Guccira Tiles Sdn Bhd. Italiano Tiles Anyone?

1.0 Background GUCCIRA Tile Industries (Air Hitam ) Sdn.Bhd [GTI (Air Hitam )] was first incorporated under the name of Fancy Tile Works Bhd on 5th May 1964 which was more than forty years ago. This company was thought to be the pioneer in the tile manufacturing industry in Malaysia. On 7th June 1979, the companys name was changed to Associated Tile Works Sdn Bhd (ATW) when it was fully bought over by Bion Group when it first ventured into the manufacturing business. The factory occupied an area of fourteen acres of land at 7 1/2 miles, Jalan Air Hitam , Batu Pahat, Johore Darul Takzim, Malaysia. The company assumed its present name on 1st July 1993, when the Group consolidated its business strategy under its Ceramic Tile Strategic Business Division. In August 1994, the company became the first factory within the division to obtain its ISO 9002 Certification from SIRIM. 2.0 Ceramic Tile Strategic Business Division (SBD) Ceramic tile SBD was formed by the Bion Group in late 1991 as the number of decentralised business units has grown so great that the span of control was too much for a single chief executive. This was to improve the strategic planning and top management coordination of diverse business interest. The ceramic tile SBD of Bion Group consists of the following subsidiaries: GUCCIRA Tile Industries (Kluang) Sdn Bhd GUCCIRA Tile Industries (Air Hitam ) Sdn Bhd GUCCIRA Tile Industries (Meru) Sdn Bhd GUCCIRA Tile Industries (Labuan) Sdn Bhd Ceramic Research Company Sdn Bhd GUCCIRA Marketing Sdn Bhd Guotrade (M) Sdn Bhd The first four are the tile manufacturing companies which produce 48,000 meter square of ceramic tiles per day. The GTI (Air Hitam ) plant, which produces 7,000 sq. meters of mosaics per day, is the groups second biggest ceramic tile manufacturing operation after the Kluang plant. The Kluang plant produces 22000 m2 of ceramic tile per day. The marketing of the products is undertaken by GUCCIRA Marketing Sdn Bhd for the local market with 13 distributors nationwide. Another subsidiary, Guotrade (M) Sdn Bhd, which has offices in 10 countries worldwide, markets the product overseas. Bion Industries spent two per cent of its turnover on research and development, which is carried out by its subsidiary Ceramic Research Co Sdn Bhd. Under the SBD, the concept of product rationalization was adopted where each subsidiary was to have its own core product. This was to avoid internal competition among the operating unit. At the same time, it encouraged resource sharing and skills transfer among the subsidiaries.
Rashid Abdullah and Z.A.Mohamed; Case rewritten for training purposes. The names are disguised and the text is not meant to show right or wrong decisions,

The SBDs vision were: a. to develop CERAMIC GUCCIRA brand name as top of the mind recall and the first brand to be considered b. to develop CERAMIC GUCCIRA as a dependable brand and a tile that is synonymous with a high quality product and service c. to position CERAMIC GUCCIRA above competitors by continually upgrading and improving on our design and product development to meet the changing expectations of the industry. 3.0 The Product Mix

The factory started with a single production line of 500 m2 daily capacity, producing unglazed mosaic. As the years went by, the business expanded and the production lines increased to a total of five in 1990. The number of products also increased to include high value added products such as semi glazed mosaic. In 1990, wall tiles started to be manufactured as a response to the slowdown in the demand of mosaic. In 1997, the first and oldest production line named as Factory I, with its aged and obsolete machinery, was removed to make way for the expansion and upgrading of the wall tile production line. At the same time, the unglazed product line was scrapped from the product mix as it had entered into the declining stage of the product life cycle and became unprofitable. Exhibit 1: GTI (AIR HITAM )S PRODUCT MIX 1999/00

OHR TES 2 .0%

F LL G U LAZE D 50.1%

W LT AL ILE 35 .7%

S MG E I LAZE D 12 .2%

In 1999/00, the product mix of GTI (Air Hitam ) was 12.2 per cent of semi glazed mosaic, 50.1 percent of full glazed mosaic, 35.7 percent of wall tile, 1 per cent of vitrified homogenous tile and 1 percent of others (see Exhibit 1). As indicated by the product mix, mosaic was the core product of GTI (Air Hitam ) which took up 62.3 per cent of the total mix. 4.0 The Economic Environment

In 2001, the Malaysian economy was expected to expand at a slower but more sustainable rate. Real gross domestic product growth was projected at 8.3 percent for 2001 against 9.5 percent in 2000, according to Bank Negara 2000 Annual Report (see newspaper cuttings in attachments at end of case).

