Media Outlet: The Star
Saturday, 28 Aug 2021
GANESHWARAN KANA / thestar.com.my
Rex Industry: Turnaround done, double the revenue next
CANNED food and beverage manufacturer Rex Industry Bhd ’s three-year turnaround plan was completed recently and this has brought the group back into profitability, including at the operating profit level.
Had it not been for the Covid-19 pandemic, Rex’s profits for the financial year ended June 30, 2021 (FY21) would have been higher, according to the group.
And within the next three years, Rex aims to double its revenue from RM160.54mil in FY21.
The group believes this is achievable as it introduces new products, boosts its production capacity, expands the client base and partners with more large-scale retailers.
These efforts are already underway.
Rex’s export sales, which have increased since the pandemic and currently contribute 50% of total sales, are also expected to contribute more to the topline.
For now, the group has a low operating profit margin of 3.4% as of FY21, with an operating profit of RM5.45mil.
However, managing director Darmendran Kunaretnam (pic) sees “significant room for improvement” for the group’s margins, going forward.
“As we continue to improve our production efficiency, product mix and grow our topline – our margins should naturally improve,” he tells StarBizWeek.
Darmendran also says the margins would improve with Rex’s higher economies of scale and better cost control.
Darmendran is the single largest shareholder of Rex and currently controls about 12.68% direct and 24.58% indirect stake in the group.
He first emerged at Rex back in 2015 and was soon appointed as the managing director in the same year.
The group’s turnaround plan began under his stewardship.
Throughout the turnaround process that began in 2018, Rex has reduced its products by 40% to 50% to focus more on higher-margin products to drive profitability.
“Stock-keeping units (SKUs) or products that were less profitable but required a lot of resources to produce were outsourced to original equipment manufacturers.
“This allowed us to focus in-house production capacity on higher value and higher margin products.
“With the lower amount of SKUs, this also helped with inventory management,” says Darmendran.
In addition to streamlining its product portfolio, Rex also significantly reduced its headcount in both of its operating markets, Malaysia and Indonesia, by investing in automation.
In a span of four years, the headcount in Malaysia fell sharply from 400 staff to about 100, while in Indonesia, the headcount reduced from 800 staff to less than 600 currently.
Darmendran says the group’s workforce in Indonesia is expected to decline further.
With the steps taken in the past several years, the group has managed to turn around its Indonesia operations and as a result, revenue share from the country has increased to 60% from just 20% previously.
“In the near-term, we will focus on transforming Malaysia operations with strategies put in place,” he says.
Looking ahead, Darmendran says Rex will expand into more profitable and high-demand product segments such as mushroom soup, pasta sauce, UHT milk and santan.
In order to achieve this, the group’s next phase of expansion will entail upgrading its production lines to increase capacity as well as efficiency by reducing manual labour.
“This is expected to cost approximately RM10mil in the next year.
“Once this is completed, our annual capex should range between RM3mil and RM5mil,” he says.
Apart from increased branding and marketing activities, Rex also targets to attract more bulk retailers to carry its products.
“Recently, we secured more modern retailers that have a substantial number of outlets across the country,” says Darmendran.
In addition, the group will be forging partnerships with suppliers and customers to streamline its bulk purchasing of raw ingredients “For example, Rex will purchase chicken parts from large-scale retailers that will in turn sell Rex’s products in their hypermarkets or retail outlets.
“We will also continue to streamline our cost efficiency and this will improve our margins.
“Some of the cost savings will also be passed on to our consumers such as in terms of improved packaging,” according to Darmendran.
One particular segment that has dropped in sales due to the pandemic – Hotel, Restaurants and Cafe (HORECA) – is expected to register improvement in sales as the industry’s activities recover.
Pre-pandemic, the HORECA segment contributed 30% to 35% of Rex’s total sales, but this has dropped to less than 5% currently.
“This is mainly affecting our beverage segment (30% of our sales), which have seen a decline of 70% in sales. “We expect sales from this segment to grow with a recovery in HORECA activities,” Darmendran says.
Darmendran points out that amid the challenges brought by the pandemic, it has made the management of Rex to take a closer look at its distribution channels, inventory management and cash conversion cycle.
“This has driven us to make significant changes in our return policies and how we handle our distributors. This has had a positive effect as inventory write offs and doubtful debts have reduced,” he says.
Moving forward, Rex continues to target the bottom 40% (B40) income earners that are mostly out of the Klang Valley.
Currently, 80% to 90% of Rex’s total sales come from outside of the Klang Valley.
Describing Rex products as the household name for the B40, Darmendran says the group will continue to provide a lower priced and value for money alternative to top shelf brands.
“We believe that with time, the unique value proposition of our products (such as pricing, quality and value for money) will increase the visibility of our products among consumers.
“In addition, as more consumers move to Klang Valley, we believe that our brand awareness will improve,” he adds.
