KUALA LUMPUR: After selling its major revenue-generating dairy and packaging business to Asahi Group Holdings Southeast Asia Pte Ltd for RM1.06 billion in June, Envictus International Holdings Ltd — formerly Etika International Holdings Ltd — is looking to “rebuild” by expanding its existing butchery, bakery and frozen food businesses.
The deal gained it a handsome RM607.5 million. Part of it was used to pay out a special interim dividend (RM488.1 million). As at Sept 30, its net cash stood at RM138 million, accounting for about 65% of its S$80.25 million (RM212.54 million) market capitalisation, based on its closing price of 12.7 Singapore cents last Friday.
The disposal, which involved, notably, its condensed milk business, was because “the price was too good for us to refuse”, group chief executive officer Datuk Kamal YP Tan told The Edge Financial Daily in an interview.
Tan said Etika had grown from being the smallest in the condensed milk business in terms of share and revenue in 1997 to being the No 2 player in the market after Fraser & Neave Holdings Bhd.
“There is nothing on the table currently, we just want to expand our core businesses now — the trading and frozen food division [under Pok Brothers Sdn Bhd] and the bakery and butchery division [under De-luxe Food Services]. Also, we think our food services division [Texas Chicken franchise] has a high growth potential,” said Tan.
It is also on the lookout for a piece of land — of at least 8ha — to consolidate its operations and increase manufacturing capacity. The butchery division is presently operating out of Glenmarie, Shah Alam, while its bakery is in Meru, Klang, Selangor.
“Hopefully, we can get the land in the next few months and start building. Maybe in two years, we will expand our manufacturing facilities,” he noted, adding that the group has not decided on the exact location yet, but that it should be near Port Klang.
The major clients of Pok Brothers, which produces beef and lamb cuts among others — are five-star hotels, airlines, supermarkets, and fast-food chains. Under De-luxe, it manufactures speciality European bread for the same market, including Subway Malaysia.
For the financial year ended Sept 30 (FY14), the trading and frozen food division reported RM215.7 million in revenue — that is 70% of group revenue of RM306.8 million. The group still recorded a RM26.1 million net loss due to operating losses in its bakery subdivision and impairments on its plant and machinery.
Moving forward, Tan said the Texas Chicken franchise business will drive the group’s top line in the next few years. The opening of an outlet in Wangsa Walk this month will bring the number of outlets under the brand to 15. It intends to open seven more next year, which will raise the tally to 22 outlets.
Tan said revenue from this business is likely to double that of FY15, as it seeks to increase the opening of outlets. It would like this division to eventually contribute up to 30% to group revenue in the next two years, from just over 10% currently. In FY14, Texas Chicken, which was previously parked under the “others” division — along with other sub-divisions — reported RM39.1 million in revenue.
“We should see profitability within two years. The business is still new. In a way, this kind of franchise business is a numbers game. You need to have a certain number of outlets before becoming profitable,” Tan said, noting that the division should be breaking even at around 20 to 30 outlets.
On Envictus’ sports and dietary nutrition division, Tan said performance in FY15 will be better as the group seeks to “break even” and possibly “make a small profit”. Revenue for this segment in FY14 was down 8.3% year-on-year to RM52 million and its loss after tax widened to RM23 million from RM1.92 million, due to production issues encountered by its bottling plant in Hawkes Bay, New Zealand. “We managed to solve all issues in early October and can now concentrate fully on marketing and production. Plus, with the US dollar strengthening and Kiwi dollar weakening, hopefully we can regain some lost ground.”
Tan and his brother Datuk Jamal Tan collectively own a 30% direct interest, with 60% indirect interest, in Envictus.
This article first appeared in The Edge Financial Daily, on December 22, 2014.