MALEE adjusts strategy to fight declining fruit juice market Progress in the second half; Recovery signs to be seen next year
20 August 2018
Bangkok – 20 August 2018 – Malee Group Public Company Limited announced its Q2/2018 sales of Baht 1,327 million, net loss of Baht 15 million, and EBITDA of Baht 43 million.
Ms. Roongchat Boonyarat, Chief Executive Officer of Malee Group Public Company Limited (“MALEE”) disclosed the operating results for Q2/2018 that, “In Q2/2018, the Company and its subsidiaries recorded total sales of Baht 1,327 million, a decrease of 3% YoY, and net loss of Baht 15 million, mainly due to a one-time cost of financial advisory fees and legal consultant fees of Baht 22 million from the acquisition of Long Quan Safe Food JSC (LQSF) a new subsidiary in Vietnam.”
Ms. Roongchat continued that “In Q2/2018, the Company’s sales declined 3% YoY, mainly due to the drop in export Contract Manufacturing Business (CMG) sales. However, export branded sales jumped supported by sales recognized of Baht 87 million from LQSF since 27 April 2018. Domestic CMG sales grew from both new products and some existing products. Domestic branded sales slightly increased supported by growth in canned fruit resulted from higher productivity than the previous crop season, despite the drop in fruit juice sales following the slowdown in fruit juice market.”
Ms. Roongchat further clarified that “RTD fruit juice market has been dropping since the beginning of 2017 until now, the situation of which the Company always has been aware of. Therefore, the Company has adjusted its strategy to diversify product portfolio beyond traditional 100% fruit juice. From the end of Q2/2018 until mid of Q3/2018, the Company has launched new products into the market, e.g., HPP (High Pressure Processing) fruit juices, and milk tablet. And, for the rest of this year, the Company will continue to launch additional new products beyond its traditional products as well as personal care products, both of which will be launched into the market in September. However, the Company’s new products launch plans were delayed from the original plan, most of which should have been launched since at the end of Q2/2018 due to several factors for the delay, e.g., it’s a new product category or new production technology that the Company has never produced or distributed before, causing quite a longer process of licenses than expected, e.g., import license and food serial number from the Food and Drug Administration (FDA). In addition, the Company is in the process of adjusting its distribution channel, in order to cover more sales area. These aforementioned factors are part of the reasons of the Company’s slow sales growth.”
Ms. Roongchat added that “Apart from the current business of the Company which dropped quicker and worse than expected, the Company also took longer than planned to generate sales from new businesses and new product groups. In addition, the Company’s costs increased, mainly due to investments to build the foundation for the Company’s sustainable growth in the future. However, as some investments cannot generate revenue immediately; some investments are not fully utilized or have not reached the optimal level yet; and some projects are delayed, costs per unit climbed up at this point, which should continue to affect the Company's performance in the second half of this year. Although the Company has been trying to reduce unnecessary costs at its best, the Company still has not reached an optimal level yet sacrificing short-term margin for long-term growth to catch market opportunities. Therefore, the Company had to bear higher costs at the beginning, causing lower profitability than it should have been. However, in the long term, the Company is confident that it will be able to grow sustainably, as the Company has been operating in accordance with its direction and strategy step by step as planned. Progress will be seen in the second half of this year, while signs of recovery should be clearly seen next year. In addition, the Company has completed its investment in the must-have projects which are necessary for driving sales. For the nice-to-have projects which will help enhance efficiency or reduce costs, the Company will hold those investments for the time being. After all invested projects are able to turn from cost to income, and the Company’s operating performance is recovered and improving, then the Company will reconsider the adjourned projects again. In other words, the Company will not have major capex within this year, but will focus our resources on what we have already invested in and turn them into profit center as soon as possible.”
“For the year 2018-2020, it was the period that the Company had expected for a leaping growth, as the Company would be able to start getting benefits from the prior investment projects. However, due to negative factors, e.g., the drop of RTD fruit juice market, a decrease in export CMG business resulted from some customer ending its distribution contract with some retailer, which caused the Company’s 7% YoY sales drop in the first half of this year. Meanwhile, the launch of new products and new businesses is delayed. In addition, the Company is using the “partial service” business model for some CMG customers, which is different than the “full service”. Therefore, volume growth will be higher than value growth but will not affect the Company’s profitability. Plus, capacity utilization will be improving. Consequently, the Company revised that there would be no sales growth for 2018 (revised from the previous 30% sales growth target). However, the Company still expects sales growth in the second half of this year both compared with the same period last year and the first half of this year, although it might not be significantly high. Recovery signs will be more promising next year”, concluded Ms. Roongchat.