Last public offering of the year

THERE is this old saying which—more or less—claims that “the last is always the best.” Interestingly, D&L Industries Inc. is the last to be scheduled for public offering this year.

As such, the initial public offering of the company will be examined with a more critical eye as to whether it is a fundamentally sound investment. Next, it will be tested as to whether it will sizzle into an interesting market play and ultimately become a financially rewarding investment undertaking.

If we are to ask the founders of this low profile but “leading manufacturer of food ingredients, specialty plastic colorants and additives,” D&L Industries will certainly measure up in both concerns.

D&L Industries will offer some 1.075 million primary common shares, representing as much as 30 percent of the company’s outstanding capital, starting tomorrow Nov. 28 until Dec. 6.

The number of shares does not include an over-allotment option of about 160.71 million shares that may be fully or partially exercised by its lead underwriter Maybank ATR Kim Eng Capital Partners 30 days following the listing of the company in the bourse on Dec. 12.

The net proceeds from the initial public offering (IPO), according to its information memorandum, are earmarked for “investments and acquisitions, for the payment of financial obligations and general corporate purposes.”

The issue is an international and domestic public offering with an offer price initially placed at P3.85 to P4.80 a share. The final offer price should have been announced yesterday, Nov. 26. (This article was prepared and submitted for publication over the weekend).

Background

D&L Industries started as a family-owned enterprise in 1963. It was incorporated in 1971 to expand its services into manufacturing, marketing and distribution of colorants, chemicals and additives to serve the requirements of the plastics, paint and ink industries. It spun off its manufacturing and marketing activities into separate companies in 1985.

Today, the principal business lines of the company are as follows: Food ingredients through 100 percent-owned Oleo-Fats Inc., which “account for 80 percent of revenue and 43 percent of income; colorants, additives and engineered polymers through 100 percent-owned First In Colours Inc., which account for 18 percent of revenue and 30 percent of income; aerosols through 100 percent-owned Aero-Pack Industries, which account for 2 percent of revenue but 4 percent of income; oleochemicals, resins and powder coatings through 34.0 percent-owned listed Chemrez Industries Inc.

As of 2011, the sales of the company are broken down into: 60-percent refined vegetable oils, 35-percent specialty fats and oils, 4-percent specialty ingredients; 1-percent food safety products.

The company’s plant, located in Quezon City, has 29 production lines dedicated to marine fats, refined vegetables oils, hydrogenated oils, refrigerated margarine, whipped cream, chocolate coatings, shortening, condensed milk, fudge, butter, savory mixes, dairy and four based mixes, and other specialty ingredients. Its rated capacity is 100,000 metric tons a year with a current utilization rate of 68 percent.

Another plant, located in Manila, has four production lines for refined vegetable oils, fractionated oils with a rated capacity of 200,000 metric tons a year and a present utilization rate of 65 percent. While “fully operational, its other support systems such as the facility’s network infrastructure, logistics, plant management, distribution, warehousing, quality assurance and administration are expected to be completed before the end of the first quarter of 2013.”

The major customers of the company are Jollibee Food Corp., Monde Nissin Corp., San Miguel Corp., Unilever Philippines, Pfizer Nutritionals, Yulefest/Castlemaine/Tokyo Group, Golden Arches and Krispy Crème Philippines.

The company’s growth and success, according to the founders, can be attributed to the basic business strategies adhered to by management all these years.

To maintain market leadership, the company developed long-term relationships with customers by having a strong “R&D that produce tailor-made solutions for customer’s evolving needs, increased training for specialized marketing teams for each business line and exploit the cross-sale potential of the company’s sales force.”

The company also capitalized on its ability to continuously innovate through the intro- duction of new and more efficient customized and specialty products by technological advancements and process improvements. It also maintained a “flat management structure and continually sought more cost-effective sources and models.” In addition, it regularly allocated “sufficient capital to equipment upgrades and adopted latest technologies.

To enhance continued growth, the company is also “embarking on increasing its visibility beyond the Philippines. In the course of this effort, it is expanding international sales through the “establishment of strategic alliances with reputable manufacturers and marketers in selected foreign markets.”

Bottom line spin

D&L Industries produces many of what is regarded as “end-use products” by the consuming public that its growth prospects will ride on the increasing disposable income of household consumers. As observed, the company is a good proxy investment in the huge and “rising consumption and sustained spending behavior of the consumer sector.” This is reflected in the fact that it is no other than the “leading supplier to household consumer brand and manufacturers.”

Referring to the financial performance of the company since inception, the founders add that “in the past 50 years the company has managed to double its revenues and profits every four years despite the countless internal and external crises that have affected its market.”

Not only do they expect the company to achieve this by beating competition and riding on the natural growth of the market, the company will focus on looking at the possibility of increasing more business on the “higher-margin product line on colorant, additives and engineered polymers” since while it has been contributing only 18 percent of total revenue, it was responsible for about 30 percent of total net income.

To meet the challenge of competition, the founders stress the fact that the company is precisely going into this public offering to acquire new equipment, develop cost-effective processes and a systematic program of training and rewards to retain competent and creative people. This will be done by the regular allocation of retained earnings to company expansion and improvement while implementing a reasonable dividend policy for its “new partners” (new shareholders).

(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at marketrider@inquirer.com.ph, densomera@msn.com or at www.kapitaltek.com)