Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
VEDAN INT'L
HKEx Stock Code : 02317 
 
Corporate Profile
Principally engaged in the production of fermentation-based amino acids, food additive products and cassava starch based industrial products.

Business Review - For the year ended December 31, 2012

In 2012, the pace of the global economic recovery was slow and below expectations; as the unemployment rate of developed countries was persistently high while the growth rate of emerging markets and developing countries has slid. Against this backdrop, uncertainties such as the financial crisis in the US and the lingering debt crisis in Europe have further dampened the global economy as can be seen in the International Monetary Fund (IMF)'s original forecast, made in 2011, of a 4.0% global economic growth subsequently lowered to 3.3%. Japan experienced negative growth in the first half of the year, while the EURO zone recorded negative growth for three consecutive quarters. The PRC recorded a growth rate of 7.8%, the lowest in 13 years. As for the US, the country recorded only a slight recovery with an unstable foundation. Affected by the sluggish global economic environment, the Gross Domestic Product (GDP) of Vietnam only grew by 5.03% in 2012, 5.89% lower than that of 2011. The inflation rate was controlled at a level of 6.81%, much lower than the 18.13% in the preceding year but still faced weakened market demand. During the year under review, Vietnam's government launched measures to encourage exports by controlling the import of nonessential commodities. Such measures have not only generated the first trade surplus in 19 years and increased foreign exchange reserves, but have also helped stablise the exchange rate of the Vietnam Dong to the US Dollar, which substantially lowered the foreign exchange exposure of companies. Overall, except for emerging markets in Asia, major economies in the world including the US, member countries of EU and Japan have been suffering from economic malaise and decrease in demand.

The Group faced many internal and external operating challenges in 2012. For example, the trough in Vietnam's economy during recent years and the weak purchasing power have led to a slight decrease in its revenue within the country for the first time in recent years. Japan's economic growth and demand has also been stagnant during this time. Thus, the Group's sales in Japan have dropped. However, thanks to the strong economic growth of the emerging countries in the ASEAN region and the fruitful results of the Group's efforts and strategic planning over the years, revenue in the ASEAN region grew remarkably. As a result, overall revenue of the Group only dropped by 2.6% to US$372,922,000.

As for the PRC business, the Group has restructured the Shanghai plant and will focus on distribution and sales channel expansion as well as brand building. Apart from the existing MSG and beverage production, Maotai complex in Xiamen has also increased the production capacity of compound starch products to meet the demand arising from market expansion. In 2012, the Vietnam plant closed some of the native starch production lines with lower production efficiency and low added value. At the same time, a new 30,000-tonne maltose production line will commence operation in early 2013. It will not only fully utilise the existing equipment of the syrup plant to lower construction cost and enhance product competitiveness, but will also address the increasing demand for maltose in the region. The diversification of the Group's starch business is set to become the growth driver of the carbohydrates business.

In recent years, the Group has been focusing on higher value added products and enhancing brand reputation and distribution channels. Thus, it has strategically lowered or stopped altogether the supply of GA in Vietnam and the PRC. Compared with 2011, sales of GA decreased notably by US$14,257,000 or approximately 76.5%. This also explained the drop in the Group's revenue.

Facing the fast-changing operating environment in 2012, maintaining profitability has been the Group's primary aim in its operations. As the Group adopted flexible production and effective measures to secure carbohydrate sources, its gross profit and net profit increased by US$5,276,000 and US$614,000, or 9.4% and 10.3%, respectively despite the slight 2.6% drop in revenue during the year. Gross profit reached US$61,500,000 and net profit was US$6,551,000.

Business Outlook - For the year ended December 31, 2012

Having experienced the dramatic changes caused by the downturn of the global economy in 2012, the Group is not particularly optimistic about the prospects in 2013. Especially in Vietnam and the PRC where the Group has production bases, the Group does not expect to see a bright situation during the coming year. However, the GDP growth of these two markets is expected to be better than other markets, so even under macroeconomic uncertainties, the Group believes that there is still scope for stronger development by adopting appropriate business strategies. The summary of its key objectives and direction are outlined below.

(a) Operations in the PRC:

(i) Consolidate the production facilities in Shanghai and Xiamen and improve production efficiency while enhancing branding efforts and bolstering business. The re-organisation of the operations in the PRC will be a key strategy, which entails focusing more closely on the market, optimising the organisational structure, reviewing the progress of projects on hand, and strengthening the sales teams.

(ii) Reorganise business development strategy. The Vietnam plant will be responsible for supplying raw materials and product supply chain. The Group will also further process the products in the PRC. In addition, it will explore niche markets, and expand and strengthen business teams by setting up sales teams based on customers' needs.

(iii) Implement partnership strategy to secure the supply chain. It will also evaluate new products and related projects, as well as strengthen and build local professional teams.

(iv) Reorganise the Shandong plant, as well as its operational model.

(b) Operations in Vietnam:

(i) Continue to develop the local market by strengthening the branding efforts and building an extensive distribution network across various channels. It will also strive to enhance its consumer product business, in particular within second-and third-tier cities as well as major cities, to boost market share.

(ii) In view of the development in ASEAN member countries and emerging markets, the Group will increase its efforts in developing the export sales market including the ASEAN member countries and India. As for Japan, the Group will further expand into this market through creating higher value added products for customers.

(iii) As for starch-related products, specialty chemicals and fertilisers and feed, the Group will invest in the development and production of maltose, with developing customised fertilisers and feed as its primary task. To aid in the development of these products, the Group will integrate resources, expand its market further within ASEAN and India, build and strengthen its marketing foundation and improve efficiency.

(iv) Continue to review its strategic alliances, by tapping the supply chain and securing a stable supply of carbohydrates. It will also enhance energysaving initiatives, continue to invest in new product development, implement organisational restructuring and cultivate professional talent to lay a solid foundation for long term operations.

The unfavourable and uncertain operating environment in 2013 will continue to bring challenges to the Group. However, the Group has set operating strategies in place together with complementary work plans. Based on its market expansion in different regions over the years, recognition of its brand by customers and its established sales network, the Group is confident that it can overcome challenges and set a firm foundation for long term development.

Source: Vedan Int'l (02317) Annual Results Announcement
Chairman YANG, Tou-Hsiung Issued Capital (shares) 1,523M
Par Value USD 0.01 Market Capitalisation (HKD) 761M
 
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