Keells to double capacity with Rs. 700 m buy of D&W’s processed meat plant

Tuesday, 26 June 2012 03:09 -     - {{hitsCtrl.values.hits}}

Leader in processed meat Keells Food Products Plc is doubling its capacity with the purchase of production facility of D&W Foods Ltd., at Pannala for Rs. 700 million.

The Company also announced a Rights Issue to raise Rs. 1.02 billion. Both moves are subject to shareholder approval at an EGM.

D&W Foods is located at Makundara Industrial Estate in Gonavila, Pannala. Set up in 2006, it is a Board of Investment approved venture involving Belgium and Sri Lanka partners.

Specialising mainly in exports to Europe, India and Middle East in partnership with Belgium firm, a leading chicken meat marketer, D&W boasts of one of a kind factory in South Asia with ISO 22000:2005 which assures food safety. Its plant’s capacity is estimated at 20 tons of processed meat per day.

KFP was scouting for an expansion as its 25-year old Ja-ela plant has reached peak capacity despite several augmentations over the last few years. The Company has done business with D&W as well.

The acquisition and further improvements will be financed by Keells Products via a two for one rights issue at Rs. 60 each. Keells was trading at Rs. 103.50.

The Rights will see issuance of 17 million ordinary shares. Keells Products current shares are 8.5 million with a stated capital of Rs. 274.8 million.

In FY12, KFP posted its best ever results. Revenue improved by 6% to Rs. 2.32 billion through a volume increase of 4% and selected price increases in some of the SKUs. The retail channel contributed 35% to overall volumes and grew by 7% whilst the catering channel contributed 30% and grew by 5%. Although the processed meat range and crumb range grew

in volume there was a decline in the trading and canned range volumes during the year under review.

Pre-tax profit rose by 89% to R. 180.6 million. After-tax profit was Rs. 129.6 million as against a loss of Rs. 55 million in FY11.

This turnaround was owing to improvements in efficiency, prudent cost management and the Nation Building Tax reduction granted in the previous year’s Budget. Distribution cost at the Company increased to Rs. 248 million from Rs. 238 million in the previous year largely due to the strengthening of the

sales and marketing team whilst maintaining advertising and promotional costs at the same level as in the previous year. Primary distribution

costs were maintained at the same level as in the previous year despite increase in sales volumes and an increase in diesel costs.

In the company’s FY12 Annual Report KFP Chairman Susantha Ratnayake said the erratic supply of chicken meat particularly during the second quarter of the year under review had an impact on the cost base as the Company was compelled to import chicken at a higher cost which was not passed on to the consumer.

In addition to working with many of the established chicken farms, KPL has also inducted new players in to the supply chain with the goal of increasing the local chicken production to meet the Company’s raw material requirements.

Ratnayake in his review also reiterated that a few long standing issues remain unaddressed. They included unbranded sausages sold in loose form in the general trade compromising the quality and hygiene standards. “The authorities should take serious concern of this development and enforce proper hygiene standards to protect the consumer,” KFP Chief said.

However KFP remains optimistic. “With changing life styles in terms of the meal preparation time being reduced at homes, the convenience foods industry has excellent potential. The increase in the number of outdoor events and growth in tourism will continue to fuel growth in this industry. Our R&D and product development is receiving high priority to offer nutrition while mitigating the rising cost of raw materials and energy,” Ratnayake added in Chairman’s Review in the KFP’s Annual Report for the year ended 31 March 2012.

Consumption of processed meats still remains comparatively low in Sri Lanka when compared to the fresh meats category, there is scope for growth.

With the addition of the 3 products during the year, KPL offers the consumer a greater choice for their consumption occasions. In FY 12 based on research and consumer feedback the Company engaged a restructure of its brand and products portfolio through a new brand architecture which has now begun to roll out. This means the Elephant House meats which are currently manufactured and marketed under franchise, the Keells sausages, meatballs and slices and the Krest Chinese rolls and crumbed formed meats will be positioned targeting the different consumption occasions for the identified target groups. The fully compliant Halal brand, Krest witnessed a steady growth in volumes during the period under review. The Krest range includes Chinese rolls, nuggets, fish fingers, kievs. Krest french fries, which is primarily marketed to the catering industry.