CONSUMER packaged goods distributor Kim Teck Cheong Consolidated Bhd (KTC) is looking to a stronger year ahead, having been awarded several distribution rights and being on track to grow its network.

Recently, KTC was appointed distributor for Procter & Gamble (P&G) and Anakku products in East Malaysia.

While the distribution of Anakku baby products in East Malaysia contribute about RM1mil to RM1.5mil to KTC’s monthly revenue, P&G products generate a monthly revenue of RM11mil in East Malaysia, plus BND800,000 (RM2.47mil) from sales in Brunei through Ben Foods (B) Sdn Bhd.

To name a few, brands like Gilette, Ambi Pur, Febreze, Downy, Head & Shoulders, Oral B and Pantene are under the umbrella of P&G, an American multinational consumer goods manufacturer.

It is learnt that the group was looking to secure the distribution of a major confectionery and beverage brand to secure distribution rights which would give it the mass market presence.

KTC executive director Dexter Lau (pic) tells StarBizWeek that the group will acquire four additional warehouses to support its distribution business, on top of the soon-to-be completed acquisition of a distribution arm for the Brunei market.

The completion of Grandtop Marketing Sdn Bhd’s acquisition will see an estimated earnings contribution of BND1.4mil (RM4.32mil) per month to KTC’s earnings.

“We are in the midst of finalising some paperwork for the proposed acquisition of Grandtop Marketing, so we are on track to completing the acquisition by December 2016.

“The 60% stake acquisition of Grandtop Marketing will provide us with a wider network of 600 sales and distribution points in the Brunei market.

“In addition to extending KTC’s footprint out of East Malaysia, the procurement of Grandtop Marketing will also add multiple brands to our brand portfolio, as it already has distribution rights for brands like Nestle, Maggi, Milo, Silky Girl and Revlon,” says Lau.

Lau added that KTC is considering to expand the Anakku brand to Brunei and maybe even the Asean region, though there are no firm plans to date.

KTC is involved in three business streams, namely, distribution of third party brands, manufacturing of bakery products and distribution of its own brands, Orie and Creamos.

Lessons to learn

It was a learning curve for KTC after it reported net losses in the third quarter ended March 31, 2016 (Q3FY16), amounting to RM1.67mil.

According to a Bursa filing, the loss was mainly attributed to weak consumer sentiment coupled with erosion of margin on sales of new beverage products, as well as inventory write-offs of expired beverage products.

However, the group was quick to turn to black, as it registered net profit of RM1.06mil in the immediate quarter.

“We have since cleaned up our balance sheet and having learnt from this bitter experience, we will continue to be vigilant and better manage the risk factors.

“Our revenue and gross profit margin is still there, so we just need a couple more quarters to recover from this provision.

“We expect to grow our revenue by some 30% to RM450mil in FY17,” says Lau.

For FY16, KTC registered revenue and net profit of RM341.13mil and RM1.85mil, respectively.

A year since being listed on the ACE market, KTC has completed most of the business plans as set out in its prospectus.

To date, the group has spent an estimated RM8mil from the RM21.3mil raised from its initial public offering (IPO).

This means that only 37% of the funds have been utilised.

Lau elaborates that RM9mil from the remaining fund is allocated for the purchase of properties like warehouses, which the group is actively scouting for.

Bulk of the expenditure was on the expansion of KTC’s facilities and acquisitions of distribution chains to support the growing business.

For example, three months prior to distributing P&G products, KTC had to heavily invest in the necessary facilities and adequate manpower to cater to the influx of P&G products.

“During this period, we incurred a lot of cost as we had to house twice the usual volume of stocks prior to commencing the distribution of P&G products.

“We had to prepare sufficient racks to ensure efficient warehousing of P&G products, as well as purchase additional vehicles, forklifts and machineries to support the logistics part of our operations.

“New employees were hired three months prior, to be trained and regularised for daily operations that were to come,” says Lau.

In Sabah, the group’s manufacturing facility now measures 20,596 sq ft as compared to the previous 5,600 sq ft facility and a new warehousing facility in the midst of construction will be operational by the end of 2017. As for Sarawak, KTC has acquired a warehousing facility and a distribution company.

KTC’s plan to establish a manufacturing facility in Sarawak will be put on hold for the time being, as with its plans for its own brand bakery products to enter into new markets.

This is because the group aims to focus on stabilising the distribution business of P&G and Anakku products before embarking on expansion of its bakery product line.

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“We want to ensure that our operations are in place and running efficiently, before we establish a bakery manufacturing facility in Sarawak. P&G is our largest partner currently, contributing at least one third of our monthly revenue,” explains Lau.

Collectively, the warehousing capacity for Sarawak has increased from 25,360 sq ft to 120,863 sq ft, mainly to support the distribution of P&G products.

In total, KTC has 15 distribution centres in Sabah, four in Sarawak and two in Labuan, with warehousing capacities of 226,142 sq ft, 120,863 sq ft and 19,526 sq ft, respectively.

Sales of KTC’s bakery products, which are marketed under the Creamos brand, have been sluggish.

The sluggish sales were prominent in areas such as Lahad Datu, Sandakan and Tawau in Sabah, where businesses have slowed down due to the recent kidnappings.

“We are struggling to meet sales, but we are not overly upset about the situation.

“We have the financial capability to weather through the sluggishness, which we believe will eventually turn around.

“Hence, we will continue building on our fundamentals,” says Lau.

Although KTC’s bakery manufacturing division only contributes about 5% of the group’s revenue, the group believes that there is still growth opportunities in the division.

Lau says that the low income group relies on Creamos products due to its affordable prices.

Coupled with the nature of the manufacturing division being complementary to KTC’s distribution operations, KTC is not slowing down or discounting on this segment.

In fact, KTC will continue to grow its own brands by adding new products to the Orie brand line up.

The group will introduce peanuts and chocolates in the near term, with aims to market more snacks that are priced below RM1 in the future.