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Monday, May 5, 2008

Vasa sees better profit despite higher costs

Local laminated flooring producer and exporter Vasa International Sdn Bhd is calmly working out ways to overcome challenges arising from the US economic slowdown and rising raw material prices.

“There is no point complaining on negative issues all the time. Somehow we have to live with them,” said group managing director P.C. Tam. “We should find a way to overcome the problems and to mitigate their impact.”

P.C. Tam

The group has two wholly owned subsidiaries: Stalheim Industries Sdn Bhd which manufactures Inovar Floor brand wood-based laminated flooring, and Vasatech Sdn Bhd which produces low-pressure melamine paper for short-cycle press lamination.

Vasa also markets accessories related to laminated flooring like skirting boards and profiles. It sources these accessories from suppliers in Malaysia and China, and also imports some high-end accessories from Europe.

Vasa now exports 80% of its laminated flooring to about 30 countries.

Tam said the increasing prices of oil and raw materials had resulted in higher production and logistic costs.

Coupled with the weakening US dollar, these factors had pulled down the group's earnings in the past three years, he told StarBiz at Vasa's head office and plant in Batang Berjuntai, Selangor.

The group posted a net profit of RM4.8mil in 2005 and RM5.3mil in 2006, but the figure dropped to RM3mil last year.

Nevertheless, it has forecast a higher profit of about RM7mil this year, supported by an expansion in production capacity and better sales of high-end products.

“We have plans to enlarge our production capacity as the increase in capacity usage will lower the unit cost. Then we will be able to compete in the international market with quality products at reasonable prices.”

Currently, Stalheim sources most of the raw materials like water-resistant high-density hardwood fibreboard from East Malaysia and China. Its plant, which runs at about 70% capacity, produces about 6 million sq m of laminated flooring annually. Tam said it would increase production to 90% capacity this year.

As for Vasatech, its factory is running on full capacity, producing 22 million sq m of melamine paper annually. The group has invested RM11mil to buy another automated machine from Europe that is expected to arrive this month.

It will increase annual production to 40 million sq m of melamine paper by year-end.

“This is to meet the rising demand from customers and for our own consumption (Stalheim),” Tam said, adding that 60% of the melamine paper output was currently supplied to customers in the furniture-manufacturing sector.

Seeking non-price-sensitive markets
Tam said the laminated flooring market was growing tremendously.

Although production costs had gone up, Tam said the group had segmented its products so that it could get a higher margin from the high-end products and at the same time, not lose out in terms of volume from the medium-range products.

“So, it is quite important for us to sell more high-end products and look for markets that are not so price-sensitive.

“We have to move to the markets where people are looking for quality products, more reliable service, professional approach, consistent quality and forward product development.”

Tam said there were always such customers in countries like Japan, Australia and South Africa.

Mitigating the US dollar impact
The challenge now for the group is to continue widening the range of Inovar Floor products to maintain or improve its profitability.

Tam believes strong branding efforts played an important role in marketing its products. Vasa now exports 80% of its laminated flooring to about 30 countries, including Thailand, South Africa, the US, Singapore, Middle East, South America and Japan.

He said currency fluctuations should not be the excuse for a company delivery of good performance.

“We try not to pass on the cost increase to customers. We try to switch to other currencies (in pricing) instead of just US dollars,” he said, adding that it was now also selling products in Australian dollar, Singapore dollar and Japanese yen.

Vasa started exporting Inovar Floor laminated floorings to Japan five years ago and Japan is now a very important market for the group.

“We are quite proud of this achievement – that we are able to sell to Japan – because our quality products have managed to meet the requirements of the Japanese customers and achieved the Japan Industrial Standard for Super E0 (formaldehyde emission level) certification.”

Inovar Floor laminated flooring is also being supplied to IKEA Japan for the use of IKEA outlets in the Asia-Pacific. The group targets to sell 30,000 sq m of flooring to the IKEA chain in Asia-Pacific this year.

“We will continue to develop new products and more designs and try to be competitive and ahead of market trends. We want to be the innovator, not the follower,” said Tam.

Improved domestic
Vasa does not want to miss out on the opportunities in the local market too. It wants to have a strong position in its own country.

Therefore, through marketing arm Inovar Resources Sdn Bhd, it started to place more emphasis on the local market three years ago. Domestic sales contribution has since risen from 5% to 20%.

“We realised that our quality products were gradually getting acceptance from the local consumers compared with those from China,” Tam said.

Currently, Inovar Floor products have about 90% share in the local property development market. Its customers include Gamuda, Sime UEP, Malton, Sunrise and Negara Properties.

Tam added that to further develop its business, the group would seek a public listing, perhaps in two years.

By The Star (by Rachael Kam)

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