MGPI optimistic about turnaround after difficult year

by Eric Schroeder
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ATCHISON, KAS. — Reflecting on a fiscal 2009 that was "the most difficult period in the 68-year history of MGPI," John Speirs, chairman of MGP Ingredients, Inc., said despite the challenges the company’s transformation has occurred and its future looks bright.

"Many difficult actions are behind us now, and we look forward to executing our new, more focused strategies for growth," he said in introductory remarks at the company’s annual meeting Oct. 22.

That turnaround is expected to be reflected in financials for the first quarter of fiscal 2010, said Tim Newkirk, president and chief executive officer.

"I am pleased to report that our preliminary results for our first quarter of fiscal 2010 … are expected to show a significant positive turnaround compared to the net loss of $17.2 million incurred in the same period a year ago and compared to the net loss of $2.9 million that we incurred in the fourth quarter of fiscal 2009," he said.

He indicated MGPI expects to be immersed in a value-added strategy, focused on driving innovation for client partners, and producing an improved, more consistent margin mix with targeted gross margins in the 15% range as a per cent of sales.

"Our actual results could differ from this forward-looking statement, as there are many factors that impact gross margin, such as product mix, raw material costs, energy costs, etc. and, as such, actual results will differ from our target," he cautioned. "Nevertheless, this represents quite a change from the widely variable margins from the historical MGPI."

Mr. Newkirk highlighted several milestones achieved by MGPI, including improving the company’s profit profile of sales mix by focusing on specialty proteins and starches and high quality food grade alcohol. At the same time, the company eliminated a considerable amount of commodity risk on the sales side through a significant reduction in fuel grade alcohol. A second objective achieved was the lowering of total cost of production, Mr. Newkirk said.

"Our raw material costs have gone down and initiatives to improve productivity are proving successful," he noted. "We disposed of non-core assets and related liabilities, with total assets reduced by more than one-third, and we created a customer-focused sales organization. We currently have more customer projects in the development pipeline than ever before."

Mr. Newkirk also spoke positively about the company’s health and wellness initiatives, specifically customer reception to Fibersym RW wheat starch.

"Our Fibersym RW is an innovative resistant wheat starch that delivers a minimum 85% dietary fiber (dry basis), produces low-glycemic impact, reduces caloric intake and provides convenience and better process stability for the finished goods manufacturer," he said. "This is a perfect technology fit for flour-based foods such as cereals, bread, pizza dough, nutritional bars, cookies and a wide array of other bakery products.

"In addition, results of recent clinical studies conducted by, or in conjunction with, various major universities indicate that our Fibersym RW can improve digestive health, help manage blood glucose levels in healthy individuals and Type 2 diabetics, and may have the potential to help protect against colon cancer. While additional studies are under way, we are very encouraged and excited by the universal potential of Fibersym as a healthy source of fiber."

Looking ahead to fiscal 2010, Mr. Newkirk identified three main areas of focus for MGPI: Improving profit margins through a combination of a sales mix and manufacturing productivity; generating organic growth by executing sales development programs; and expanding pipeline of new business opportunities by deepening existing customer relationships.

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