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The government was committed to capping inflation below four percent in 2001. The 2000 inflation was at 3.4 percent. Thus, macroeconomic policies supported by measures to increase competition as well as improve efficiency and distribution would continue to be intensified to contain cost pressure. The performance of the manufacturing sector remained strong in 2000, maintaining its double-digit growth rate for the second consecutive year, at 14.5 percent compared with 14.7 percent in 1999. Its share of gross domestic product (GDP) rose from 31.6 per cent in 1999 to 33.1 percent (see newspaper cuttings). According to the Malaysian Industrial Development Authority (MIDA) Bi Annual Industrial Trends survey for 2000, the manufacturing sector showed a stronger-than expected performance. During the period under review, however the average cost of production increased by 6.2 percent mainly on account of the increases in the average cost of labour and local raw materials. 5.0 5.1 Market and Competition GTI (Air Hitam ) as Mosaic Market Leader

GTI (Air Hitam ) earned an average monthly revenue of RM1365833 in 2000 for its mosaic and wall tile from its major distributors. GTI (Air Hitam ) did not market its product directly to the end users. The sales of each of the distributors are shown in Exhibit 2 in descending order. There were eight major distributors for GTI (Air Hitam ). Eighty percent of the sales was realised through 50 percent of the distributors. The biggest distributor was Bion Marketing Sdn Bhd which concentrated fully on GTI (Air Hitam ) products. The second biggest distributor was Hong Bee Sdn Bhd which gave 90 percent concentration on GTI (Air Hitam )s and the balance 5 percent to other competitors products. GTI (Air Hitam ) was the market leader in the mosaic market. In 2000, it captured 54.5 per cent of the total mosaic tile market. The other major players in the local mosaic tile market were Malaysian Mosaic Berhad (MML) which took up 16.0 percent, Kim Hin Industry Berhad (KH), 13.5 percent, and Emerald Tile Sdn Bhd (ET); 13.5 percent (see Exhibit 3)

Exhibit 2 : Sales of Major GTI (Air Hitam ) Distributors 1999/00

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Distributor HLMK HB UMT NCK POSIM TGA PANSAR SOLID PANEL OTHERS TOTAL

Rank 1 2 3 4 5 6 7 8 -

Sales (RM Million) 14.61 4.99 3.89 3.17 2.24 1.39 1.06 1.03 2.02 34.41

5.2 Shift in Mosaic Demand However, the demand for mosaic had been in an unfavorable trend when compared to the sales mix of the four main categories of ceramic tiles namely glazed floor tiles, vitrified homogenous tiles, mosaic tiles and glazed wall tiles. Exhibit 4 shows the domestic sales analysis of Bions ceramic tile SBD for the period of the financial year 1999/00 to 2005/2005. The unfavorable trend was attributed to the shift of consumer taste to bigger-sized ceramic tile and the production cost pressure of mosaics tile which resulted in higher selling price compared to that of the bigger-sized tile.

MOSAICS TILES MARKET SHARE 1994/95

ET 13.5%

IMP 2.5%

KH 13.5%

MML 16%

GTI 54.5%

Exhibit 3 : Mosaics Tiles Market Share 1999/00 As the ceramic technology advances, the technological constraints in producing bigger-sized tile have been overcome. Moreover, the manufacturing process for bigger-sized tile was simpler and more straight forward as compared to that of mosaics due to the fact that it was much easier to handle bigger-sized tile along the manufacturing process. Being of smaller-sized, the machines required for conveying the mosaic tiles along the process were much more complicated.

