100% correct As I said, downramping won’t work anymore. The...

100% correct

As I said, downramping won’t work anymore. The market has woken up to the potential here. Or the Company has started spruiking it a little louder!

It wouldn’t at all surprise me if we are not already EBITDA positive.

Think about what this Company does.

It is cash flow positive for the month of September.

Sales (or accounting revenue) precede cash collection and the Company pre-purchases raw materials (ie PMOC precedes COGS)

In other words, accounting revenue should be > the cash in the 4C and accounting COGS should be < the PMOC in the 4C.

Other expenses are broadly the same for the 4C and accounting.

I think many will see where I am going with this.

In theory, we become EBITDA profitable BEFORE we become Cash flow positive.

Of course while EBITDA is before non cash items such as depreciation, it would include other non cash expenses.

Okay, let’s share some more good information!

For those newbies I’ll post this again as it provides a really good overview of the potential here.

It’s my transcript of our CEOs speech at the recent AGM. Please note it’s not an official transcript from the Company:


CEO, Danny Rotman’s speech from KeytoneDairy’s AGM – 31 August 2020:

Thank you Peter and good morning everyone. Itsbeen a generally transformational year for the Keytone business. As we have transitioned from being a dedicated dairy contract manufacturer into an established and rapidly growing health and wellness company.

We now have six purpose built facilities across both Australia and New Zealand that offer a wide range of dairy health and wellness products packed out into powder blends, long-life UHT products and ready to eat products. This now makes us a one-stop shop for health and wellness brands looking to partner with one manufacturer to meet all their product needs. Our facilities have all the necessary accreditations for both domestic and international markets and as a business we have attracted contract manufacturers for household brands in Australia, New Zealand and Internationally, including Walmart China, Nouriz, Bellamys and Iovate to name just a few.

In the past 12 months we have also substantially bolstered our range of higher margin proprietary products, which have been formulated with our own internal product development team and we now have a health halo stable of brands including KeyDairy, Tonik and Supercubes. Our KeyDairyrange which comprises premium milk powders and formulated dairy products have undergone a refresh in the last few months with these products being sold both domestically in the New Zealand market and into China through both online and offline channels. We have also recently launched the KeyDairy Immunity booster product in response to market demand and this product will be sold through our existing distribution channels, both domestically and abroad, particularly into China.

In terms of our Tonik range of ready to drink products, these products are produced at our UHT facility in Victoria and we now have 16 SKUs across 3 ranges with 12 of these products being launched this year. Tonik Pro is our range of high protein, dairy based RTDs which was launched into the market in April and we have seen distribution channels for this range grow month-on-month, despite the challenges thrown up by COVID. We have successfully developed and launched the Tonik Plant range of RTDs at the beginning of the month, Australia’s first high protein, plant based, ready to drink product in response to the growing demand to vegan and plant based foods. The success of this first to market launch was evident when we were able to secure national ranging at Coles for the product within two weeks of launch, despite Coles not undertaking a formal range review, nor seeking submissions. Tonik Plant is being quickly being rolled out to our other distribution retail partners and we have a healthlyinnovation pipeline of new products which we will be looking to bring to market under the Tonik name in the coming months.

Our other brands include SuperCubes, which has a range of nutritious frozen cubes for making smoothies at home, frozen fruit puree and a range of Supercubes wholefood bars and the Grans that was acquired as part of the barline acquisition we undertook in May this year both showing impressive growth as distribution grows.


In terms of our manufacturing facilities in New Zealand, here you can see our second state-of-the-art facility in Christchurch, which was commissioned and operational in March this year. The facility has been constructed to comply with the highest food grade standards, is infant formula capable and has more than tripled the manufacturing capacity that we have in New Zealand on a one-shift basis. Importantly, the site is fully accredited and licensed by the New Zealand NPI for domestic and international production and gives us the scale through entirely automated plant and equipment to not only better service the demands of our growing customer base, but also to win new large-scale clients as we realign our sales mix to higher value proprietary products. The highly automated plant and equipment and scale of the operations is driving operational leverage and efficiencies within the business to further improve our gross margins.

