Proton Edar Consumer Market - PDF

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					Chairman’s Statement

The Malaysian economy for the year 2002 saw real GDP on the whole
expanding by 4.2 per cent as opposed to 0.4 per cent in 2001. The growth,
according to Bank Negara Malaysia, was broad based, reinforced by
sustained strength in consumer spending and improved external demand.
Domestic demand, in particular consumer demand, continued to be resilient
enabling the private sector to take the role in leading growth. On the overall,
growth was attained amidst a low inflation environment and stable labour
market conditions.

Given this economic environment, Edaran Otomobil Nasional Berhad (EON) was
able to post a rise in Group pre-tax profit for the year ended 31 December 2002
amounting to RM905.9 million, the highest ever in its corporate history.
On behalf of the Board of Directors, I am therefore pleased to present the
2002 annual report.

The core businesses of EON for the year under review are             During the year under review, national car sales stood at
in the automotive and the financial services sectors. Going          328,638 units reflecting a 91 per cent share of the passenger
forward in 2003, the Group will be focusing on the                   car market. Proton car sales stood at 214,373 units with
automotive sector.                                                   EON commanding 60 per cent at 127,859 units.

Automotive Industry                                                  Whilst demand for motor vehicles remained strong for a
According to the Malaysian Automotive Association (MAA),             large part of the year, sales towards the end of 2002 were
the total industry volume (TIV) for 2002 registered a 9.7 per        affected as consumers held back on purchases in view of
cent growth to 434,954 units, the highest ever recorded.             the uncertainties of the ASEAN Free Trade Area (AFTA).
The sale of passenger cars, in particular, totalled 83 per
cent or 359,934 units.                                               Banking And Financial Services Industry
                                                                     The monetary and fiscal policies were strongly supportive
Motoring consumers were spoilt for choice in 2002. With              of sustaining growth. Financing to households continued to
more models and variants emerging in the local automotive            be sustained at 14.5 per cent in line with the stronger
market, industry players faced a challenging time competing          growth in private consumption. As loan growth continued to
for market share.                                                    rise at a higher rate of 4.3 per cent in 2002 (3.6 per cent in
                                                                     2001), Malaysia’s banking system gained further strength,
In addition, the aggressive marketing approaches adopted             given increased capitalisation and rising asset quality. As at
by a number of distributors to boost sales also left                 end of 2002, net non-performing loans in the banking system
consumers with an alternative to the Proton marque,                  had declined to 7.4 per cent from 8.1 per cent at the end of
especially with the difference in pricing perceived to be            2001 and risk-weighted capital ratio (RWCR) was sustained
marginal as a result of attractive financing packages and            at 12.8 per cent.
innovative schemes.

Edaran Otomobil Nasional Berhad (119767-X)
Chairman’s Statement

Ample liquidity and low interest rate conditions prevailed throughout 2002.
Notwithstanding the increased demand for credit, competition among the
banks saw average lending rates trending downwards, adversely affecting

For the year ended 31 December 2002, Group revenue eased 1.6 per cent to
RM7,427.7 million against RM7,548.3 million recorded in 2001. Despite this,
the Group recorded its highest pre-tax profit of RM905.9 million. This
represented a 10.4 per cent increase over the performance in 2001. Profit
attributable to shareholders improved by 5.9 per cent to RM476.6 million in
2002 from RM449.9 million in 2001. For the year under review, the Group
registered earnings per share of 208 sen compared to 197 sen per share in

The motor sector recorded pre-tax earnings of RM302.5 million compared to
RM380.9 million in the previous year. The lower profits were due to increased
competition and higher cost of promotions.

Pre-tax earnings of the banking and financial services sector grew by 18.4
per cent to RM398.1 million in 2002 from RM336.1 million recorded in 2001.
This was achieved on the back of lower loan loss provisions, higher net
operating income on a larger loan base and higher fee and commission
income, partly offset by higher provision for diminution in value of investment

Contribution from the Company’s associates increased significantly to
RM193.9 million in 2002, up 87.4 per cent from 2001 due primarily to the
improved performance of the Cycle & Carriage Ltd (CCL) group. The CCL
group recorded higher earnings with stronger trading profits from PT Astra
International Tbk and foreign exchange gains due to the strengthening of the
Rupiah currency.

