LOCAL NEWS

Proton closed its financial year - which runs from April to March each year - recording a profit before tax (PBT) of RM28.2 million on revenues of RM7.8 billion. These figures were revealed on the back of Proton’s Q4 results (first quarter of 2006), chalking up RM1.8 billion in revenue and a PBT of RM95.3 million, marginally lower than RM96 million profits in Q3 which was for the fourth quarter of 2005. This is also in marked contrast to a loss of RM4.3 million in Q1, and a loss of RM158.8 million in Q2 of this financial year (Q2 and Q3 of calendar year 2005). The relatively strong comeback was achieved in spite of what Proton MD, Tuan Syed Zainal Abidin, described as a “challenging year”.

At group level, Proton generated a PBT of RM28.2 million for the financial year, lower than the RM412.3 million recorded in the previous corresponding year. The reduced profit was attributed to lower sales, higher allowances for doubtful debts and promotion costs, higher components cost and allowance for stock obsolescence. The reduction was also due to 28% lower income figures from associated and jointly controlled entities.

“Q4 results reflect a more financially-resilient Proton as a result of tighter cost control despite a nationwide dip in sales of passenger cars of 9%,” said Tuan Syed Zainal.

“However,” he warned, “intense competition in both domestic and export markets are expected to continue to put pressure on Proton’s sales and profitability. Compounded by higher oil prices and increases in electricity tariffs, purchasing power will be further depressed, resulting in a margin squeeze for Proton. In addition, the hardening of interest rates and tighter credit controls by financial institutions will continue to dampen car sales,” he said.

It is interesting that the Proton Board made a decision to change some previous accounting policies in the interests of presenting a ‘clearer view of the financial situation’ of the company to the shareholders and the public. For this reason, some figures in the unaudited accounts provided to the media appear to be different from what was reported earlier.

At today’s briefing on the financial year, Tuan Syed Zainal also spoke about alliances with various overseas parties. While the discussions with Mitsubishi Motors are nearly done and there is a specific model to be adapted for Proton’s needs (this is a large-sized model in the Perdana class, as speculated in our earlier report), the company is also having serious discussions with the Peugeot-PSA Group of France.

“We can’t reveal what we are discussing at this time but I can say that the scope is much broader than with our other potential alliance partners and the French understand our position on certain issues which are sensitive to Proton,” said Tuan Syed Zainal. He did not indicate when a MoU would be signed but as with all ongoing discussions, there are time-frames set so that things don’t drag on pointlessly as what happened with the VW deal earlier. Presumably, Proton and its potential partners either come to an agreement by a certain date and move forward or if they cannot, an end to the negotiations is executed properly so that neither party remains in the dark on whether anything is going to happen.

Proton is also in discussion with two parties in China (“Only two,” stressed the Proton MD), one of them being Chery. The other company is the Jinhua Youngman Automobile Group which is dealing more with Lotus Engineering, a subsidiary of Proton, and it is Proton’s intention to have Lotus Engineering pursue more business ties in China since they have the services that would be in demand. With Chery, it seems that there may be a joint effort whereby Proton will assist Chery in entering the Asean market while Chery will help Proton to get into China.

Tuan Syed Zainal also mentioned India as another potential market which Proton wants to get into and is having discussions with a party that cannot be named at this time.

Sales of the Wira are underway in Indonesia to taxi operators. For now, the cars are shipped in CBU form to that market as it was found that there was no price advantage to assemble there (even though Proton has an assembly plant there). Tuan Syed Zainal hinted that in future, all Wira production may be transferred to Indonesia… which means that there will have to be a model to replace it in that class.

Prior to the press conference, the Proton MD personally gave the media a sneak preview of some models to come within the nest 18 months. The ‘SRM’ is no secret and is very close to being launched, and the various concept SRM models that the R&D people have conceived show that it can be a very exciting product to market.

Proton will launch a number of new models within the next 18 months, two of which will be significant. The company will also have a MPV model before long (right picture shows a concept model displayed two years ago).

The Peugeot-PSA Group is in discussion with Proton on an alliance which is said to have a very broad scope.

There are also the periodic facelifts coming and from what was shown and what was said, it is very clear that Proton is truly listening to customer comments. No longer is it producing what it ‘thinks’ people should have but actually giving people what they want, which is the way any business that wants to succeed should operate. It is fatal to push products that the market never asked for because people just won’t buy them and stocks will pile up, not to mention the investment being wasted.

For now, Proton has to quickly rationalize its product line-up while meeting customer demands. Tuan Syed Zainal said that production and development costs will be moderated by making full use of existing platforms and proven components and systems as well as drawing on ‘off-the-shelf’ parts that can be obtained at low cost. This is a strategy which has long been used by Toyota and has saved them millions, allowing them to spend more money on product development and manufacturing facilities.

Well aware that Proton ‘missed the boat’ on the MPV and SUV market, it is now quickly trying to develop such models. “We can do it but it cannot happen overnight but we definitely have such models on the drawing board,” said Tuan Syed Zainal and he showed a few of the ideas that are being explored by Proton.

He provided a rough time-frame for new model launches and there will be a few between now and the end of 2007, among them two very significant new models. However, he was cautious in making any promises on product introduction dates which is far better than declaring that a car will be launched by such a date and when it fails to appear, some credibility is lost (which happened with the previous CEO).

From what was seen of the coming products, Proton has a strong chance of winning back market share in future. Much time and effort was wasted on models which failed to appeal to Malaysians and now it is going to give the public what they ask for. Of course, Malaysian buyers also want to see the cars having better quality than before otherwise even the most exciting and affordable product is still not going to get sold easily.

The refreshed line-up of Proton models to come should help regain lost market share – provided quality levels are also improved and kept consistently high.