Keytone Dairy targets Chinese market expansion

Chairman Bernard Kavanagh said although China is the main game, there is plenty of “untapped demand” across the continent.

“Demand for dairy products is continually increasing,” he said. “I think as we know, it’s a massive population. They have changing diets, strong demand for dairy products, increasing discretionary income, changes to one child policy and they’re the biggest importer of dairy products.”

The profitable company, which has been operating for four years, hopes to raise $15 million to help expand its production, expand its product range and increase distribution through Asian markets.

“We have limited capacity on our production. We want to increase capacity by building a new facility by about 3500 tonnes, we want to expand the product range, we want to increase the distribution channels and we want to export to other countries.”

While Mr Kavanagh acknowledged that there were other competitors in the space, he believed that the company was uniquely positioned to access the Asian market.

“I think that there’s quite a number of competitors,” he said. “There’s a lot of product from Europe on the shelves but I think that NZ products are held in very high regard. There’s a strong demand for clean and green products.

“We’re a small but fast-growing company. We have achieved a lot in our short history, with established distribution channels in China and with the funds, we will be seeking to grow our market share.”

Mr Kavanagh said that the company wasn’t the next a2 milk Company or Bellamy’s Australia, both of which have delivered impressive returns to shareholders on the back of strong demand for infant formula, albeit with some setbacks for Bellamy’s.

“We’re not a manufacturer of infant formula,” he said. “We see a lot of demand elsewhere. The infant formula space is very complex and there’s a number of global players that dominate the market.

“We’ll [be] watching what’s happening and there could be opportunities that are of interest to Keytone. We’re not saying no but we shouldn’t underestimate the complexity that exists.”

The company was founded four years ago by chief executive James Gong, a former sales and marketing manager at Westland Dairies. While the company will continue to be based in New Zealand, Mr Kavanagh says that the market and the company felt more comfortable listing in Australia.

“That decision wasn’t taken lightly and a lot of thought went into it,” he said. “When we did the roadshow, our view was that the investors were more comfortable with the ASX in terms of the depth of the market.

“We’ve been to Melbourne, Sydney, Perth, Singapore, Hong Kong and the perception is that the market felt more comfortable with the ASX.”

As part of its initial public offering Keytone hopes to issue 75,000,000 shares at 20¢ a piece.

The company isn’t carrying any debt and has been profitable for the past four years. It has forecast revenue of $2 million and a pro-forma net profit of $470,000 for 2017-18. It will make a statutory loss of $745,000 due to costs associated with the float.

Mr Kavanagh said that Keytone was a small but fast-growing business and was well positioned to increase its current market share in Asia through a successful IPO.

Keytone’s IPO will close on June 1 and is expected to begin trading on the ASX on June 19.

By: William McInnes

Source: Financial Review

Link: http://www.afr.com/markets/equity-markets/keytone-dairy-targets-chinese-market-expansion-20180511-h0zyff

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