibilities for Keytone’s in-house brands, including Tonik, SuperCubesand KeyDairy.
Capital Raising and acquisition
Also in May, the company completed capital raising activity through placement of around 40.3 million shares,bagging $12.5 millionin additional equity. A Share Purchase Plan was offered to eligible shareholders, which raised around $359k.
KTD raised capital to accelerate market reach for its high-margin proprietary products, allowing production of customer orders, capital expenditure and to execute on strategic acquisition opportunities.
Its subsidiary also entered into a binding agreement to acquire assets of AusConfec Pty Ltd for a consideration of $2.5 million. It was said that acquisition is highly complementary to the business, providing manufacturing operations for protein drinks, bars, and powders.
These assets would enable the business to develop proprietary products along with cross-selling opportunities to existing client base and prospective clients. Assets include German equipment for bar production and are available at a significant discount as per independent valuer.
The transactionallows SuperCubesbars to transition into in-house production, providing operational excellence. Management believes that assets would contribute towards earnings in FY21. Manufacturing Modernisation Fund grant of $800k by the Government was given to Omniblend that would be utilised in expansion of acquisition assets.
FY20 Financial Performance
In the year ended 31 March 2020, the total sales revenue of the company was $22.53 million compared to $2.51 million in the previous year. Its sales in NZ doubled to $5.03 million from $2.51 million in FY19.
Source: KTD FY20 Results Announcements
The business also delivered growth in Asia and China underpinned by repeat orders from existing clients and new clients. In FY20, cash receipts from customers were $24.68 million as against $2.48 million in the previous year. Statutory loss for the period was $7.45 million, which included one-off acquisition costs, advisory expenses, integration expense in Australian business and non-cash expenses.
On 11 June 2020, KTD last traded at $ 0.280, up by 1.818% from the previous close.
Keytone Dairy has continued its growth momentum in the new financial year. It is also well capitalised with fresh capital raising. The business is pursuing value-accretive acquisition opportunities in addition to product expansion and market penetration.
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