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Furthermore, certain works were difficult to be automated and resulted in higher labour content in the production process. Thus, this translated into higher production cost for the mosaic tile. The production cost for bigger-sized tile was around RM 10.20 per sq. meter whereas that of mosaic tile was RM 15.00 per sq. meter. As the industry was moving away from the smaller-sized tile due to higher cost factor, the development on the production technology for the bigger-sized tile had gained more attention and focus by the industry. With the improvement and refinement achieved in the production technology, the gap between the production cost for the bigger and smaller tiles was further widen. Exhibit 4:Bions Ceramic Tile SBD Domestic Sales Analysis Sales (million sqm) Glazed Floor Tiles VHT Tiles Mosaics Tiles Glazed Wall Tiles Total 99/00 2.00 0.52 1.77 3.78 8.07 2000/01 2.18 0.79 1.67 4.20 8.84 2001/02 2.70 1.24 1.91 6.92 12.77 2002/03 5.09 2.47 2.11 6.48 16.15 2003/04 6.00 2.75 2.04 7.90 18.69 2004/05 7.00 3.00 2.00 8.00 20.00

As a result, the consumer shifted their demand towards the bigger-sized tiles which was prized lower or equivalent to that of mosaics tile. At the same time, with the innovation achieved in the new product development of bigger-sized tile, the range of choice in term of design and aesthetic feature have been enhanced. Thus, this further encouraged the sales of bigger-sized tiles against that of mosaic tiles. Fortunately, mosaic tiles still had its appeal to certain market segment. It had an edge over the bigger-sized tile in term of safety property. Being a smaller-sized tile, it provided an advantage of less slippery function in the application for floor tile. Also, in the overseas market where safety was of public concern, use of mosaics for the external wall application was preferred to the bigger-sized tile. This was because in an event of any detachment of tile from the wall, due to either the effect of weathering or poor tile laying workmanship, the danger posed by mosaic to the public was minimal as compared to bigger-sized tiles.

5.3

The Competitive Market

The ceramic tile industry was signified by slow growing market demand as compared to other industries in the manufacturing sector. With the increase in

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new production capacities among the major players in the ceramic tile industry till early 2007, the market had entered into a situation of keen competition. This had led to price undercutting among the manufactures, distributors and dealers as the only mean to maintain sales and market share. This had resulted in a gradual erosion in margin. In early 2000, average profit margins of about 12 percent to 15 percent were common. However, in 2005, margins of 3 percent to 5 percent have become a norm. Moreover, the cement shortage had further adversely affected the market pricing demand. This resulted in reduced market demand for ceramic tiles in 2005. However, the situation was expected to improve with the government intervention in controlling the supply of cement in the local market. By end of 1996, with the completion of the expansion plan, Bion Industries Bhd would hit a production capacity of 80,000 sq. meter of ceramic tiles per day. With the expanded capacity, the SBDs sales should be doing close to RM 500 million per year (including export) by 1996, compared with about RM 250 million per year in 1995. This would rank HLI among the five largest ceramic tile manufactures; controlling over 30 percent of the market. In 2005, the local market for ceramic tile was expected to be about 30 million sq. meter valued about RM 500 million. The significant players were: a. Kim Hin Industries. The second largest player in the local ceramic tiles industry was Kim Hin Industry Bhd. Kim Hin commanded about 23 percent of the market. It exerted a very strong presence in the project market. This was due to strong promotion of glazed floor tiles for wall applications. Its installed capacity was about 40,000 sq. meters per day. b. H & R Johnson Bhd It was once a household name in the ceramic tile industry but according to a dealer, it had long gone due to its inconsistent quality. It had also lost its presence in the project and dealers market on both glazed wall tiles and glazed floor tiles range. c. Malaysian Mosaics Bhd. Its core product was homogenous tiles which had gained a strong hold in the project market d. Prestige Ceramics Sdn Bhd. Had completed major expansion on the wall tile production line and was expected to pose a strong competition in the industry. e. Niro Ceramics Had a strong presence in the polished homogenous tiles especially in project market f. White Horse Ceramics Was a new comer in the industry and started in early 1998, the company had established itself as a major player in the homogenous tiles market in Malaysia. g. Selangor Tiles

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Expected to make a comeback into the industry in 1991 after it ceased operations since 1997 due to management problem. Was undergoing restructuring and recruitment exercise for its key technical staff. MRCB was holding a 70 per cent share in the company. 6.0 6.1 Production Operation Plant and Facilities

