Corporate: Perodua halts exports to the UK

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Perusahaan Otomobil Kedua Sdn Bhd (Perodua) will stop sales to its largest external market, the UK, as part of a rationalisation of its export strategy. However, it will continue its after-sales services in the region, says Perodua managing director Aminar Rashid Salleh.

Among the factors that led to the termination of UK exports was Perodua’s inability to comply with the Euro 5 emissions standards, he tells The Edge.

Perodua’s partner Daihatsu Motor Co Ltd was to have manufactured the engines for Perodua cars meant for export to the UK next year, but things did not go according to plan, say sources.

Aminar confirms the fact in an email reply, adding: “Many factors were considered before coming to the decision to stop exporting to the UK market and compliance with the Euro 5 standards was just one of them.”

He says Perodua will focus on the Asean market to take advantage of the incentives under the Asean Free Trade Area agreement and may consider re-entering the UK market in the future. “We have officially informed the [Malaysian] government the reason for Perodua stopping exports to the UK. We have impressed upon the government that Perodua will continue to support our distributor in the UK in after-sales service,” says Aminar.

Currently, UK exports represent about 40% of Perodua’s total exports. However, exports only account for 2% of Perodua’s total annual sales.

Aminar, in an earlier interview with The Edge, had unveiled the carmaker’s aim to grow its export contribution to 10% within the next three years. This might still be achieved because apart from the UK, Perodua has established a presence in Brunei, Singapore, Sri Lanka, Fiji, Mauritius and Nepal.

Aminar said then that Perodua was also undertaking feasibility studies on the Thai market.

It must be noted that Perodua has penetrated the automotive components market in countries like India and Pakistan — both potential export markets for completely built up (CBU) Perodua vehicles. Cumulative global sales of vehicle components came to RM96 million between 2003 and April 2010.

In the light of recent events, Perodua’s export division will be transferred from sales to manufacturing, which is controlled by the company’s Japanese partners.

“As a dynamic organisation, Perodua restructures and transfers or rotates personnel on a need basis. This is part of our process to strengthen the organisation and our human resource development’s policy to meet the ever-challenging market conditions,” says Aminar.

However, he could not say what the financial impact would be. After all, Perodua’s export strategy was for branding purposes.It is important to note that Perodua Auto Corp Sdn Bhd (PASB), the manufacturing arm of the group, is controlled by the Japanese parties, which hold a majority stake of 51%.

Perodua itself does not manufacture vehicles but owns 49% equity interest in PASB. Daihatsu Motor Co Ltd owns 40% and Mitsui & Co Ltd 11%.

In essence, Perodua controls the domestic distribution arm and holds a minority but still substantial stake in vehicle manufacturing.

PASB posted a net profit of RM219.79 million for FY2008 ended Dec 31, on the back of RM6.36 billion in revenue.

Perodua, meanwhile, is 73%-owned by local parties — UMW group (38%), MBM Resources Bhd (20%), Permodalan Nasional Bhd (10%) and Daihatsu (M) Sdn Bhd (5%).

The remaining 27% is owned by Daihatsu Motor Japan (20%) and Japanese trading house Mitsui group (7%).

An interesting twist to the story is that despite Perodua ending sales to the UK, Daihatsu is believed to have plans to pursue its own exports to that country.

At home, Perodua still rules the passenger car market. RHB Research, in a recent note, estimates that Perodua will capture about 33% of the market this year. Total industry volume for the year is estimated at about 587,700 units, up 9% from 536,900 in 2009.

If total volume is taken as a guide, the automotive group should be able to maintain its leadership and profitability over the next few years.

Perodua has been profitable over the last three years. For FY2008 ended Dec 31, it posted a net profit of RM294.93 million, almost double national carmaker Proton Holdings Bhd’s RM185 million. Revenue was RM6.64 billion.

Interestingly, in terms of return on equity, Perodua’s was at 16% while Proton’s was at just over 3%, based on their respective FY2008 numbers. This was despite Perodua being a smaller entity with net tangible assets of RM1.8 billion compared with Proton’s RM5.1 billion.

Not surprisingly, Perodua is the jewel in the crown for UMW Corp Bhd, which gets the bulk of its revenue from the automotive segment, which includes the Toyota marque.

 
 
This article appeared in Corporate page, The Edge Malaysia, Issue 818, Aug 9-15, 2010