Dutch Lady eyes record year amid cost pressures

Dutch Lady eyes record year amid cost pressures

Written by Nadia S Hassan
Friday, 20 May 2011 12:44

KUALA LUMPUR: Dutch Lady Milk Industries Bhd is looking to sustain its current earnings momentum, but warns that the current high prices of raw materials globally will pile on the pressure.

“For 2011, the outlook for the market is definitely promising. The dairy market as far as we can see has grown by around 10% year-on-year [y-o-y] during the first quarter, and there is a shift... toward more premium products. But we do have to remain cautious,” said managing director Bas van den Berg.

According to Van den Berg, the company’s actual cost of raw materials such as sugar, oil and milk had increased by 29% since last year.

“Skim milk powder, an important component for Dutch Lady, for example, was around US$2,000 (RM6,040) per tonne in 2009. Now we are expecting that the price could reach around US$3,500 per tonne this year,” he said.

Last year, Dutch Lady reported its highest pre-tax profit in its history of RM90.1 million, 9.2% higher y-o-y. Its net profit for the period was RM63.9 million or 99.82 sen a share, 5.7% higher than the previous year when net profit came in at RM60.4 million.

It should be noted that revenue for the period only grew by 3% to RM710.6 million compared with RM691.8 million for FY09 ended Dec 31.

“This was achieved due to a mixture of us refocusing our business direction, keeping control of our costs and differentiating our portfolio. We will be keeping to this strategy for the coming year as well,” said Van den Berg.


Dutch Lady Milk Industries Bhd chairman Datuk Zainal Abidin Putih (left) and Van den Berg show off the company's products at its AGM in Petaling Jaya.
For the current financial year, he said that due to rising raw material costs, it would be inevitable that the prices of Dutch Lady’s products would go up.

“We have already started with price increases for some of our growing up milk products and more will follow in June. We are mindful, however, of the impact on our customers so we are working to minimise the impact. The price increases will be around 5% to 6%,” he said.

However, despite the cost pressures, Van den Berg said Dutch Lady is hoping to at least maintain the same level of dividend payout seen last year.

Last year, the company paid out RM46.4 million or 72.5 sen a share comprising normal dividends and a special interim dividend. The payout was about 73% of FY10 net profit. For 1QFY11, it declared a gross interim dividend of 30 sen per share. The stock closed at RM17.84 yesterday.

For 1QFY11, Dutch Lady saw its net profit increase to RM28.3 million from RM20.8 million reported in the previous corresponding period.

Asked if the company saw any opportunities for mergers and acquisitions in line with what is happening globally among food companies, Van de Berg did not rule out the possibility.

“Asia in general is an important region for us and one where [we] will continue to focus, so we do not exclude... acquisitions, not only in Malaysia but also in the region. However, there are no plans to do so at this time,” he said.

It should be noted that Dutch Lady’s parent company, FrieslandCampina is also the result of the merger between Friesland Foods and Campina in 2007.

Dutch Lady’s main divisions currently are powdered milk, liquid milk, yoghurt products and condensed milk.

On the possibility that the company may eventually hive off any non-performing unit, Van den Berg offered no comment.

“We do have a long-term business plan when it comes to our portfolio. However, if a division is not performing it will prompt us to take a look into that segment and maybe invest less,” he said.

He also would not comment on Dutch Lady’s capital expenditure for the year, simply saying that the company would continue to invest in research for its portfolio and in its facilities.


This article appeared in The Edge Financial Daily, May 20, 2011