GTI (Air Hitam ) owned a piece of 14 acres of land on Lot 719 and Lot 720 along Jalan Air Hitam . Klang. The existing facilities and plant occupied a total of 7 acres on Lot 719. There were four production lines all together designated as factory II, factory III, factory IV and Factory V respectively. Besides these, there was a raw material section located at the rear end of the plant where raw materials were being prepared to be supplied to each production line for further processing. Viewing from the main entrance, on the right hand side of the plant, a setting department was located. In the setting department, the loose seeds of mosaic tiles which was unnecessary for the bigger-sized tile could be packed indirectly into cartons. The Administration and Dispatch office, together with the warehouse were located on a small plot of land separated by a road away from the plant. The road was served as loading area for the finished products. The warehouse had a stock holding capacity of 300,000 sq. meter of finished products. The piece of land on Lot 720 adjacent to the exiting plant had undergone construction of a new plant and upon completion, the production capacity had increased to 14,000 m2 sq. per day from the existing 7,000 m2 per day. Factory II, after having gone through an expansion and upgrading of the machinery in February 1990, it had transformed into a totally modern wall tile production line using roller kiln single firing technology. The line capacity was 2,600 m. sq. per day. Factory III and Factory IV were still using the old tunnel kiln firing technology for the mosaic tiles production which was inefficient in term of energy utilization as well as low in production output. The combined daily mosaic production capacity for these two lines was only at 930 m 2. The plan for these two lines was to run premium products of high value added in order to command a better selling price to cover the inherited high production cost. Factory V which had 2,800 m2 daily mosaics production capacity was an additional line to GTI (Air Hitam ) in late 1995 but it was on a small piece of space constraint and caused, the machinery to be cramped together. This has created an unorthodox layout of the process flow and given rise to many operational problems. Coupled with the unreliable machineries, the operation of factory V was problematic said the factory manager. 6.2 The Production Process The ceramic tile production process consists of six sub processes namely raw material preparation, pressing, glazing, firing, inspection and setting. At the raw material preparation section, raw material was being processed to become powder form.

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In the past, this section involved a lot of human labor in getting the job done. However, with the mechanization of the process, the requirement on manual work has been drastically reduced, commented a production supervisor. From the raw material section, the powder was being transferred to the pressing section. At the pressing section, green tiles were formed by the hydraulic presses. There were few old presses which has been operating for ten over years. These presses were not very efficient in terms of production performance. Occasionally, there were press related quality problems encountered in these type of presses. However, the management did not consider these as critical problems. From the pressing section, the green tiles were conveyed to the glazing section where the glazing process took place. The green tiles were being transferred along a conveyor line from section to section. As the green tiles were very fragile, the handling of the tiles was very important as to avoid any damages. At the glazing section, most of the value adding activities were carried out here. After the glazing process, the tiles were ready for the next stage of processing i.e firing. In GTI (Air Hitam ), there were two type of kiln used for firing purposes. The tunnel kiln firing was located in Factory III and Factory IV. This was an old technology which was poor in energy utilization as well as production efficiency. Besides, it required other high cost consumable item eg. saggers and kiln cars to carry the tiles during firing process. Thus the production cost was very high. The modern type of firing used roller kiln which posses superiority in term of energy utilization and production efficiency over the tunnel kiln. The roller kilns were used in Factory II and factory V. At the end of the firing process, the fired tile were 100% inspected by the workers manually. For the mosaics tiles, there was an addition step to be carried out before the tile could be packed into finished product i.e setting. There were three methods of setting being employed in GTI (Air Hitam ) namely manual setting, contract setting and machine setting. The cost of each type of setting were RM 0.15 per sq. foot, RM 0.15 per sq. foot and RM 0.10 per sq. foot respectively. Seventy percent of the setting was done by machine, 16 percent was contracted to external setters and 14 percent was set in-house by the workers manually. The manual setting was still required as the machine was not able to handle the smallest sized range of tiles.

7.0 7.1

Human Resources Frequent Change of General Manager

In the past, it had been the groups practice to transfer general managers within the Groups companies to expose them to various industrial experience for managerial development purposes. Each general manager would normally have a short tenure within a company. Frequent change of general manager was also become a norm in GTI (Air Hitam ). [refer to Exhibit 5 for the name of the general managers who have served the company since 1970]. When Richard Ng took over the position of general manager in 1989, he set out to embark on the

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export market. He saw that the move was necessary because with the major expansion of GTI (Air Hitam ) which would be completed in late 1990 to increase the plant output to take advantage of economic of scale, the increase in the national production capacity would result in a situation of over supply of the products for the local market. The company export volume had increased since then from less than 10 percent in 1989 to 58 percent of total output in 1995. To date, the company exports to about 15 countries, with Singapore, Canada, Australia and Hong Kong taking up about 70 percent. Nevertheless, the companys performance was not as impressive as it would like to achieve, muttered the financial manager (see Exhibit 6).

