Despite being one of the leading companies in the food industry, Kinh Do restlessly implements new strategies to increase growth and profitability. Following these goals, besides constantly offering new products to strengthen the No. 1 position in the food industry, growth through mergers and acquisitions (M & A) is considered to be the main strategy of Kinh Do. In addition, strategic alliances with other food business are also continually formed.

Continuously forming alliances and conducting M & A

The newest cooperation was Kinh Do handshake with the Ezaki Glico group. Early in 2012, Kinh Do made its announcement to sell 14 million shares to its strategic shareholder Ezaki Glico. In quarter 4 of 2012, KDC officially distributed the Pocky products of Glico in Vietnam.

This step by the group was well considered to be prudent and wise. This was because KDC would not need to spend much time and capital to research and develop the brands for new products.

Historically, Kinh Do had made several landmark M & A deal that brought significant achievement to the shareholders. The highlights were the acquisition of the Wall ice cream, the merger of North Kinh Do and Kido to form the conglomerate, or the previously planned merger of Vinabico recently. Vinabico had many potentials that attracted KDC to fully own, after it held a 51% stake since 5 years ago. Kinh Do stated that the company decided to merge Vinabico after the subsidiary met the requirement of having an annual growth rate of 30%.

Evidently, with key strategy of growing through M&A for the past 10 years, Kinh Do shown that the company had been going in the right direction. These achievements brought not only business strategic benefits but evidently outstanding results showing through reported numbers.

Regarding to business results, although 2012 was a difficult year, Kinh Do recorded pretax profit growth of 40% compared to last year reaching VND 490 billion. Net profit after tax increased by nearly 30% YoY reaching VND 354 billion. These numbers were desirable figures for many companies in the industry. It also showed that the "big elephant" Kinh Do did not slow down.

On financial aspects, the debt/equity ratio of the company stood at only 0.4 times. This was a very safe ratio amidst the environment that many businesses were reeling over debt problems recently. Regarding to gross profit, Kinh Do consistently demonstrated its ability to reduce costs and pushed for a higher margin throughout years of development. Its margin continuously expanded in recent years. In 2012, gross profit margin of Kinh Do was 43.6% (while BIBICA was 28.3% and Hai Ha was 15.2%).

Will continue to pursue M&A strategy.

At the 2013 Annual General Meeting, a major highlight was Kinh Do confirmed that they would continue to pursue a M&A strategy. Prior to the announcement, Kinh Do restructured its M&A machine to become more robust for future expansion.

First, Kinh Do highlighted the focus on its core business of food and foodstuff. Accordingly, the Company reduced 47% of short-term financial investments and continued to postpone all real estate projects in Ho Chi Minh City. Last year, despite facing many challenges and difficulties in the economy, KDC still successfully completed Phase 3 "Profitability through Efficiency    " of the restructure plan with many improvements: optimized supply chain, continued to invest and develop its market, restructured investment portfolio and improved cash flow management.

Second, KDC conducted a full review of its product portfolio with the goal of maximizing profits by focusing on key products with high profit margins, or those that had high potential to grow. KDC also reorganized the operations of the entire distribution system of the Group since late 2012. As a result, KDC gross profit increased by VND 200 billion with gross profit margin increased from 39.8% in 2011 to 43.6% in 2012.
One of the key tasks in the past years of Kinh Do was the restructuring of its investment portfolio and cash flow management. Thanked to such effort, the external debt / equity ratio of Kinh Do reduced to a merely 0.14 times and the company demonstrated its more effective use of capital by ensured sufficient working capitals, reduced accounts receivables, increased account payables, reduced inventory, and reduced business cycle from 49 days to 43 days. Cash and cash equivalents of Kinh Do also were maintained at a high level amounted to nearly VND 830 billion.

As regards to M & A plans, Kinh Do still proved unwavering with its chosen direction. To get a thorough understanding of the targeted market Kinh Do planned to penetrate through M&A, the company pursued new talent to develop new markets. Currently, Kinh Do organized and operated its business following the strategic business unit model (SBU).

Using this model, Kinh Do could quickly clone the management of new business and expanded rapidly.
Looking ahead, the core business of the company which is confectionery will continue to be the spearhead of the Group. However, in order to accelerate growth, Kinh Do will continue to pursue the M & A strategy. The potential targets are companies that currently are operating efficiently with acknowledged brands and good management or having high potential to develop. These merger and acquisition will be a major driver for the growth of the parent company.

Following the recent accomplishments, Kinh Do is moving to Phase 4 "Profitable Growth" in 2013. This is considered to be the landmark year of Kinh Do with the objectives of building the operating system and platform following the " Food and Flavor "strategy. Pursuing this strategy, the company has been focusing on developing its core business of food and foodstuff.

According to Mr. Tran Le Nguyen , Vice Chairman and CEO of the Company , in 2013, Kinh Do will focus on developing its key products, and investing in brands. In addition, the company plans to launch several new products aiming to serve the daily essential needs of consumers such as instant noodles, spices, edible oils. The launch of new products will help to maximize the usage of the distribution system. The company is expected to reach VND 5,200 billion in revenue and VND 600 billion in profit before tax for 2013, an increase of 22.5 % over the previous year. Gross margin is expected to reach44 % with earning per share of VND 2,774.

Thorough its M & A journey, Kinh Do achieved many great successes. Regarding to business performance, KDC had sustainable growth with revenue continuously broke new records since 2009 till now. If in 2009, revenue were only VND 1,529 billion, in 2012 it reached VND 4,286 billion and the figure is expected to exceed 5,000 billion in 2013.

Gross profit increased nearly 4 times in three years (2009-2012) from VND 500 billion to VND 1,869 billion and is expected to reach VND 2,290 billion in 2013. In addition, thanked to product diversification Kinh Do gradually escaped the effects of seasonality factors. After the merger, The Group product portfolio expanded from confectionery to a wide variety of other products including icecream , yogurt , dairy cream , milk , cheese ... And more recently, Kinh Do launched Pocky sticks snack products through the cooperation with Ezaki Glico .

With all the preparations and improvements to the already powerful M&A machine, if there are more mergers and acquisitions deal, and more financial and development records, then Kinh Do’s shareholders should not be so surprised.

According to Quang Minh
Economy & Investment