Dutch Lady unfazed by volatility
Company determined to overcome cost pressures and maintain affordability of its products
DUTCH Lady Milk Industries Bhd remains unfazed by the stiff competition, volatile global milk prices and the fluctuations of the ringgit as it embarks on its ultimate goal – to increase milk consumption in Malaysia for the betterment of health and nutritional standards of the people.
As a business entity, the financial performance of the group is dependent on global milk prices and the ringgit’s performance against the US dollar.
This is notwithstanding the fact that one of Dutch Lady’s most valued propositions is that the prices of all its products remain affordable and easily accessible for the masses.
Dutch Lady managing director Tarang Gupta tells StarBizWeek that the group acknowledges the “unescapable” extreme volatilities, but instead will strive harder to further reduce the impact on its operations.
“Our first principle is that we will not pass on any cost hikes to our consumers because we want to offer them affordability, thus we will have to absorb some of these cost pressures.
“Secondly, we have to drive efficiencies, which will then help to cushion the impact of volatilities in the global milk prices as well as the ringgit,” explains Tarang.
For the nine-month period of the financial year ending Dec 31, 2018, Dutch Lady registered a 2.5% growth in net profit to RM99.15mil, compared with the same corresponding period last year.
According to Tarang, Dutch Lady managed to reduce its operating expenses by about 4% during the period under review despite having to invest more in its distribution and marketing expenses.
Another key area that drives the group’s efficiency is energy saving, which saw Dutch Lady successfully reduce its energy consumption by almost 20%.
Additionally, the group has invested in one UHT milk filler and processing line this year, which helps to increase the group’s output as well as in reducing its cost further.Dutch Lady operates on a high Overall Equipment Effectiveness (OEE), running between 70% and 80%.
As at end of third quarter FY18, the group’s production volume has increased by 3.5% on a year-on-year basis.
Apart from that, Dutch Lady is aggressively improving the local dairy farming standards by sharing its expertise with the local farmers, Tarang points out.
Currently, Dutch Lady does not own any dairy farms, but sources its milk supply via purchases from farmers who are registered under the Department of Veterinary Services (DVS).
Tarang notes that it is still a long way for Malaysia to achieve its self-sufficiency in milk production.
Currently, an estimated 93% of milk in Malaysia is imported.
Having said that, Dutch Lady and DVS are continuously improving and increasing the local milk production.
It is currently at a volume growth rate between 6% and 7% year-on-year.
“The more we are able to improve the quality and eventually, the quantity of local milk, it will then help to improve the entire ecosystem, from grass-to-glass.
“We want to improve the local farmers’ livelihood, improve the quality of milk that the consumers get and later, will translate into a self-sufficient model.
“At Dutch Lady, an act of business is a corporate social responsibility (CSR) in its own shape and size.
“All we need, is to do what we do as a busi- ness, better,” he adds.
To date, the quality of local milk has improved by 20% to 30%, says Tarang.
In terms of competition, Tarang believes that increasing competition in the milk industry would mean that“more investments are coming onboard.
This certainly bodes well for consumers and ultimately, will help all industry players to grow the industry.
Through the expansion of its products and distribution, Dutch Lady has maintained its position as a market leader with over 50% market share in the liquid milk category and almost 25% market share in the growing-up milk segment in Malaysia. Generally, Dutch Lady produces three product segments, namely liquid milk, growing-up powder milk and yoghurt.
In terms of volume, the liquid milk segment is the largest, constituting 80% of the milk market.
It is also the fastest growing segment in line with consumers’ changing habits.
“In the past two to three years, we have seen a shift towards healthy beverages and liquid milk, which are becoming the fastest growing category at 4% to 5% growth per annum.
“Predominantly, this growth stems from incremental consumption,the penetration of milk has been high but consumption has been relatively low,” says Tarang.
He adds that all three product segments yield similar profit margins. “Ultimately, we are a dairy cooperative. “Our owners are dairy farmers, who are more interested in how we grow the milk and dairy category over the years.
“Hence, our objective is to drive the milk market penetration, to give the best quality of milk at the most affordable price so we are looking at humble levels of profitability,” Tarang concludes.