Our Australian operations now comprise four site, with three in Victoria and one in New South Wales, with that site having ready to eat manufacturing capabilities, acquired as part of our capital raise undertaken in May. Throughout the last quarter of calendar 2019 we integrated two of our Victorian sites into one large scale site where we now have highly automated plant and equipment, nine packing rooms, including a dedicated dairy-free, gluten free room. At this site, we can now take our powdered products into various pack formats including sachets, jars,buckets and composite pans. We also have another production site in Victoria where we make our long life UHT products and bottles, and this is where we make the Tonikrange of ready to drink products and our Baileys non-alcoholic drinks, under license.

In terms of accreditations both our New Zealand and Australian facilities have the necessary accreditations for domestic and international production, including the important CNCA accreditation allowing us to export products into China from all sites and internationally recognised CRC accreditation for domestic production and global exports. However all our sites have both organic and halal certifications recognised with the relevant accreditation bodies in both New Zealand and Australia.

On the next slide you can see a collection of our blue chip customer base across both New Zealand and Australia. Importantly for our NZ business, notable clients include Walmart China through their Sam's Club division and Nouriz, a related party of the China Animal Husbandry Group, a China state owned enterprise for whom we produce whole and skim milk powders under the Walmart and Nourizprivate label brands. Our Australian operation works with many of Australia's leading health and Wellness brands including Bellamy's organic, Carman’s, Tony Ferguson and international brands such as Iovate.

As already mentioned we have a growing range of distribution channels as you can see on this slide both in terms of bricks and mortar stores and also online channels domestically in Australia and New Zealand and also overseas in China and other markets. Whilst distribution partners and channels vary for different Keytone proprietary products, our distribution footprint in growing with each passing month and over the coming 12 months, we're looking to expand distribution both existing and new geographic markets.


In terms of the financials, the businesses is on a strong financial trajectory growing rapidly with total sales for FY20 having increased to $22.5 million from $2.5 million in the prior financial year and we're looking to significantly exceed that again this year. We have now had six consecutive quarters of growth including a record sales quarter of $11.5 million in the quarter just passed and we're on track for another record quarter this quarter. Whilst obviously the outlook is somewhat uncertain on account of COVID, subject to no further lockdowns, global markets remaining strong and demand continuing as we have seen, the businesses is on track for profitability and net cash generation in the second half of FY21. Pleasingly sales in the NZ business for FY20 doubled to $5m, compared with $2.5m the prior year, and that was without the second facility which only came online in March this year. Sales have continue to grow in the NZ business as announces to market with larger consistent orders from our New Zealand client base including Walmart China and Nouriz.

As a business we're also well capitalised with $12.5m placement which was undertaken early this year for which we have recognised that we’ve welcome some new institutions and sophisticated investors to the register.

Obviously these are unprecedented times that we're living on account on the Coronavirus Pandemic. Despite this, as a business we have been able to successfully navigate through the disruptions that this has caused globally and other logistical issues to ensure that we've remained fully operational throughout the pandemic and I'm extremely proud of the way that our team has risen to the challenge of the current environment. In fact pleasingly, COVID has actually been a net positive for the Keytone business with us experiencing increasing in demand across all business units both in Australia and New Zealand. Importantly both our New Zealand and Australian operations have been classified as essential businesses which has allowed them to continue operating despite the lockdowns that have taken place in both New Zealand and currently in Victoria. We have seen demand for formulated milk powders and shelf stable food staples continue to increase on account of COVID, particularly for our ambient long shelf life products. Be believe we are ideally positioned to capitalise on this structural shift in consumption patterns as consumers place a greater emphasis on health and wellbeing on account of the current COVID pandemic.

In terms of the core investment highlights, we’re in a strong competitive position as a diversified health and wellness company with a growing range of proprietary products and working with a large number of clients that are household names. We have our own internal product development resources and as a vertically integrated manufacturer this makes us more nimble allowing us to seize on opportunities that present. Certainly we are a rapid growing company, having achieved substantially increases in sales since listing, and over the last six quarters.

We have a proven sales track record and capability to grow proprietary brand sales through our existing distribution channels. Importantly we also have the management bench strength to continue to drive growth and support any future integration required through acquisitions or otherwise, putting us in a strong position as the business continues to scale and grow.


I’d now like to pass you back to our Chairman Peter James to close the meeting and for Q&A.