Period 1970 to 1977 1977 to 1979 1979 to 1982 1982 to 1996 1996 to 1997 1997 to 1998 1998 to 1998 1998 to 1989 1989 to 1995 1996 to present

Name Cheong Chap Ching Loong Heng Kew Steve Yoong Mah Teck Oon Lee Wah Teng Jin Jee Leong Teck Beng Mah Teck Oon Richard Ng Lee Kok Chee

Exhibit 5: The General Managers of GTI (Air Hitam ) Sdn. Bhd. 7.2 The Management Exhibit 7 shows the organisation chart for the GUCCIRA Tile Industries (Air Hitam ) Sdn Bhd. The general manager, K.C. Lee, was responsible for the strategic development of the business as well as assumed overall responsibility for operations and liaison with the rest of the GTI (Air Hitam ) facility. The manufacturing managers post was vacant as of January 1991. There was no plan to fill this position. Reporting directly to the general manager were four departmental heads namely production manager (C. K. Ng), maintenance manager (Eric Tan), project manager (W.H. Fann) and technical manager (Y.E. Teh). Under the production manager were six production executives, each in charge of raw material section, Factory II, Factory III, Factory IV, Factory V and setting department separately. Each executive had a group of supervisors, ranging from two to five depending on the capacity of each section, reporting to them. C.K Ng had been with the company since 1980. He was promoted to his present position in 1995 about eleven years ago. He left the detailed operational issues to individual executive and gave a free hand for them to run their own section. The executives were able to work together on matters which were inter-related effectively without the involvement of the manager. Weekly meetings were carried out on every Saturday to update the production manager on the operational issues arose during the week. By the time the matter was brought to his attention, the executives had resolved the problems by themselves together

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with the support staffs. He was satisfied with the way how the works were done as he referred to it as an effective delegation. Before Eric Tan was promoted to maintenance manager, he was a mechanical engineer who took care of all the mechanical maintenance works within the facility. According to one of his immediate subordinate, he was hardworking and able to carry out all the duties assigned to him effectively. When the former maintenance manager was transferred to become project manager to take care of major upgrading of the processes in the plant, Eric Tan was promoted to his present position. After assuming the new job, he was unable to establish good working relationship with his subordinates. He would criticized his subordinates when they made mistake even in public. He would jumped into conclusion without finding the real cause of the problem and many a time regretted the move later for such a behavior. He was very conscious about keeping his department expenses within the budget so as to optimize performance at the expense of the overall company objectives. 7.3 The Workforce The direct labour cost of GTI (Air Hitam ) was the highest among the four manufacturing companies within the ceramic tile division of Bion Group. The reason behind was simple: the majority of the workforce consisted of workers who had served long period of time with the company, couple with being an old plant which used old technology, most of the processes prior to plant upgrading were labour dependent. This had been the main concern of the management of GTI (Air Hitam ) in the recent years because it affected the competitiveness of the business. This was the reason why the plant went through a series of process upgrading from 1998 to 1990. The consequences of the upgrading had resulted in works that had to be arranged from normal working mode, (8.00am to 5.00pm) into two or three shifts per day. Factory II was able to undergo a smooth changeover to the new mode of working with minimal resistance from the workers. That could be due to the effort of T.E. Yew, a production Executive who was in charge of the overall operation of Factory II. He had worked on the preparation for the change two years earlier prior to the actual physical change. The relationship he had with the people was a good one because the relationship was based on mutual respect and trust. However, in the case of Factory III, there had been a major refusal of workers to enter into shift works. A lot of effort has been put in to overcome this resistance by having dialog sessions with the union to inform them about the intention of the management which was for the benefit

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Exhibit 6 : GUCCIRA Tile Industries (Air Hitam )s Resultls, 1990-2000 1990 17.85 1991 15.08 1992 12.08 1993 16.56 Year - End June 30 1994 1995 1996 1997 20.87 22.72 27.86 30.89 1998 31.60 1999 34.83 2000 34.09

Turnover (revenue) in RM million Pretax profit in RM million Sales volume in thousand s.q. meter Number of employee

