Guan Chong looks for sweet success in Europe

Guan Chong qt

PETALING JAYA: The world’s fourth largest cocoa grinder Guan Chong Bhd is focusing on the UK and Germany markets to drive its revenue before embarking on further expansion amid the global price volatility in the cocoa beans market.

Managing director and CEO Brandon Tay Hoe Lian said the UK and Germany are two of the five largest chocolate consuming countries in Europe.

“We would focus on growing our sales in both markets prior to embarking on further expansion.

“As a leading supplier of cocoa ingredients based in Asia, we seek to further grow our global brand, especially into key chocolate consuming markets in Europe.

“The company is undertaking a two-pronged growth strategy of being close to the source and close to the market. This is reflected in our expansion to Ivory Coast, the world’s largest producer of cocoa beans, and Europe, the world’s largest chocolate consuming region, ” he told StarBiz.

One of the factories of Guan ChongOne of the factories of Guan Chong

Recall that Guan Chong’s latest expansion in the UK involved the acquisition of the freehold property at Philips Avent factory for a total consideration of £8.25mil (about RM44.3mil).

The group intends to convert the property into a melting facility where cocoa butter would be melted into liquid form as a value-added service. The new melting plant is targeted to be completed in 2021.

Tay said the UK market is a lucrative one as it is the top five largest chocolate consuming markets in Europe.

“In 2014, it recorded chocolate consumption of 7.5kg per capita, after Switzerland at 9kg, Germany at 7.9kg, and Austria at 7.8kg. It also imports large amounts of cocoa ingredients as domestic production remains insignificant.

“Therefore, our new facility would allow us to supply an underserved market, providing us with encouraging growth prospects, ” he added.

In Europe, the company made its entry via the acquisition of newly acquired subsidiary Schokinag Holding GmbH, a century-old industrial chocolate producer in Germany.

Guan Chong currently supplies cocoa ingredients to more than 60 countries globally, and more than 90% of its cocoa ingredients are exported.

Sales in Europe operations currently make up about 20% of group revenue, while the balance is from the exports from its Asia operations.

As to its Ivory Coast new cocoa grinding facility, Tay noted its upcoming facility is on track for completion in the second half of 2021.

“We have completed land preparations and piling works in mid-2020, and building works are currently underway.

“The total cost of the facility including land, buildings, and machinery is estimated to be around €50mil to €60mil.

“Upon completion, the new Ivory Coast facility would bring our annual cocoa grinding capacity to 310,000 tonnes in total, a significant increase from our current annual capacity of 250,000 tonnes from our Malaysia and Indonesia facilities.

“This also translates into an estimated 20% contribution from the Ivory Coast facility upon completion, ” he noted.

Guan Chong’s cocoa ingredients are marketed under the “Favorich” brand. The company posted a 21% jump in revenue to RM910.8mil in the second quarter boosted by increased selling prices and contribution from Schokinag Holding.

But higher bean prices resulted in lower margin, as net profit decreased to RM57mil in the three- month ended June 30 compared with RM61mil made a year ago.

As for the prospects of the chocolate and cocoa bean market this year, Tay said: “Since the escalation of Covid-19 into a global pandemic, chocolate consumption has seen weakness in the luxury and premium segments, for instance those sold at retailers in tourist spots and airports.

“Demand, however, remained resilient for mass market chocolates.

“In the cocoa beans market, demand remains intact, but the market faces price volatility due to uncertainties resulting from the implementation of the living income differential by the Ivory Coast and Ghana governments. Insights into 2021 will likely only be clearer nearer to the end of this year.”

Guan Chong share price was down by 0.93% to RM3.21 at the close of the trading, bringing its market capitalisation to RM3.31bil. Year-to-date its share price is up by 4.22%.

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