Link Source: https://www.thestar.com.my/business/business-news/2021/08/28/rex-industry-turnaround-done-double-the-revenue-next
Had it not been for the Covid-19 pandemic, Rex’s profits for the financial year ended June 30, 2021 (FY21) would have been higher, according to the group.
And within the next three years, Rex aims to double its revenue from RM160.54mil in FY21.
The group believes this is achievable as it introduces new products, boosts its production capacity, expands the client base and partners with more large-scale retailers.
These efforts are already underway.
Rex’s export sales, which have increased since the pandemic and currently contribute 50% of total sales, are also expected to contribute more to the topline.
For now, the group has a low operating profit margin of 3.4% as of FY21, with an operating profit of RM5.45mil.
However, managing director Darmendran Kunaretnam (pic) sees “significant room for improvement” for the group’s margins, going forward.
“As we continue to improve our production efficiency, product mix and grow our topline – our margins should naturally improve,” he tells StarBizWeek.
Darmendran also says the margins would improve with Rex’s higher economies of scale and better cost control.
Darmendran is the single largest shareholder of Rex and currently controls about 12.68% direct and 24.58% indirect stake in the group.
He first emerged at Rex back in 2015 and was soon appointed as the managing director in the same year.
The group’s turnaround plan began under his stewardship.
Throughout the turnaround process that began in 2018, Rex has reduced its products by 40% to 50% to focus more on higher-margin products to drive profitability.
“Stock-keeping units (SKUs) or products that were less profitable but required a lot of resources to produce were outsourced to original equipment manufacturers.
“This allowed us to focus in-house production capacity on higher value and higher margin products.
“With the lower amount of SKUs, this also helped with inventory management,” says Darmendran.
In addition to streamlining its product portfolio, Rex also significantly reduced its headcount in both of its operating markets, Malaysia and Indonesia, by investing in automation.
In a span of four years, the headcount in Malaysia fell sharply from 400 staff to about 100, while in Indonesia, the headcount reduced from 800 staff to less than 600 currently.
Darmendran says the group’s workforce in Indonesia is expected to decline further.
With the steps taken in the past several years, the group has managed to turn around its Indonesia operations and as a result, revenue share from the country has increased to 60% from just 20% previously.
“In the near-term, we will focus on transforming Malaysia operations with strategies put in place,” he says.
Looking ahead, Darmendran says Rex will expand into more profitable and high-demand product segments such as mushroom soup, pasta sauce, UHT milk and santan.
In order to achieve this, the group’s next phase of expansion will entail upgrading its production lines to increase capacity as well as efficiency by reducing manual labour.
“This is expected to cost approximately RM10mil in the next year.
“Once this is completed, our annual capex should range between RM3mil and RM5mil,” he says.
Apart from increased branding and marketing activities, Rex also targets to attract more bulk retailers to carry its products.
“Recently, we secured more modern retailers that have a substantial number of outlets across the country,” says Darmendran.
In addition, the group will be forging partnerships with suppliers and customers to streamline its bulk purchasing of raw ingredients “For example, Rex will purchase chicken parts from large-scale retailers that will in turn sell Rex’s products in their hypermarkets or retail outlets.
“We will also continue to streamline our cost efficiency and this will improve our margins.
“Some of the cost savings will also be passed on to our consumers such as in terms of improved packaging,” according to Darmendran.
One particular segment that has dropped in sales due to the pandemic – Hotel, Restaurants and Cafe (HORECA) – is expected to register improvement in sales as the industry’s activities recover.
Pre-pandemic, the HORECA segment contributed 30% to 35% of Rex’s total sales, but this has dropped to less than 5% currently.
“This is mainly affecting our beverage segment (30% of our sales), which have seen a decline of 70% in sales. “We expect sales from this segment to grow with a recovery in HORECA activities,” Darmendran says.
Darmendran points out that amid the challenges brought by the pandemic, it has made the management of Rex to take a closer look at its distribution channels, inventory management and cash conversion cycle.
“This has driven us to make significant changes in our return policies and how we handle our distributors. This has had a positive effect as inventory write offs and doubtful debts have reduced,” he says.
Moving forward, Rex continues to target the bottom 40% (B40) income earners that are mostly out of the Klang Valley.
Currently, 80% to 90% of Rex’s total sales come from outside of the Klang Valley.
Describing Rex products as the household name for the B40, Darmendran says the group will continue to provide a lower priced and value for money alternative to top shelf brands.
“We believe that with time, the unique value proposition of our products (such as pricing, quality and value for money) will increase the visibility of our products among consumers.
“In addition, as more consumers move to Klang Valley, we believe that our brand awareness will improve,” he adds.
Link Source: https://www.thestar.com.my/business/business-news/2021/08/28/rex-industry-turnaround-done-double-the-revenue-next
Rex Industry: Turnaround done, double the revenue next
