Dutch Lady Company

1.0        Background of the company

Dutch Lady is the leading dairy producer in Malaysia today. The evolution of Dutch Lady Company starts from 1950’s. The story starts from the early 60’s where the Pacific Milk Industries (Malaya) Sdn Bhd, which is a Singapore company, is the first condensed milk company in Malaysia. By 1968, the company becomes the first public listed company on the stock exchange of Kuala Lumpur and Singapore.

        In 1975, the company changed the name to Dutch Baby Milk Industries (Malaya) Sdn. Bhd. They started to introduce Dutch Baby Modified Food and first juice under the name of “Joy”. On 1984, the name was changed to Dutch Lady for the product positioning reason. In 1989, the company delisted its shares from the Stock Exchange of Singapore in order to comply with the government’s national policy to promote KLSE. In 1999, Dutch has been voted as the preferred brand of milk products in Malaysia and receive the Reader’s Digest SuperBrands Gold Award.

Dutch Lady is the first company that was listed on bursa Malaysia. Dutch Lady is producing consumer product where it sells a wide range of dairy products and juices for exports and imports such as infant growing milk, powdered milk, condensed milk, UHT milk, Sterilized milk, cultured milk, yogurt and fruit juices.

The company’s main shareholder is Royal FrieslandCampina. It is a multinational company which produces and markets natural, nutrious and high-quality dairy products and ingredients. It is also one of the largest milk industries in the world. Dutch Lady was the first company that produces first growing milk which is specifically formulated for children from year one till year three (1988) and they are still producing these product until today, namely Dutch Lady 123, Dutch Lady 456 and Dutch Lady 6+.

The corporate vision is “To further strengthen our position as the leading dairy company, driving growth” while the mission is “Helping Malaysian move forward in life with trusted dairy nutrition”.

In the effort of quality control, Dutch Lady has been accredited with ISO 9001 certification since 1995 and was getting the certification of  ISO 14001, OHSAS 18001 (Occupational Health and Safety Assessment Series), and HACCP (Hazard Analysis Critical Control Point) system to cover all its production plants.

2.0        Income Statement

Dutch Lady Milk Industries Bhd

Income Statement for the year ended 31 December 2010, 2011, 2012 and 2013

[pic 1]   (Source: Bloomberg, 2014)

The revenue showed a constant growth from 2010 to 2013; RM 696.6 million, RM 810.6 million, RM 882.2 million and RM 982.7 million respectively. It shows the result that Dutch Lady has occupied and maintained the market share for their products with the strong sales of powder and liquid products. This is highly related to their effective business strategies and products’ innovation with the help of effective promotional effort and advertisement such as involvement in the Government’s 1Malaysia School Milk programme (PS1M). We could roughly conclude that Dutch Lady’s products still the first choice of customers in the milk industries.

Next, the cost of goods sold increases year by year from 2010 to 2013. Cost of goods sales is the cost to produce and purchase the good and service sold by company. Increment in cost of goods sold of Dutch Lady is mainly because of its increasing revenue. It is recommended that Dutch Lady should control the cost of goods sold as it would decreases the company’s earnings.

As for gross profit, there is a growth from 2010 to 2013. This is due to the economy has recovery from the impact of financial crisis in 2008 and the strengthening of the Ringgit Malaysia between year 2010 to 2012. Especially in 2012, Dutch Lady made decision to exit the low margin sweetened condensed milk business, it contribute to increase of gross profit. We can roughly say that Dutch Lady is able to pay the operating expenses of the business

The operating expenses of Dutch Lady also increase from 2010 to 2013. The increment in operating expenses is mostly due to the continuously increase in price of raw materials in recent year due to the drought in New Zealand. The situation become worsens in 2013 when US dollar (USD) was strengthening over Ringgit Malaysia as the raw materials are paid in USD. Besides that, facility expansion and product line expansion also contribute to increasing in operating expenses.

The operating income increases from 2010 to 2013 as well. It shows that Dutch Lady is financially healthy and able to attract more investors to invest into the company.

The net income shows a significant growth from 2010-2013, where it doubled in just 4 years. It shows that Dutch Lady is healthy and is in growing trend and able to generate enough income to compensate the shareholders which would result in growth in share price of company thus increase the profit.

3.0        Balance Sheet

Dutch Lady Milk Industries Bhd

Balance Sheet

As of December 31 2010, 2011, 2012 and 2013

[pic 2]

[pic 3]

     (Source: Bloomberg, 2014)

        The total cash and short term investment increases from 2010 to 2012 and decreases by a little in year 2013. We see that this is because the profit generated from the past short term investment is received from 2010 to 2012 and there is no short term investment for the year 2013 but invested in trading securities. The cash and cash equivalent are used by Dutch Lady to maintain its liquidity to meet its liabilities.

        The total receivable fluctuates from 2010 to 2013. The amount decreases from RM 70.3 million to RM 34.6 million and RM 14.2 million from 2010 to 2012 and increases to RM 35.5 million in 2013. This is due to the company entered into an arrangement with a licensed financial institution to enable certain trade customers to pay goods invoiced through a corporate purchasing card issued by the financial institution.

        The net property and plant equipment shows a constant increment from 2010 to 2013, which is from RM 69.8 million to RM 71.6 million to RM 73.1 million and RM 77.2 million in respective years. We could say that it this all because of the expansion on premises of Dutch Lady Company.

        As for total asset, there is a growth from 2010 to 2011, following by a slight decrease in 2012 and increment in 2013, which is from RM 307.5 million to RM 398.5 million to RM 382.8 million and RM 416.5 million respectively.

The trend line of account payable is increasing along the year. From year 2010 till year 2013, it increases from RM 72.6 million to RM 206.8 million. Account payable is what company owes to the suppliers or the vendors from which it buys inventory and other supplies. We saw that Dutch Lady has the amount increasing year by year is because the credit purchase was increased as it can be proved by the increment in inventory. Besides that, cost of raw material increased and it is being paid in USD also increase the account payable.