2.00

1.52

1.21

1.88

2.59

3.57

3.94

3.50

1.76

2.82

1.37

831

872

706

1174

1444

1539

1734

1977

2087

2271

2245

493

510

486

470

536

603

686

626

680

586

495

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Exhibit 7 GUCCIRA TILE INDUSTRIES (AIR HITAM ) SDN BHD ORGANISATION CHART FOR FY 2000
GENERAL MANAGER SECRETARY MANUFACTURING MANAGER (1) STENO FINANCE MANAGER (1) PRODUCTION MANAGER (1) STENO A.ACCT (1) A/C EXEC (1) PURCHG EXEC (1) A/C STAFF (11) DESPATCH STAFF (3) SPUV (3) WORKER (4) RM EXEC (10 STORE MT (1) FP EXEC (1) STAFF (1) RM SUPV. (4) WORKER (40) STORE SUPV. (2) FP SUPV. (4) WORKER (33) SETTER (20) APMM (69) F1/F3 EXEC (1) F2/F4 EXEC (1) F5 EXEC (1) STAFF (2) F1/F3 SUPV (4) WORKER (158) F2/F4 SUPV. (6) WORKER (90) F5 SUPV (6) WORKER (58) ELEC.EXEC (1) MECH. EXEC FAC.EXEC (1) MAINTENANCE MANAGER (1) PROJECT MANAGER (1) (CRC STAFF) TECHNICAL MANAGER (1) (CRC STAFF)

PROJECT EXEC (20

RGD. EXEC (20 QA EXEC (1) (CRC STAFF)

PERSONNEL EXEC (10

ELEC. SUPV. (2) WORKER (11) MECH. SUPV. (3) WORKER (29) FAC SUPV. (1) WORKER (12)

TECHNICAL ASSISTANT (1)

SUPV. (2) WORKER (14)

STAFF (1)

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of the whole organisation. However, this was received with skepticism. Finally this issue was resolved through new terms of collective agreement with the union. The management incurred some costs during the course of the negotiations. 8.0 Company Performance From Exhibit 6, the year 1995/96 was the best year for GTI (Air Hitam ) during the period from 1989/90 to 1989/1990 as it achieved a pretax profit of RM 3.94 million. Since then, the companys performance started to decline and for the financial year 1989/1990, the company was only able to obtain a pretax profit of RM 1.37 million, even when the sales volume had been climbing steadily over the same period. The major factors contributing to the down trend in the performance were high overhead, relative to turnover and declining selling price due to market force. This resulted in erosion of the margins. The financial statements for the period 1995/96 to 1989/1990 are given in Appendix A and B. 9.0 Epilogue: The General Manager sat and pondered as to the next strategic move that he need to decide. The financial indicators were not as impressive as he would like to. He recalled that the first ISO was way back in 1994 and since then Gucciro had stayed focused in this line of business. We are good at what we are, he thought .but should the ceramic tile division consolidate itself and focus on the export market? Are we venturing into the unknown? Or is the local market enough for us to expand? To help the general manager with his decision, a. do a strategic analysis of the company, b. brouse the internet to have a better picture of the tile industry in Malaysia and the world, c. what would you recommend to the general manager and why.

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ATTACHMENTS: FiveCuttings from the local newspaper :

Nations economy likely to expand at sustainable rate

KUALA LUMPUR, Wed - Bank Negara Governor Datuk Ahmad Mohd Don said the Malaysian economy is expected to expand at a slower but more sustainable rate this year, with exports outpacing imports to result in an overall improvement in the countrys balance of payments. Real gross domestic product growth is projected at 8.3 percent this year against 9.5 percent in 1995. ahmad said the Government remains committed to capping inflation below four percent this year, and as such, macroeconomic policies supported by measures to increase competition as well as improve efficiency and distribution would continue to be intensified to contain cost pressures. Last year inflation was at 3.4 percent, he told a Press conference in conjunction with the release of the Bank Negara Annual Report 1995, today. For this year, the merchandise account of the balance of payments is expected to show a larger surplus of RM3.6 million than the RM600 million achieved last year, with merchandise exports increasing by 16.9 percent and merchandise imports, 15.3 percent. Consequently, the current account deficit is projected to narrow down to RM17 billion from RM17.8 billion last year, despite a continued large deficit in the services account. The central bank would concentrate on measures to ensure sustainable economic growth for the country, with price stability and external equilibrium, he said. Efforts would also be strengthened to promote savings. Gross national savings is projected to increase by 14.7 percent to RM79.4 billion, or 34.8 percent of gross national product (1995:RM69.2 billion, or 34.2 percent of GNP).

