The year 2006 was a challenging year for the Group. The Group was affected with rising material cost as oil and metal prices hit new highs in 2006. The tariff hikes on utilities i.e. water, electricity e.t.c and high inflation rate averaging at 3.6% in Malaysia had resulted in higher production cost to the Group’s manufacturing activities. This has translated into lower profit before tax for the Company to RM 5.6 million despite a growth rate of 7.3% in the Group’s revenue.

BUSINESS REVIEW

The Group experienced slowdown in the domestic market especially in the beginning of the year. Projects were delayed and downsized. There was private consumption pullback while awaiting the release of the Ninth Malaysian Plan. The limited domestic projects created stiff competition among industry players. Domestic sales however improved in the second half of the year with more projects carried out. Telekom Berhad, KLCC Petronas Twin Towers and Daya Bumi, Air Asia, HSBC Bank and Shell Malaysia were among some the domestic projects completed by the Group in 2006.

On the contrary, export sales continued its uptrend and rose to 64.5% of turnover, a commendable increase of 10% from 54.5% in 2005. India remains the Group’s top contributor to the Group’s revenue, benefiting from the significant development growth rate in India. The development rate in India is expected to remain h3 for the next few years in view of the continued blossoming of new information technology, telecommunication and multinational companies especially in Hyderabad, Chennai, Bangalore and Mumbai. Sales to Singapore and Japan had also seen a satisfactory growth rate. Some of the overseas projects completed in 2006 included SAP Labs, Tata Consultancy Services and Satyam Computers Services in India and Conoco Philips in Indonesia.

We also managed to secure an Original Design Manufacturing (“ODM”) contract with Godrej & Boyce Mfg Ltd Co, India in June 2006 to design, manufacture and supply a range of modular workstation to Grodrej for the Indian market. Godrej is a conglomerate with diversified operations that is a house-hold name in India with annual turnover in excess of USD 1 billion. This is the Group’s first ODM project in India and it signifies the acknowledgement of EURO’s well designed quality office workstations there. The securement of this contract is also in line with the Group’s strategies to develop the contract manufacturing market. As the contract was only signed in the middle of the year, it did not contribute significantly to the Group’s revenue in the year 2006. It is however expected to soar in the next few years. This area of business is viewed as additional stable revenue contribution to the Group with minimal capital outlay.

MARKETING AND BRANDING

Our promotion efforts had always been very specific and focused. The Group actively participated in numerous international trade fairs in 2006 to promote the “EURO” brand name for expanding existing market and creating in-route into new markets. We took part in the Orgatech International Trade Fair at Koln, Germany, Malaysian International Trade Fair at Putra World Trade Centre in Kuala Lumpur, Martrade’s Showcase in Moscow and Office Furniture Fair in Dubai.

Our products and brandname were also featured in numerous furniture trade magazines and functions. One such event is our participation and co-sponsorship of the Asia Pacific Designers Association (“APSDA”) Congress, organized by the Interior Designers of Malaysia in November 2006. The APSDA Congress was the gathering for Interior Designers/ Architects from twelve countries over the Asia Pacific Region. Its main objectives being networking, exchange of information and knowledge among its members and to create a better understanding between the many varied and diverse cultures. This was a good oppurtunity for EURO to foster closer relationship and showcase our company and products to the various interior designers and architects in this region.

NEW PRODUCT LAUNCHES

Two ranges of chairs namely, Senses and Smart were launched during the 2006 Malaysian International Furniture Fair. We also introduced a new version of Workstation i.e. Space 4, equipped with new accessories that suit the office lifestyle of today. The Research and Development team will pursue to assimilate the latest styles, materials and trends which are both aesthetic and functional while integrating ergonomic features and durability.

PLANT EXPANSION

Several measures have been taken in line with the plant expansion to provide additional capacity. One of them is the construction of the third plant in Rawang which was completed in December 2006. It will be fully operational by second quarter of 2007. With the completion of the third plant, the Group had also embarked on developing our own in-house epoxy process, equipment and installation of new machineries and modern plant facilities to increase productivity and improve product quality. We are confident that the expansion will contribute positively to the Group’s future performance via economies of scale in addition to capitalising on our technical know how in the furniture industry.

LOOKING AHEAD

The market condition for the coming financial year is expected to remain highly competitive and challenging. The Group will have to expand amidst an environment of persistently high raw material prices, changes in global demand conditions and increasing competition from other industrial players. The Group will find innovative ways to strive for exellence through improvement in productivity, cost saving and delivering high quality products. We expect there to be sustainable domestic demands from the strong economic fundamentals, including private investment and steady consumer spending. Coupled with new international markets enrolled by the Group and with the application of appropriate business strategies, we hope that year 2007 will be a year of stable earnings.

 

LEW FATT SIN
Group Managing Director