Keytone Dairy signs indefinite supply deal with global nutritional group, opens second NZ manufacturing plant

Keytone Dairy Corporation (ASX: KTD) has received more than $3.6 million in opening orders following the signing of a strategic long-term manufacturing agreement with Iovate Health Sciences Australia.

The orders for Keytone’s private label, speciality-branded high protein products for the Chinese and Australian markets will be manufactured and fulfilled during the current quarter.

They represent 143% of the company’s total audited revenue for the 2019 financial year.

Keytone chief executive officer Danny Rotman said the company will continue to develop a relationship with Iovate to ensure repeat orders and volume growth across multiple packaging formats and product ranges.

“The signing of this leading global protein brand in the international health and wellness sector [and the receipt of] such a significant opening order validates the high growth nature of our manufacturing capability and credentials,” he said.

Iovate Health Sciences Australia is a fully-owned subsidiary of US-based Iovate Health Sciences International Inc.

Contract terms are indefinite and required volumes will be confirmed via purchase orders and in line with client forecasts for China and Australia.

Corporate alignment

Mr Rotman said the Iovate contract reflects a mission to align Keytone with select global health and wellness brands.

“We will continue to secure new and repeat orders with select brands, exemplifying the quality and expertise of our operation, the deep experience of our team and the credentials of our in-house capability,” he said.

“We look forward to acquiring new strategic clients as we continue our strong trajectory, while growing our work with existing and loyal customers as well as the volume of our proprietary brands,” Mr Rotman added.

New Zealand plant

Last week, Keytone pressed the button on the first commercial production run at its second manufacturing plant in New Zealand.

The additional capacity provided by the newly-built facility will more than triple Keytone’s total regional manufacturing capacity on a one-shift basis and allow the company to cater to increased demands brought about by COVID-19.

“We are now in a position to manufacture significantly higher volumes of finished product across a broader range of our product suite and re-align the sales mix towards higher-value products with a view to substantially growing sales and meeting client demands,” Mr Rotman said.

“With [growing] demand for our proprietary products and third-party private label work, [we] expect to scale-up production to multiple shifts over the short-to-medium term,” he added.

The second facility has been fully accredited and licensed by New Zealand’s Ministry of Primary Industries and has received certification and accreditation administration in China.

The plant is capable of manufacturing infant formula and incorporates advanced automated plant and equipment with technology, which has been deemed a first of its kind in the country.

“These attributes are expected to drive operational leverage and efficiencies within the business and further improve gross margins,” Mr Rotman said.

“The new facility will also enable Keystone Dairy to better service the demands of leading brands such as Walmart (China) and Woolworths New Zealand,” he added.

COVID-19 impacts

Keytone has reported a “significant increase in inbound demand” for its proprietary products from international and domestic markets during the current coronavirus environment.

The company’s KeyDairy formulated powdered dairy line has experienced an increase in demand approximately four times greater than that prior to the outbreak.

Key to meeting the demand will be increased production from New Zealand as well as a planned online platform for the direct purchase of milk products.

Keytone’s private label business has experienced similar uplift in the volume and frequency of orders from third-party clients for the manufacture of their nutritional products.

The company has also recorded an increase in queries from potential new clients wanting to diversify their supply chain and ensure continuity of supply.

Essential service

Keytone said it will continue to work closely with its distributors, retail partners and private label clients to ensure on-time delivery of orders and prioritised supply and did “not foresee any material supply chain or packaging constraints at this point in time”.

“Notwithstanding the increasing and varied levels of government lockdowns being implemented in New Zealand and Australia, Keytone Dairy as a food manufacturer is considered an essential service and will continue to operate through these challenging periods,” the company stated.

Health focus

Mr Rotman expects the eventual containment of COVID-19 will be followed by a “structural shift” in worldwide consumption patterns with an increased focus from consumers on health and wellbeing.

“We are experiencing a significant increase in demand for nutritional products across our product portfolio, and in particular immunity-related products,” he said.

“Given our flexible and diversified operational manufacturing base, we believe we are in a unique position to fulfil the growing number of customer orders moving forward,” Mr Rotman said.