30 July 2007 - EAC has entered an agreement to acquire the Malaysian business Akashi Sdn. Bhd. with ef-fect as of 30 July 2007. Akashi formulates, markets, sells and distributes specialty chemicals and industrial ingredients in Malaysia and complements EAC Industrial Ingredients' existing activities in the country. Following the acquisition, EAC Industrial Ingredients is expected to achieve an annual revenue of around DKK 110m in Malaysia, which will make the country the business' fourth largest market after Thailand, Vietnam and Indonesia.
As a result of the acquisition EAC will also become 50% shareholder of the Malaysian com-pany Amochem Sdn. Bhd., which today is jointly owned by Akashi and the Dutch company BRB International. Amochem formulates silicone products and based on BRB International's technological competences and EAC Industrial Ingredients' distribution strength towards in-dustries in South and South-East Asia, it is expected that Amochem's sales can be increased significantly. Amochem Sdn. Bhd. will be included in EAC's accounts as an associated com-pany.
Akashi was founded in 1991 by a group of Malaysian investors. The company has 57 em-ployees at an integrated facility in Shah Alam in the outskirts of Kuala Lumpur with offices, warehouses, laboratories and production/formulation facilities. Akashi is an exclusive dis-tributor for a number of international manufacturers/producers of among others, polyurethane, ingredients for paint and coating, glue, optical fibres, silicone products, food ingredients. As part of the operation, Akashi also formulates certain silicone and polyurethane products. The company's customers comprise some of the same core industries, which EAC Industrial In-gredients is addressing, including manufacturers of food products, personal care products and industries within rubber and paint. The suppliers of Akashi and EAC Industrial Ingredients Malaysia complement each other without conflicts.
In 2006, Akashi had revenue of MYR 51m (DKK 82m) and an operating margin (EBIT) of 3.4%. The relatively modest earnings are partly due to Akashi's product mix and partly due to lack of financial strength to expand the portfolio of suppliers and thereby expand the client base in and outside Malaysia. EAC expects, that based on synergies derived from EAC Indus-trial Ingredients' activities, it will be possible to accelerate Akashi's growth and bring the op-erating margin up to 5-6% in a couple of years.
In the financial year of 2006, Akashi's total assets amounted to DKK 60m, which among oth-ers represents trade accounts receivables and inventories. In addition, Akashi owns office -, warehouse - and production facilities used for the core business.
In the short term, there are synergies in integrating EAC Industrial Ingredients' and Akashi's activities in the Kuala Lumpur area at Akashi's facilities, which in future will house approx. 75 employees under management of Mr. K.C. Lim, EAC Industrial Ingredients' General Manager in Malaysia. Moreover, customers in the southern part of the country will be served by an office in Johor Bahru. The most important business synergies will be derived by com-bining Akashi's strengths - in particular the international agencies and experiences within formulation - with EAC Industrial Ingredients' regional sales and distribution network and strong competences within technical services and supply chain management. EAC is expect-ing that the combined operation in Malaysia due to its size will benefit from economies -of -scale and become a very attractive partner for foreign suppliers.
Akashi will be included in EAC Industrial Ingredients' accounts for five months of 2007 and will increase the business' revenue, whereas the acquisition is not expected to impact 2007 earnings. EAC Industrial Ingredients revises its expectations to a growth in revenue of around 20% in local currencies (16% in previous outlook). Operating margin is still expected to be above 8%, however below the exceptionally high level of 9.5% in Q1 2007.
Today, EAC Industrial Ingredients' distribution network covers eight Asian markets - Thai-land, India, Vietnam, Indonesia, the Philippines, Malaysia, Singapore and Cambodia from 18 offices, and represents more than 150 international manufacturers of industrial ingredients. The business strategy is to become market-leading one-stop supplier to selected industries in the current markets, and at the same time establish a position in new markets. Acquisitions are an important tool in this process, and EAC Industrial Ingredients will continue investigating acquisition opportunities in both existing and new markets.