Manufacturing growth in 95

sector

maintained

double-digit

Monday, April 1 1996 The Star The performance of the manufacturing sector remained strong in 1995, maintaining its double digit growth rate for the second consecutive year, at 14.5 percent in 1994. Its share of gross domestic product (GDP) rose from 3.6 percent in 1994 to 33.1 percent Expansion in both the export oriented industries were maintained at 15.2 percent and 13.5 percent respectively, compared with 16 percent and 13.5 percent in 1994 The expansion of exportoriented industries were spearheaded by the strong growth in the electronics and electrical products sector the growth in the domestic market-oriented industries was mainly in those producing fabricated metal products, transport equipment, petroleum products, construction -related materials and rubber products. Manufacturers had responded to the labour shortage situation by undertaking strategic shifts towards

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high technology production processes and other labour saving techniques. Efforts were made to enhance and upgrade skills to meet the increasing need for skilled and technical workers. In this regard the Human Resources Development Fund was set up in 1993 to assist in financing schemes to upgrade the skills of workers Guidelines were also issued during the year to discourage labour intensive projects, specifically projects with capital investment per employee of less than RM55,000 would not be approved unless with special justifications. Bank Negara Malaysia Annual Survey of Companies for 1995 revealed that the average rate of capacity utilisation increased from 85 percent in 1994 to 88 percent in 1995. The survey respondents expected the prospects for the manufacturing sector remain favorable in 1996 with total production projected to increase further by 13.6 percent and overall sales to grow by 17.7 percent. The Malaysian Industrial Development Authority (MIDA) Bi Annual Industrial Trends Survey for 1995 also indicated a stronger-than expected performance in the manufacturing sector. During the period under review, however the average cost of production increased by 6.2 percent mainly on account of the increases in the average cost of labour and local raw materials. Total credit extended to the manufacturing sector by the banks expanded significantly by 28.8 percent

to RM48.1 billion as at end-1995 compared with a growth of 18.7 percent to RM37.3 billion in 1994. MIDA statistics showed that the applications to establish manufacturing projects were higher at 1075 compared with 1018 in 1994. The total value of applications increased by RM1.7 billion or seven percent to RM26.1 billion in 1995 from 1994. According to bank Negara 1995 Annual report, the construction sector was expected to expand by 11 percent in 1996, the eighth consecutive year of double digit increase. The sector recorded 15 percent growth in 1995 (see newspaper cutting). Activity would be mainly supported by sustained demand for landed residential properties and the continued implementation of on-going large infrastructure projects. The increased demand for housing during the last two years was fuelled primarily by the higher income levels and sustained economic growth, easy access to financing as well as expectations of potential capital appreciation. The constant level of strong construction activity has led to severe supply bottlenecks of cement in 1995. To a certain extent, the ceramic tiles industry was affected by the shortage. However, with the government effort to ease the situation by allowing the import of cement, the ceramic tiles industry will set for a rebound (see newspaper cutting).

Construction industry will still play supportive role

JUST as in the past seven years, the construction industry is expected to continue playing its strong supportive role in the economic development of

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the country this year, according to Bank Negara The central bank said in its 1995 annual report that the construction sector is expected to expand by 11 percent this year, the eight consecutive year of double digit increase. The sector recorded 15 percent growth last year. Activity will be mainly supported by sustained demand for landed residential properties and the continued implementation of on going large infrastructure projects. In 1995, data showed that the demand for residential houses on the fringes of Kuala Lumpur was also favorable as the prices became more favorable. A total of 156915 residential property transactions, both new and existing, valued at RM15.8 billion were recorded during the year. The total value of housing loans extended grew by 18.1 percent or RM5.1 billion to RM33.1 billion as at end 1995. But demand for condominium, particularly for the high end units was generally slow, reflecting the possible saturation of the market for this subsector. Another sector was the dampened foreign investment in the condominium market, reflecting to a certain extent the revised regulations on the acquisition of properties by foreigners to minimize speculation.

As at end of 1995, there were 114 projects comprising 29282 apartment units under various stages of construction in and around Kuala Lumpur. By end of 1998, the stock of condominium would be at least 70577 units Overall, the increased demand for hosing during the last two years was fuelled primarily by the higher income levels and sustained economic growth easy access to financing as well as expectations of potential capital appreciation. However the implementation of low cost housing under the governments special programme remained slow, with an estimated 13046 units completed in 1995, said the report. It noted that additional concessionary financing including raising the special low cost housing package fund to RM2.6 billion would contribute towards the provision of adequate and affordable shelter for the low income groups. Bank Negara said its lending guidelines would continue to promote owner occupied houses costing RM100000 or less, and this policy had received good support from the banking system. During the year 447 housing projects involving projects involving 87056 units valued at RM4.5 billion were abandoned. Of the total, 254 were revived.