In the past few years, EON has been consistently rewarding its shareholders
with generous dividends of 65 sen per share less 28 per cent tax annually.
During the year under review, the Company paid a special interim gross
dividend of 425 sen per share less 28 per cent tax in December 2002, the
highest dividend rate ever paid out in Malaysian corporate history. This is in
addition to the interim gross dividend of 25 sen per share less 28 per cent tax
paid in October 2002.

Edaran Otomobil Nasional Berhad (119767-X)
The Board of Directors is pleased to recommend a final             Corporation Sdn Bhd and Ceria Alam Sdn Bhd. The Company
gross dividend of 40 sen per share less 28 per cent tax            has also proposed to distribute its entire equity in ECB at
(2001 – 40 sen per share less 28 per cent tax) in respect          zero subscription cost to its shareholders.
of the financial year ended 31 December 2002 which
is proposed to be paid on 12 June 2003, subject to                 On 4 December 2002, EON, through its wholly-owned
shareholders’ approval at the forthcoming Annual General           subsidiary, Euromobil Sdn Bhd signed a letter of intent with
Meeting of the Company.                                            Volkswagen AG and a letter of appointment with Audi AG
                                                                   to appoint the company as the sole importer, franchiser
This would bring the total gross dividend to 490 sen per           and distributor for Volkswagen and Audi passenger cars in
share less 28 per cent tax (2001 – 65 sen per share less           Malaysia commencing 2003.
28 per cent tax) in respect of the financial year ended 31
December 2002.
                                                                   PROTON DISTRIBUTION ARRANGEMENT
                                                                   EON and Perusahaan Otomobil Nasional Berhad (PROTON)
CORPORATE DEVELOPMENTS                                             have come to an agreement on the distribution arrangement
On 17 October 2002, the Company disposed its entire equity         of the Proton vehicles. The Company signed a Memorandum
interest in EON CMG Life Assurance Berhad for a cash               of Agreement (MoA) with PROTON’s wholly-owned subsidiary,
consideration of RM48.9 million realising a gain of RM15.4         Proton Edar Sdn Bhd (Proton Edar) on 31 March 2003,
million at the Group level.                                        appointing EON as a Super Dealer commencing from 1 April
                                                                   2003 to 31 December 2009.
On 11 November 2002, the Company divested 7.9 per cent
equity interest in CCL pursuant to the Partial Offer by            The MoA is a win-win conclusion to the prolonged negotiations
Jardine Strategic Holdings Ltd for a total cash consideration      pertaining to the distributorship agreement between EON
of RM194.8 million registering a gain of RM20.2 million at         and PROTON, and reaffirms EON’s commitment to remain as
the Group level. The Company’s equity interest in CCL is reduced   a major player in the national car project.
to 13.1 per cent following the divestment. The Company has
proposed that these remaining shares be distributed at zero        As a Super Dealer, EON will undertake the sale of Proton
subscription cost to its shareholders.                             vehicles through its existing network of sales branches and
                                                                   dealers. EON will be allocated a minimum of 100,000 units
The Company’s equity interest in EON Bank Berhad (EBB)             per year by Proton Edar. The Company will provide after
was reduced to 46.6 per cent following the completion of           sales support for the Proton vehicles in Malaysia through its
the corporate exercise involving the listing of EBB through        service branches and franchise service dealers on a multi
EON Capital Berhad (ECB) on the Main Board of Kuala Lumpur         brand basis.
Stock Exchange on 23 December 2002. The exercise which
involved EON exchanging its holding of EBB shares for              Existing margins of EON on all models currently sold by EON
322,944,403 shares in ECB and cash of RM252.1 million              shall be maintained. Margins for all other models and
registered a loss of RM16.0 million at the Group level.            variants not sold by EON shall be mutually agreed but EON
                                                                   as a Super Dealer shall be allowed a preferential margin
EON’s equity interest in ECB was subsequently increased to         from the other dealers.
50.1 per cent on 17 February 2003 after the implementation
of the conditional mandatory offer pursuant to the Malaysian
Code On Take-Over and Mergers 1998, and the call and
put option agreements entered into with RH Development

