D&L prepares for next stage of expansion

Food input and plastic chemical manufacturer D&L Industries is preparing for a new phase of expansion to avoid production bottlenecks in the years ahead.

In the first quarter, D&L reported a core net profit of P633 million, 15 percent higher year-on-year as higher sales volume and commodity prices boosted revenues by 35 percent to P6.3 billion.

For the full year, D&L president Alvin Lao said the company was aiming to sustain a double-digit profit growth. This tempers the company’s earlier guidance of mid- to high-teen profit growth this year.

Although the company hit a 15 percent growth in the first quarter, Lao told a press briefing on Tuesday “there’s room for us to be conservative in our guidance.” “We’re okay with double-digit growth in net income,” he said.

Lao said some of D&L’s domestic customers were encountering a more challenging environment arising from stiffer competition. Because the financial system was so awash with cash, Lao said most businesses were using their excess cash to grow, resulting in greater competition.

In the case of D&L, Lao said the company was at a stage when it would need to boost capacity because it would otherwise encounter production constraints in a year or two. At the same time, he said D&L would like to introduce new products in the market. “This new activity will be along the same industries that we’re in – either food chemicals, plastics or aerosol. We need more space, more capacity,” he said.

Lao said D&L may be able to finalize its production expansion plan – most likely in Luzon – in the second half of the year.

To date, D&L operates seven manufacturing plants with an annual capacity of 200,000 tons per year. Average utilization rate is estimated at 70 percent.

If and when D&L firms up its expansion program, this will be its first major capacity-building activity since listing on the Philippine Stock Exchange in December 2012.

But Lao said since D&L had room to borrow funds to fund expansion, the company was unlikely to sell new shares.

In the first quarter, the 35-percent growth in revenues was supported by strong domestic demand and accelerated export sales. Export sales grew by 73 percent year-on-year, hitting a record high contribution to total sales at 24 percent from just 18 percent in full year 2016.

Starting end-2016, D&L’s food exports picked up through the company’s partnership with Ventura Foods, following roughly two years of certification and audits. The food ingredients segment is now the biggest contributor to exports, with its export sales more than quadrupling this quarter. This segment contributed 44 percent to total export sales compared with 19 percent in full year 2016.

Meanwhile, gross margins continued to improve for the high-margin specialty products. The robust growth in low-margin commodity revenues, however, pulled down the group-wide gross profit margin for the quarter by 2.5 percentage points to 17 percent. Commodity revenues grew by 55 percent year-on-year while revenues from high-margin speciality products grew by 24 percent year-on-year.

High-margin specialty products accounted for 58 percent of revenues while the remaining 42 percent was accounted for by commodities.

“Our company continues to see growth across all segments,” Lao said. “The strong performance of our export business shows that our commitment to R&D (research and development) and innovation is being appreciated overseas. Looking forward, we will continue to look for more ways to expand internationally to complement the growth in our domestic business.