The following outlines recent progress, achievements and short term plans:

Transition from Start-up company to a Small to Medium Enterprise 

KFSU has many customers in Australia and Japan and have appointed distributors in Australia and the USA. We are now evaluating distributors for Japan and South America.

Key Current Activities 

The upgrade project is on track for 2014 completion. The $2M Commercialise Australia Grant is nearly completed. A key subject occupying the Board is when and where to build further capacity to meet the expanding sales demands. Considerable time has also been spent on branding, marketing and product positioning. The recent introduction of the brand Phytocel for industrial markets has assisted the transition from a commodity based business to a speciality ingredients business (with commensurate higher margins). 

We welcome aboard our new Production Manager and are employing more production crews to meet demand. We are also expanding our Advisory Board with people from finance, sales and marketing backgrounds. 

Sales Network 

General 

The selling model continues to be based on KFSU LTD producing specialised ingredients for a wide range of food applications via regional based distributors. This model is maximising control and profit with minimal selling resources. Two distributors have been appointed.

Australia - Rejuvacare 

Rejuvacare have excellent commercial relationships within the relevant sectors of the Australian and New Zealand food industry. KFSU product (as an ingredient in food products) requires significant technical trial and evaluation in consumer food products, and Rejuvacare have the resources and skills to conduct the evaluation trials with customers. Following this approach, Phytocel is now positioned to be an ingredient in a national bread product later 2014. The volume of this customer is significant and details will be available to shareholders when trials are completed. 

USA - Marigold 

After many trips to the US, Marigold Inc. was appointed to distribute KFSU industrial products in the US and Canada. They are focusing initially on the baking industry in the US (which would absorb many times the output of the new high capacity production line) and will also position Phytocel to sell into the processed meat industry in the future.  

Japan - KFSUasia 

KFSU has been conducting sampling trials with many large Japanese food companies. Successes to date and the need for resources to support sales in Japan has seen the transition from a small KFSU Asia team to appointing a well-established national distributor. We are planning to finalise the Distribution arrangements by November 2014.

South America 

During a recent trip to the USA to appoint Marigold Inc. as noted above, KFSU saw an opportunity to develop a distributor to the major South American countries and is establishing a relationship with a South American group (based in Miami, Florida). South America has not been a strategic focus for KFSU sales, but this opportunity appears to be simple to execute and low risk but potentially provides a huge additional market for KFSU products. Shareholders will be kept informed of developments. 

China 

A KFSU shareholder has set up a distributor infrastructure for related but non-competing products to Phytocel. KFSU LTD is in the process of appointing this shareholder as a distributor in China, Hong Kong and Macau. Sales will not commence until KFSU has constructed additional production capacity. 

Production Capacity 

Current situation 

The small scale line is currently operating 24 hours per day to meet demand and provide stock weight in Australia, Japan and the USA. However, the profit from the high capacity line which comes on stream in late 2014, will reduce product costs significantly and will produce 1,320 tonnes per annum. The small scale line will then only be used when needed or for R&D / Product development. 

Equipment is arriving for the high capacity line expansion and the current expectation is to have the line installed and commissioned up to the dryer by the end of June, with milling and bagging commissioned in September. Final sign offs end of 2014 with first product available in 2015. Final sign-off is expected in September and first product to market in October.

Future Options 

It is planned to further expand output from the current site by installation of a second high capacity production line, taking output to over 2,600 tonnes per annum. The target start date for the installation of this second high capacity production line is the first half of 2015, with completion later that year. 

Further capacity will be built in a purpose built site either at Ayr or at a remote location to provide increased manufacturing redundancy. KFSU has also received tentative offers from two operators in the US to assist the construction of a northern hemisphere plant, which would be controlled and operated by KFSU. This is not being pursued, but remains a possibility. 

Goals – 2014 

1. Complete the high capacity production line 

2. Increase sales in Japan 

3. Commence repeat regular sales in Australia and USA 

Goals – 2015 

1. Extend sales in Australia, USA and Japan 

2. Commence sales in China, New Zealand and South America 

3. Commence construction of the second high capacity production line 

4. Decide the future manufacturing strategy and plan