D&L Industries Inc., the country’s top specialty food ingredients and oleochemicals producer, posted a 28 percent decline in net income to P1.24 billion in the first half of 2023 due to the high volume orders from prior periods coupled with the lingering effects of high inflation and generally cautious consumer sentiment.

During a media briefing, D&L President and CEO Alvin D. Lao said that, for the second quarter of the year, there was a subtle but continued sequential recovery with earnings for the quarter growing by 9 percent quarter-on-quarter to P646 million.

In addition to the effects of inflation and high base last year, there were also incremental expenses booked in the first half of 2023 relating to the firm’s new plant in Batangas. 
 

Excluding the Batangas-related expenses, first half 2023 income would have fallen by just 13 percent year-on-year to P1.5 billion. 
 

“Moving forward, as the Batangas plant ramps up operations, its incremental revenues should offset the costs,” said Lao.
 

While events over the past three years have resulted in a change in sales mix favoring commodities, Lao said the first half of 2023 saw a reversal of this trend with High Margin Specialty Products (HSMP) revenue contribution back to pre-pandemic level at 63 percent from 51 percent in 2022. 
 

This, in turn, resulted in a 4.6 ppts improvement in blended gross profit margins to 17.7 percent. Lao explained that HSMP products have margins of over 20 percent while their commodity products have margins of only 5 to 10 percent.
 

“Over time, as commodity sales continue to normalize and as the company continues to allocate much of its resources in growing the HMSP business, D&L expects to see a continued increase in HMSP revenue contribution,” he said.
 

Nonetheless, while commodity products have lower margins, the company intends to keep this segment as it continues to have a strategic importance in the overall business in the form of maintaining customer goodwill, protecting HMSP business by blocking off potential competitors, covering some of the fixed costs, and assuring the quality of HMSP raw materials.
 

D&L’s next generation facility in Batangas started commercial operations last July. With upgraded capabilities and a footprint that will more than double the company’s existing manufacturing capacity, the new plant ushers in a transformational period for the company.
 

“The plant that we have built is not just another plant. Specced to the highest standards and equipped with new capabilities, our Batangas plant will elevate the company to operate on a whole new level,” said Lao.
 

He noted that, “Similar to what we have seen with the various plants that we have built over the past 60 years, the commercial operations of a new plant will mean incremental expenses that may affect near-term income. This is part and parcel of putting up a new plant, as what we have done multiple times.”
 

“We have a lot of confidence that even though it may take time, this plant will be a huge benefit for the company. It will allow D&L to explore opportunities that were previously beyond our existing capabilities,” said Lao. 
 

He explained that, “With the new plant, we see new markets, higher value added products, and deeper innovations that will further push our boundaries.”
 

Lao also pointed out that the growth in company’s exports had been limited by their lack of capacity and the doubling of capacity due to the new Batangas plant should translate to a growth in export sales.