trading and food group EAC expects to double capacity in its Venezuelan food
unit by 2012 and sees growth opportunities through bolt-on acquisitions at its
South East Asian ingredients distribution business.
East Asiatic
Company (EAC) Chief Executive Niels Henrik Jensen told Reuters in an interview
on Wednesday the group’s Venezuelan processed meats business would regain
market share as the business adds capacity in the coming four years through a
$120-million expansion plan.
“As we
expand the capacity we expect to grow the top line, but we will see margins
return to more normal levels as we go back into the mid-market segment that
we’ve left to our competitors while capacity was constrained,” he said.
EAC is the
market leader in processed meat in
about 40 percent, with several strong brands, although its slice has dropped
over the last two years due to capacity constraints. The unit represents about
60 percent of total group sales.
The operating
margin for the business was 15.1 percent in the first six months of 2008,
compared to 14.6 percent in the year-ago period. In the corresponding months of
2006 and 2005 it was 7.3 percent and 8.5 percent.
Jensen said
that one of the big drawbacks of working in
political risk — a view he does not share.
The second
drawback is that, with a fixed currency and high inflation, devaluations can
and occasionally do occur in the OPEC nation of 28 million.
“But
we know what happens when a devaluation takes place and we know how to get back
to where we were in our market and in our earnings,” he said.
Jensen
estimates it would take EAC about six to eight months to adjust its market
position to counter a typical devaluation of 10 percent to 15 percent.
Once the
largest company in
world-spanning shipping service, EAC at the end of the 1970’s found itself
laden with debt and spread too thin over dozens of businesses.
After years
of slow decline, the Asian crisis of 1998 brought the company’s business model
to a virtual halt.
Management
then identified just four businesses out of close to 60 that had prospects of
sustainable growth and where the company could take a leading market position. EAC
divested the rest, paid off its mountain of debt and was left with four
disparate but viable business units.
After the
divestment in 2005 of its Nutrition arm, the group has three businesses: Moving
and Relocation, which provides relocation services to companies and relocating
families throughout Asia; Industrial Ingredients, a chemicals distribution
business based in Asia; and Foods, in Venezuela.
Jensen said
he had yet to see any effects or spill-over from the financial crisis, because
the company has no real net debt and, so far, both
have been relatively untouched by the global crisis.
“We
haven’t seen any downturn in the economy in
and we haven’t seen any exodus from our moving and relocation customers there,”
he said.
In
Industrial Ingredients, Jensen sees growth opportunities from bolt-on
acquisitions and from continued geographical expansion throughout Asia,
emulating the platform already created in
“So we
see that as a growth prospect and we aim to be market leading not just in
the region,” he said.
The Moving
and Relocation business is already the market leader in its segment in South
East Asia and recently expanded to
customer demand.
