Tyre

China

The massive stimulus package implemented by the Chinese Government has to a large degree cushioned the impact of the steep drop in the international demand for tyres. Incentives announced for the development of the construction industry, industrial activities and motor vehicle sector together with the iron ore and coal mining industry have spurred domestic consumption and economic growth. For the year under review, revenue was marginally lower at RMB213 million as against RMB218 million last year. The satisfactory performance was achieved on the back of a 25% increase in domestic sales with further market penetration to territories of more remote provinces and gaining greater customer acceptance for consistent product quality and excellence. As China is expected to recover at a faster pace from the slowdown in its economic growth, the expected turnaround augurs well for the future of our tyre operations in China.

Malaysia

Upon the successful completion of the acquisition of SCB, the Group consolidated seven (7) months’ performance of Silverstone Berhad ("SB"), which undertakes our tyre manufacturing and distribution operation based in Taiping. Accordingly, the results of SB accounted for 37% of the Group’s revenue. Prices of natural rubber, the main raw material component, dropped substantially from RM10.00 per kg to RM5.21 per kg in January 2009. As a result, most tyre manufacturers were caught with stocks acquired at a high cost and were unable to off load these stocks due to the falling demand. SB was the exception as our prudent procurement practice had enabled us to benefit from the steep drop in rubber prices. Margins were considerably higher towards the last quarter of the financial year as a result of the lower raw material cost. SB also carried out aggressive cost reduction and austerity drive programmes, which resulted in additional savings and reduced the raw material stock balance without any impact on the volume of production. With the stabilisation of international rubber prices and the recovery in the local economy as the Government’s stimulus packages take hold, we expect SB to achieve another set of satisfactory results next year.

Building Materials

Despite the Government’s various stimulation plans in pump-priming the economy, the construction sector recorded declining growth in the last three quarters. Consequently, our building materials distribution business, which is dependent on the construction and property sectors, also suffered a contraction in its revenue. The weak sentiments and the shrinking property sector have now compelled new and small distributors/traders of building materials to turn to ‘survival mode’ and compete aggressively to remain sustainable. Their actions have spread and eroded profit margins amongst the bigger and nationwide distributors, and sometimes, dragged manufacturers into undesirable price war situations. Prices of key building materials like steel bars fell more than 40% from its high of RM4,100 per tonne. It is anticipated that when building materials prices reduce, the benefit of lower prices in the construction supply chain could ultimately be transferred to the end-users. Subsequently, developers could pick-up and restart projects to help stimulate the construction industry. The stimulus packages announced by the Government are expected to kick-in and boost economic recovery. Given the tough challenges ahead, an effective dissemination of the status of these stimulus projects will bear a significant and meaningful impact on the construction sector, and hence, on the building materials distribution operations this Division is involved in.

Lubricants and Others

Lubricants

In a year in which businesses confronted extraordinary economic challenges, the Division had performed moderately sustained by a strong customers network. Our customers’ confidence in us as business partners had enabled us to focus on areas of innovative marketing and distribution infrastructure that would benefit customers and our operations in the longer term. Some key areas that we continued to build on are directed towards extended learning for our dealers and workshops, to enable them to excel in the automotive service industry. We believe that by facilitating our partners with functional knowledge and expertise, whether through programmes or making available workshop equipment and useful diagnostic tools, their business strengths will be enhanced vis-a-vis their competitors, and in turn, our business partnerships with them will yield greater achievements together. During the year, we encountered severe decline in sales demand and rising price competition. Thus, we implemented various counter-measures to reinforce our business in all regions, and ward off competitors in the more volatile business areas. Although we were unable to pass-on low margin product costs to our customers, we depended on the other products to achieve profitability in our business. Internally, we focused on productivity across the production and distribution channels by directing resources to higher value opportunities. Through systematic scheduling, material planning and enabling small batch production, we strove to maximise throughput to produce a sustainable product range. Modern technologies and innovation in vehicles will drive the demand for our products. Improved engine technology, the invention of hybrid technology and fuel cell hydrogen application in vehicles are expected to lessen the demand for lubricant oil, either through extended drain interval or reduced consumption. In this regard, the Division will seek opportunities for product expansion relevant to the progressive automotive industry.