Etika net profit plummets to RM0.2m

As promotional expenses rocketed.

Sweetened condensed milk maker and regional F&B group Etika International Holdings Limited (Etika) announced a profit after income tax (Net Profit) of RM0.2 million on the back of a revenue of RM254.5 million for the third quarter ended June 30, 2013 (Q3FY2013). The Group’s revenue held steady as compared to the previous corresponding quarter (3QFY2012).

Net profit was down from RM4.5 million in 3QFY2012, mainly due to higher administrative, selling and marketing expenses on additional promotional campaigns commissioned since the first quarter of the financial year.

Etika’s Group Chairman, Dato’ Jaya Tan said, “While our overall performance was affected by intense market competition during the quarter under review, particularly for our noodle business in Indonesia, we are making good progress in both our Trading and Frozen Food as well as Nutrition Divisions. Sales from our “Texas Chicken” outlets have been encouraging and are expected to contribute positively towards our revenue. At the same time, gross profit margin has improved in line with lower raw material costs, mainly from our Dairies Division.

“In Indonesia, to cope with increased competition, we have invested heavily in sales and marketing campaigns in the quarter but the reality of the situation is that for basic products like noodles, pricing amongst competition continues to be a determining factor on our bottom-line. We will continue to monitor the situation closely and have undertaken further measures to improve cost efficiencies.

“Looking ahead, while market conditions are challenging, we remain focused on strengthening our operational and production efficiencies as we work towardsimproving profitability in the next quarter, especially where our sweetened condensed milk factory in Surabaya, Indonesia, and beverage plant in New Zealand are concerned.”

Cost of goods sold was down 2.0% to RM198.6 million as a result of reduced raw material costs in Q3FY2013. Correspondingly, an overall improvement in the Group’s gross profit margin was achieved, increasing by 1.5 percentage points to 21.9%. Notably, the Group’s Trading and Frozen Food Division and its Nutrition Division recorded revenue increases of RM8.8 million and RM0.9 million respectively.

Administrative expenses and selling and marketing costs rose heavily on higher staff costs incurred by the Group and increased promotional campaigns undertaken by the noodles business.

For the nine months ended June 30, 2013 (“9MFY2013”), Group revenue remains flat. Sales were affected by production delays at its Surabaya and New Zealand plants, though this was in part mitigated by higher top-line contributions from its Trading and Frozen Food Division, Nutrition Division as well as Others Division. The Group however, enjoyed a higher gross profit margin of 22.7% in 9MFY2013 compared to 20.4% in 9MFY2012, on lower raw material prices. Net profit registered for the period was RM12.6 million.

As at June 30, 2013, the Group maintained a healthy balance sheet and working capital position, with cash and cash equivalents of RM45.0 million.

Group Chief Executive Officer, Dato’ Kamal Tan, said, “We expect to be able to achieve reasonable growth for the full year, on an expected soft landing of the global economy. Raw material prices are expected to increase on tighter global supply, which may affect the Dairies Division cost-wise. There remains untapped potential in this Division as delays in our sweetened condensed milk plant in Surabaya translate to higher production capacity for the future.”

In the Trading and Frozen Food Division, prices of raw materials are expected to remain stable, with the exception of lamb from Australia and New Zealand.

Nonetheless, the Group continues to grow its market share by expanding its customer base to include smaller chains of retail outlets besides the current clientele of large supermarket chains.

The Group’s Nutrition Division is poised to grow its market share especially in Australia as it has successfully gained access to Australia’s leading supermarket chain to place its training series products for sale. Related to this, the Nutrition Division has received written assurance from its supplier that none of the raw materials supplied to them by Fonterra New Zealand, the world’s biggest dairy exporter, were part of the contaminated batches of ingredients. The Group continues to carry their nutritional products with confidence and Etika expects improved sales for this Division.

“The Group continues to see encouraging sales growth for its restaurant business under the “Texas Chicken” franchise in the Others Division. With five outlets currently operating in Klang Valley, Malaysia, and another two openings scheduled by the end of FY2013, the Group expects this Division to continue to contribute positively to our top-line,” concluded Dato’ Kamal Tan.