Keytone Dairy a healthy tonic in a tough market

By Trevor Hoey. Published at Apr 7, 2020, in Features

There are few companies that can boast a doubling in share price in the last fortnight, but Keytone Dairy Corporation Limited (ASX:KTD) can do just that.

The signing of a long term manufacturing agreement with Iovate Health Sciences Australia Pty Ltd on Tuesday has contributed to this strong share price performance with the company’s shares rallying approximately 20%.

Iovate is a fully owned subsidiary of North American based Iovate Health Sciences International and Inc, and Iovate is a substantial international strategic client in the health and wellness sector.

Consequently, the opening orders in excess of $3.6 million represent both a strong sales boost for Keytone, as well as an endorsement from a high profile industry participant.

Keytone was established in 2011 for the production and supply of pristine New Zealand dairy and nutritional powdered dairy products for local and international markets, manufactured out of its purpose built facility located in the heart of the South Island.

With source ingredients made in New Zealand’s clean and green environment, its products are sought after by leading supermarkets, manufacturers and retailers around the globe.

The opening orders are to be manufactured and produced during the current quarter, with cash receipts due shortly thereafter, providing Keytone with important income visibility at a time when markets are volatile.

To put the quantum of the orders in perspective, they represent 143% of Keytone’s total audited revenue for fiscal 2019.

Underlining the significance of this development, these are initial orders for one of the world’s leading protein brands in the health and wellness sector for their private label speciality branded high protein products which are destined for China.

Keytone continues to secure new and repeat orders with select global health and wellness brands, thereby exemplifying the quality and expertise of the operation, the deep experience of the group and the in-house manufacturing capability.

The strategic relationship with this client for Keytone will continue to be developed in order to ensure repeat orders over the coming quarters are placed, and the volume of the business grown across multiple packaging formats and product ranges.

Explaining how this order validates the high growth capacity of Keytone’s business, chief executive Danny Rotman, said, “The signing of this leading global protein brand in the international health and wellness sector with such a significant opening order, in addition to the significant volume of the requirement validates the high growth nature of the Keytone business and our in-depth manufacturing capability and credentials.

‘’We are excited to continue to attract and work with leading clients in our sector.

‘’We look forward to acquiring new strategic clients as we continue our strong trajectory, whilst simultaneously growing the volume of work with our existing and loyal customers as well as the volume of our proprietary brands.”

Threefold increase in manufacturing capacity

It is worth noting that this order comes shortly after the company increased its manufacturing capacity to the tune of more than 200%.

Keytone Dairy is now in a position to manufacture significantly higher volumes of finished product from its New Zealand manufacturing facilities more efficiently across a broader range of the company’s proprietary product suite, as well as realigning the sales mix towards higher value proprietary products, with a view to substantially growing sales and meeting demand from its existing client base.

The new facility will also enable Keytone Dairy to better service the demands of clients and leading brands such as Walmart (China) and Woolworths New Zealand, in addition to winning new large-scale clients and business.

The second facility has been constructed to comply with the highest food grade standards, is fully accredited and licensed by the New Zealand Ministry of Primary Industries (including CNCA registration (Certification and Accreditation Administration of the People’s Republic of China), is infant formula capable, and incorporates highly automated plant and equipment with technology which is a first of its kind in New Zealand.

These attributes are expected to drive operational leverage and efficiencies within the business and further improve gross margins.

Four-fold increase in demand following COVID-19

Keytone is experiencing a significant increase in inbound demand for its proprietary products and those manufactured for third party clients.

This increase in demand is being recorded across all operations of the business in Australia and New Zealand and is being driven from international and domestic markets.

The company’s proprietary KeyDairy formulated powdered dairy products have experienced an increase in demand approximately four times greater than that prior to the outbreak of COVID-19.

Keytone’s second manufacturing facility is now online to service this additional demand.

The company is also fast tracking the roll-out of an online platform for the direct purchase of its milk powders.

With regard to its private label business, Keytone is experiencing a strong uplift in the volume and frequency of orders from existing third-party clients for the manufacture of their shelf stable nutritional products, and demand for these products continues to grow both internationally and domestically.

Furthermore, an increase in inbound enquiries from new clients wishing to diversify their supply chain and ensure continuity of supply is further broadening the client base and financial performance of the business.

Importantly, Keytone Dairy as a food manufacturer is considered an essential service and will continue to operate through the COVID-19 restrictions.

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S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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