Ceramic tiles industry set for a rebound

The ceramic tiles industry which was hard hit by the cement shortage that led to a slowdown in the construction industry last year, is set for a rebound. The worst is over. This year, we are gearing up for better times, said Kim Hin Industry Bhd group managing director Johnnie Chua.

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Kim Hin is one of the countrys two largest ceramic tile manufacturers, commanding about 23 percent of the market. Chua said orders for the tiles had started coming in and he expected this to further improve after the Chinese New Year and Hari Raya celebrations.

We are running at only 70 percent of our production capacity and we hope to bring it back to 85 percent We are now holding a four month stock and we expect to bring it down to the normal one to two moths, he said - By JACK WONG in Kuching.

Three Chinese cement firms get green light

By M KRSINAMOORTHY KUALA LUMPUR; Only three cement factories of 20 in China approved earlier by the Government will be allowed to export to Malaysia. Malaysia importer getting their supply from other sources besides the three will have to send samples for testing and certification when the cement arrive. Works Minister Datuk Seri S. Samy Velu said only the three met with the quality standards prescribed by the construction Industry Development Board and SIRIM. Five officers from the two organizations inspected several factories and only approved these factories producing high quality cement as they are able to supply in large quantities to Malaysia. The brands are Luhong 525R produced by Lu Nam Cement factory, Dunshi 525R by Jidong Cement factory and Black Diamond 535 by Shandong Zibo Cement factory. From September until 23, Samy Vellu said Malaysia imported 671000 tons of cement. Malaysia will import cement as a local producers cannot meet the increasing demand due to rapid development in the construction industry. Until the end of this year, local production is estimated at 12.9 million tons while the demand at 13.4 million tons. On landslides occurring around the country, Samy Vellu said that he had directed about 70 Public Works Department engineers to submit reports of potential landslide areas in their districts.

[End of newspaper cuttings]

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Appendix A
GUCCIRA Tile Industries (Air Hitam ) Sdn Bhd Profit and Loss account for year ending 30 June Net Sales Manufactured sakes Gross profit 2002/03 30794245 of 26788625 4005620 609400 1162146 618041 2389587 1616033 198987 51900 1763120 2003/04 34828551 29197699 5630852 658995 1203597 889929 2752521 2878331 77 54300 2824108 2004/2005 34087484 29710023 4377461 958594 1317515 1049462 3325571 1051890 363134 41600 1373424

Cost

Expenses Selling & Distribution Administration on Financial Total Operating Expenses Operating Profit Other Income/(Expenses) Less : Management Fees Profit Before Taxation

Appendix B GUCCIRA Tile Industries (Air Hitam ) Sdn Bhd Balance Sheet as at 30 June 2002/03 24455 10546 3449 0 8095 2444 172 24706 3631 2875 9493 3950 0 710 20659 4047 28502 10000 5000 948 14944 20892 7610 28502 RM000 2003/04 27743 10468 5236 82 255 4174 900 21115 4651 2468 827 3654 0 1133 12733 8382 36125 10000 5000 948 15908 21856 14269 36125 2004/2005 37011 8935 4987 0 578 2790 990 18280 10522 2393 1768 4375 0 384 19442 (1162) 35849 10000 5000 948 16338 22286 13563 35849

TOTAL FIXED ASSETS CURRENT ASSETS Stock & WIP Trade Debtors - Related Co. Trade Debtors - Others Amount Due from Related Co Other Debtors Bank & Cash Balance TOTAL CURRENT ASSETS CURRENT LIABILITIES Bills Payable Trade Creditors amount Due To Related Co Other Creditors Bank Overdraft Provision for Taxation TOTAL CURRENT LIABILITIES WORKING CAPITAL TOTAL ASSET LESS C. LIABILITY AUTHORISED CAPITAL ISSUED & FULLY PAID REVALUATION RESERVE UNAPPROPRIATE PROFIT TOTAL SHAREHOLDERS EQUITY LONG TERM & DEFERRED LIABILITY