D&L sees 15% growth as Batangas plant ramps up production
D&L Industries Inc., the country’s top specialty food ingredients and oleochemicals producer, expects to grow its net income by the “low-teens” or between 10 and 15 percent as its new plant has started to contribute to earnings while production ramps up.
In a press briefing, D&L President and CEO Alvin D. Lao said that “on a macro level, there are at least three catalysts on the horizon to look forward to in 2024 - moderating inflation, prospects of lower interest rates, and the planned implementation of a higher biodiesel blend by July.”
“As of February 2024, our Batangas plant has already surpassed (175 percent) its first-year export commitment to the Philippine Economic Zone Authority (PEZA),” said Lao.
He also noted that “while 2023 was challenging, green shoots are starting to emerge with High Margin Specialty Products (HMSP) volume growth positive across the board. In the fourth quarter of 2023 alone, HMSP volume was up 40 percent year-on-year (YOY).”
This was primarily driven by the new volume coming out of the Batangas plant.
“With lower inflation and interest rate prospects, management is more optimistic in 2024. Longer-term, the Batangas plant puts D&L in a very good position to capitalize on global recovery,” Lao added.
D&L reported that its recurring income reached ₱2.3 billion last year, lower by 31 percent year-on-year largely due to higher interest and depreciation expenses associated with the Batangas plant coupled with the lingering effects of high inflation in 2023.
The declaration of commercial operations of the Batangas plant last July 2023 prompted the recognition of depreciation expenses as well as interest expenses which were previously capitalized in the company’s income statement.
Excluding the impact of these incremental expenses, 2023 earnings would have declined by just 15 percent yearon-year to ₱3 billion.
“While 2023 was challenging on several fronts with the incremental expenses from the Batangas plant coming in during a tough economic environment, we are encouraged by the gradual ramping up of operations at this new facility and the early signs of an economic recovery,” said Lao.
He noted that “in hindsight, the decision to start building the plant back in 2018 and continue with the construction during the pandemic allowed us to build capacity that is approximately half the cost of what it would have been post pandemic."
“With none of our competitors building such capacity over the past couple of years, we are confident that this puts us in a very good position once global demand recovers," he added.
He also said that “D&L’S management has a lot of confidence that even though it may take time, this plant will be a huge benefit for the company. With the new plant, D&L sees new markets, higher value added products, and deeper innovations that will further push its boundaries.”
To date, the new plant has successfully fulfilled several orders for both local and export customers. Several audit and certification prosecurity cesses are ongoing in order to on board more customers.
Meanwhile, Lao said that “with the stock price remaining attractive, we continue to buy shares in the business. During the past four years alone since the pandemic, the Lao family, through its holding company, Jadel, bought about 3 percent of the outstanding shares of the company.”
Lao also cited the draft circular issued by the Department of Energy (DOE) which lays down a mandated increase in biodiesel blend from two percent (B2) to three percent (B3) effective July 01, 2024, four percent (B4) effective July 01, 2025, and five percent (B5) effective July 01, 2026.