KTD.AX - Another A2M?

3 Sep 2019

 

 

DECISION

 

 

ABOUT

  • Established, growing business leveraged to China’s expanding middle class

  • Focus on value added, formulated dairy and nutritional blended powdered products for export  

  • Positioned to capitalise on New Zealand’s global ‘clean, green and pristine’ reputation  

  • Currently building its second purpose built facility in New Zealand, increasing capacity 3,500tpa on current operations, to 5,000tpa  

  • Quality validated by contract packing for leading New Zealand and International supermarkets  

  • Growth strategy based on four pillars of growth – capacity expansion, product range, distribution channel expansion and new geographies

 

FINANCIAL

 

  • 18 Jul 19: The SPP was undertaken, at $0.43 per share, to partially fund the acquisition of Omniblend Pty Ltd (“Omniblend”) in addition to the previously announced placement of $8.0 million to new institutional and sophisticated investors at the same price (“Placement”), which was oversubscribed. 

  • Sales for FY19 increased to $2.5m, a 23.9% increase over the financial results of FY18

  • Q1 FY20 recorded sales of $1.5m, a 366% increase over the prior corresponding quarter

  • The Company has no debt, and a cash balance of approximately $7.7m as at the end of June 2019

 

WHY

 

The Company has established a robust growth strategy around four key pillars, being:

 

1) Increased production capacity;

 

​The construction of Keytone’s second purpose-built powder manufacturing plant is nearing completion. Once online this additional manufacturing capacity will take the output of Keytone from 1,500 tonnes per annum to 5,000 tonnes per annum, more than tripling the existing capacity today, on a one shift basis.

 

2) Increased proprietary product range;

 

​Keytone has a proprietary product range of dairy based powder products which it sells both directly and indirectly to core markets through established distribution channels and retail clients.These core products include KeyDairy Whole Milk Powder, Skim Milk Powder, Colostrum Milk Powder, Goat Milk Powder, Diabetic Milk Formula and Junior Formula in addition to the Company’s KeyHealth FaceClear product.

 

As well as the Company’s proprietary brand and products, Keytone has significant expertise and private label capability and continues to manufacture third party product for leading supermarket chains and dairy brands, such as Countdown (Woolworths New Zealand subsidiary) and the recently announced Walmart China contract.

 

It plans to expand the product range into sports and seniors nutrition, bioactive blends, infant, child and mother formulas, milk shake powders and animal nutrition.

 

Acquired Omniblend for $22.6m ($10m shares, $8m cash, settlement of Omniblend's debt up to $4.6m).

  • Health and Wellness sector is an attractive and logical adjacency for KTD. 

  • Omniblend is a profitable and leading Australian-based product developer and contract manufacturer of high value, formulated, blended powder products and long-life UHT drinks, specialising in the health and wellness sector. 

  • Omniblend holds numerous accreditations including CNCA, Dairy Food Safety Victoria, Australian Certified Organic, British Retail Consortium (AA Grade) and Halal certified.

  • Through the Omniblend facilities, Keytone will have the ability to contract manufacture high-value formulated, blended powder products and UHT drinks. Omniblend currently counts leading brands and retailers amongst its client base, including, Bellamys Organic, OptiSlim, Carman’s, Muscle Milk and Aldi Stores

  • Provides an early mover advantage in the health and wellness sector into China  

 

3) Diversify and grow the number of distribution channels;

 

Keytone has well established distribution channels in China and has continued to add, both directly and indirectly, further channels with retailers such as Metro and internet giants such as JD.com, Tmall, VIP.com and Pinduoduo. The Company recently announced the additional distribution channel of RT-Mart

 

4) Increase the number of geographic markets which the Company exports to.

 

​Keytone has a sought-after China Certification and Accreditation Administration (CNCA) registration, a pre-requisite for importation of dairy products into the People’s Republic of China, but not an infant formula licence at this stage. It is also halal-certified, enabling exports into Muslim countries.

 

Keytone is also pursuing organic certification and will seek new partnerships and distribution arrangements to leverage its clean, green, pristine NZ credentials.

 

Other Advantages

 

  • KTD has its own Blending facilities

  • Uniquely positioned to access the Asian market.

  • Lean on its New Zealand heritage to capture Asian consumer demand for 'clean and green' powdered milk products

  • Potential contract with packing A2M powder

 

 

Technical

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