10 September 2008 - Vietnamese MSG and glutamic acid manufacturer Vedan has announced that its net profit for H1 2008 grew 13% to USD 8.5 million on the year. H1 turnover, meanwhile, amounted to USD 182.7 million, up 24.5% as compared to H1 2007.
Vedan's MSG operations recorded a growth of 19.7% in Vietnam and a substantial 51.9% growth in China, mainly thanks to the increased competitiveness of export from its Vietnamese plant and the enhanced MSG brands and stronger channels in China. Overall turnover for MSG amounted to USD 118.9 million, up 24.4% on the year.
Taking into account the strong demand for MSG in the period, Vedan shifted part of the production capacity of glutamic acid in Vietnam and China to produce MSG of higher added value, the company said. However, as a result, turnover from the glutamic acid business dropped 34.3% to USD 12.6 million.
"Since the second half of last year, export of the Vietnam plant increased as a result of change in the exchange rate of different currencies, difference in magnitude of adjustment of raw material prices and the economic policies adopted by different governments. However, the continuous rise in overall raw material and fuel costs suppressed the Group’s profitability", Vedan said in a statement.
In China, Vedan noticed that the market, which is going through consolidation, made the competitive landscape appear "chaotic". This, combined with high raw material and fuel costs, affected Vedan's MSG profit growth in China. Turnover from Chinese MSG operations accounted for 65.1% of the Group’s total turnover, similar to the level in the same period last year, while the turnover from glutamic acid dropped notably from 13.1% to 6.9%.
Continuing the notable growth of 51.9% recorded in 2007, Vedan's modified starch segment reported a growth of 62.3% to USD 18 million. Modified starch performed well in both the China and Vietnam markets.
"Although the price of its major material cassava was around 70% more expensive than in last corresponding period, strong market demand allowed the Group to raise price of the product and thus achieved satisfactory growth in profit. With the first production line of daily capacity 100 tonnes in Ha Tinh province expected to commence operation before this year-end, and work to upgrade and expand the daily capacity of the plant in Gia Lai province from 100 tonnes to 150 tonnes to be completed gradually, the Group’s modified starch business can expect to thrive", said the company.
Raw Materials
However, Vedan's raw material and fuel costs hit a historical high in H1 2008 as these were affected by the surging international oil price and rising prices of agricultural products. Vedan saw inflation for its carbohydrate sources, liquid ammonia, chemicals, fuel, packaging materials, transportation, ranging from 10-20% on the low side and 50-100% on high, resulting in higher production costs.
The price of cassava or wet cassava, another major raw material for Vedan, increased by more than 60% due to rising demand from the alcohol and livestock feed industries in countries such as China and South Korea.
Vedan, however, began to expand production capacity for cassava. It is expected that the first production line of the Vedans’s new plant in Ha Tinh province will commence operation in Q4 and the expansion of production capacity of the plant in Gia Lai province is also expected to be completed soon.
"All these plans will give the Group reliable supply of cassava starch to reduce raw material costs", commented the company.
Growth Plan
To maintain profit growth, Vedan plans to continue boost planting cassava or other carbohydrate sources in Cambodia and Laos. "This task must be maintained to ensure the Group has reliable and price competitive raw material supply in the long run to shield its profit from impact of high raw material prices", added Vedan.
The company will also make appropriate adjustment of product prices by market so as to maintain profit margin for some of its major products including MSG, modified starch, lysine, caustic soda, hydrochloric acid, and fertilizers.
Furthermore, Vedan intends to restructure its existing sales system and plans to set up a professional marketing company to grow the Vietnam market. Apart from its own products, the Group will strengthen existing sales channels to sell other related products.
At the same time, Vedan will attempt to boost its new product commercialisation process to timely tap market opportunities, and will continue to improve production efficiency to raise revenue and implement cost control and energy saving measures.
For H2 2008, despite the forecasted ongoing rise of raw material and fuel prices, Vedan will pursue its growth plans and its starch plant in the Ha Tinh province as well as the expansion of its starch plant in the Gia Lai province, which is expected to start production soon.
The company expects good support for its turnover and profit for H2 and for the future.