Hit by competition, Saudee transforms its food business

by **Cals** Mon 15 Feb 2016, 19:52

Hit by competition, Saudee transforms its food business

By Sangeetha Amarthalingam / The Edge Financial Daily | February 15, 2016 : 9:46 AM MYT

This article first appeared in The Edge Financial Daily, on February 15, 2016.

SUNGAI PETANI: A massive shake-up of business style and product mix is under way at Saudee Group Bhd, which the Kedah-based food manufacturer hopes will boost profit margins by more than double in the coming years.

Executive director Louis Tan said ongoing measures include minimising foreign-exchange risk, penetrating into the food and beverage (F&B) sector, and customising to retail demand.

“We decided that we cannot continue doing business like before. Competition in the retail sector is stiff. Foreign exchange also impacted trading, which forms 60% of our revenue contribution because we import a lot of our raw materials.

“We felt it was time to transform our business. We reduced the import of Indian beef and mutton, and instead switched to imports of premium beef from Australia,” Tan said.

He said the trading of premium beef created a new set of clients in the F&B sector comprising hotels and restaurant chains.

Saudee manufactures and sells food products, including fresh and frozen foods, processed poultry beef products and bakery products.

Tan said the company had removed non-performing retail products at its grocery outlets, and replaced them with items that are not offered by its competitors. These products have been tailored to fit in with customers’ purchasing power.

Although revenue for the financial year ending May 31, 2016 (FY16) is expected to drop by between 8% and 10%, the company is optimistic about a slight increase in profit for the year, before registering bigger increases from FY17.

“What we are doing is essentially giving our clients in the F&B sector value-added products, such as steak loins and beef cuts, according to their specifications.

“We expect revenue to drop because trading of meat will reduce, but our priority is to lock in a better bottom line,” said Tan, adding that the group is looking at reducing trading to 50% and focusing on manufacturing for higher margins.

Tan stressed that Saudee is keen on tidying up its balance sheet and paring down debts. This includes disposing of non-core assets, which would lead to the freeing up of RM20 million to RM25 million, thereby injecting liquidity into the company.

For the first quarter ended Aug 31, 2015, Saudee posted a threefold jump in net profit to RM393,000, on the back of a revenue of RM43.28 million, from RM126,000 profit and RM41.5 million revenue a year earlier.

The company attributed the rise in earnings to an improved sales mix of higher-margin products, which was achieved despite increases in import costs due to a weakening ringgit.

Saudee reported a net loss of RM4.01 million in FY12, before recovering to register net profits of RM322,000 for FY13 and RM750,000 for FY14. But it sunk into the red again in FY15, with a net loss of RM2.03 million.

The company has announced a rights issue, with the aim of raising between RM7.5 million and RM10.5 million to repay bank borrowings and for general working capital.

Tan also said the company is actively looking at securing three partnerships or joint ventures by the end of this calendar year.