Edaran Otomobil Nasional Berhad (119767-X)
Chairman’s Statement

As a Super Dealer, the Company will not be required to              On the community front, EON shared festive cheer with the
contribute upfront towards PROTON’s product development             senior citizens at the Rumah Orang Tua Kenangan during
costs.                                                              Chinese New Year and orphans from the Klang Valley in the
                                                                    month of Ramadan.
The new arrangement facilitates the pooling of EON and
Proton Edar’s resources to rationalise and streamline the
                                                                    CORPORATE GOVERNANCE
sales and after sales service of Proton vehicles, leading
to the consolidation and strengthening of PROTON’s                  To protect and enhance shareholders’ value, the Board of
brand presence, a key strategy in the face of AFTA. Proton          Directors remains committed to ensuring that the highest
customers can now look forward to a wider network in                standards of corporate governance are observed throughout
sales and after sales support from both EON and Proton              the Group as an imperative part of discharging its
Edar, thereby enhancing customer service satisfaction for           responsibilities. In a separate section of this annual report,
the Proton marque.                                                  a comprehensive disclosure of EON’s corporate governance
                                                                    is presented.
The MoA also allows EON to market other marques under
separate entities and on separate premises.                         PROSPECTS
                                                                    Bank Negara had recently projected a 4.5 per cent GDP
SPORTS, CULTURE AND COMMUNITY SERVICE                               growth for 2003. However, the Malaysian Institute of
Supporting the pursuit of local badminton excellence,               Economic Research had on 15 April 2003 reduced its
EON contributed RM1 million to the Badminton Association            economic forecast for 2003 to 3.7 per cent from the 5.7 per
of Malaysia (BAM) under a five-year Sports Partnership              cent it had projected earlier as the country is entering a
Programme. This had contributed significantly to producing          slowdown due to the effects of the Iraq war and the fallout
world-class players.                                                from the Severe Acute Respiratory Syndrome outbreak.

The year 2002 was also a successful year for the Petronas           Mixed consumer sentiment, anticipation of AFTA, softening
EON Racing Team (PERT) when its lead driver, Karamjit               in the used car market, increased competition and global
Singh clinched the 2002 FIA Production Car World Rally              uncertainties will continue to impact the automotive market
Championship (WRC) and overall Asia Pacific Rally Championship      and put pressure on sales volume and margins. The financial
(APRC) titles. He is the only Asian driver in rallying history to   services sector is expected to achieve a moderate growth
have accomplished such a feat and is Malaysia’s first world         in 2003.
champion in motor sports.
                                                                    The proposed re-organisation of the Company’s interest in
The Company’s contributions to the arts included the                ECB is scheduled to complete in 2003. Upon completion of
sponsorship of Hadiah Sako, an annual award organised               this exercise, the banking group’s earnings will no longer
by Utusan Malaysia in recognition of outstanding local writers,     form part of the Group’s results. With the cessation of equity
and the sponsorship of one of Malaysia’s top singers,               accounting of CCL group’s results with effect from
Siti Nurhaliza who represented the country in the International     December 2002, the Group’s earnings in 2003 will only
Song and Festival Contest held in Kazakhstan.                       comprise profits from the Malaysian motor operations and
                                                                    the banking group up to the date of completion of the
                                                                    proposed re-organisation.

Edaran Otomobil Nasional Berhad (119767-X)
I am extremely grateful to the many loyal and valued customers for their support, allegiance,
and the valuable interaction offered that has helped the Group to better serve its customers.
EON’s success for the year 2002 is attributed to their continued confidence in the Group.
For this, I wish to thank them.

I would also like to thank PROTON and Proton Edar for agreeing to an MoA with EON on the
sale and after sales support of Proton cars for the next six and a half years. The MoA, a
prelude to a Super Dealer Agreement, strengthens the Proton marque and ensures that
in the lead up to AFTA, Proton cars will remain competitive and the preferred choice of customers.

To our shareholders, dealers, suppliers and contractors, the Government and all parties
involved in the success of EON, I would also like to express my appreciation and gratitude for
their contribution and support in making it another excellent year for EON.

I would like to thank our Director Dato’ Yatina bte Yahaya who resigned on 17 October 2002
for her invaluable contributions during her tenure on the Board and to welcome Encik Ahmad
Othman bin Yahaya who joined the Board on 18 October 2002. I would also like to welcome
Mr Adam Keswick who has been appointed Alternate Director to Mr Anthony Nightingale on
4 February 2003.

Finally, the continued strength of the Group has been due to the commitment of the
management and employees. I am indeed grateful to them for their contributions.

Tan Sri Dato’ Seri Mohd Saleh bin Sulong

Edaran Otomobil Nasional Berhad (119767-X)

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