Sales & Distribution

CHINA

In 2010 China continued to record robust growth with 18.1 million vehicles sold which represent a 33% increase over 2009. The growth was mainly powered by favourable government incentives, urban economic development and China's stimulus package to boost the economy. We expect China's long-term growth to remain intact and continue in the next few years due to the current low motorisation rate and buoyant economy. CAAM (China Association of Automotive Manufacturers) expects China's TIV to reach 20 million units in 2011.

During the period under review, PROTON's business arrangement with China-based Jinhua's Youngman Automobile Group has developed from CBU into CKD to capitalise on tax savings for locally manufactured vehicles and leveraging on China's lower cost base for manufacturing and components sourcing.

Youngman plants in Anshun, Jinan and Tai An have been operational since 2009 and the Hangzhou plant has been operational since early 2011. The Hangzhou plant produces the Youngman L5 model which utilises the modified Gen•2 platform and CamPro CPS engine.

To accelerate PROTON's strategy into China and serve the market better, PROTON will upgrade the current Representative Office in Hangzhou, Zhejiang Province to a Wholly Owned Foreign Entity (WOFE) in Shanghai which will be operational by end 2011.

The WOFE will allow PROTON to conduct business and pursue new opportunities in China. The Satria Neo, Artiga Concept Car and Lotus Europa were displayed during the Shanghai Motor Show in April 2011 to enable PROTON to gauge market acceptance and pursue future opportunities for these products.

Currently, PROTON cars are being sold under the Youngman brand through 100 appointed dealers throughout China.
 

THAILAND

Thailand's automotive industry in 2010 showed a significant increase of 46% against 2009 despite domestic political instability. The remarkable growth in the Thai automotive industry is due in part to the reduction in excise duties for small passenger cars. This reduced the prices of cars and the added advantage of credit availability was instrumental in increasing demand. The rise in petroleum prices did little to dampen the automotive market growth in Thailand.

PROTON continues to make headway in the Thai market with our strategy of practical designs at affordable prices. The Proton Exora which was introduced in December 2009 was voted as a Top 10 model by Bangkok Post for the year 2010. In 2010, we also saw the introduction of Saga FL in the market, competing heads on with Eco cars. Currently, through our Thailand distributor, Phranakorn Auto Sales Co., Ltd (PAS), PROTON has a network of 40 dealers (all 3S outlets) throughout Thailand.

The current in service models consist of Savvy, Saga FL, Neo, Neo CPS, Gen•2, Persona and Exora.

To combat the negative climate and retain the "Detroit of Asia" title, the Thai government has set up industrial estates which offer tax incentives, lower import duties, one-stop visa and work permit advantages. Also, multinational investors are not required to have a local partner which is an advantageous proposition compared to most other Southeast Asian countries.

For the automotive industry, the Thai government introduced a number of measures to encourage both the production and the domestic sales of more environmentally friendly vehicles, including the promotion of bio-fuels. The eco car project was on stream with the 1st CKD eco car officially launched by Nissan during the March 2010 Motor Show.

The recovery in the automotive industry is expected to continue in 2011 with a forecast target reaching 880,000 units despite sluggish business in the 2nd quarter stemming from Japan's devastating earthquake and tsunami which disrupted production and demand. Nonetheless, stable interest rates and new launches in the small and mid-size car segment will spur demand from consumers.

A factor which should be closely monitored is the increase in fuel price which will drive the demand for cars that are capable of utilising alternative fuels like E20 and CNG as well as fuel efficient ECO cars or Hybrids.

Within a short span of three years, PROTON has established itself as one of the top ten players in the Thai automotive market, with No. 8 position in the passenger car segment and No. 10 in terms of overall TIV in Thailand.

Overall, as per financial year ended 31 March 2010, PROTON achieved a remarkable result for FY 2010/11 with 5,615 units exported to Thailand surpassing the target of 4,060 units. In terms of retail sales, the PROTON brand achieved 5,080 units or a 46% increase against the target of 3,488 units.

Total sales revenue improved correspondingly and was recorded at RM259.9 million, a 43% increase against the target of RM181.36 million.
 

INDONESIA

PT Proton Edar Indonesia (PT PEI) was established on 16 August 2002 but commenced full operations on 16 March 2007, as part of PROTON's brand expansion and AMLO strategies to spread out its presence intensely and dynamically.

PT PEI till end 2010 offered the Indonesian market seven attractive models to target the different segments.

The models are Savvy, launched in July 2007, that received 2 Awards for Best City Car from Majalah Mobil Motor and Auto Bild Indonesia; the Gen•2 and Neo (also launched in 2007), with the more sporty and stylish outlook within the hatchback categories; and not forgetting the highly comfortable and functional mini sedan class, the Gen•2 Persona, and Waja (launched July 2007) and the Saga (launched March 2009). Saga has won the "2009 Best Budget Sedan", awarded by Indonesia Otomotif Awards.

In a country where there is a large preference for MPVs, the Proton Exora gathered the most accolades. This model has become the biggest sales contributor to PT PEI since its launch and debut at the Indonesian International Motor Show in 2009. Exora has been awarded by Indonesia Otomotif Awards the "2011 Best Budget MPV". On the dealer network aspect, as of 31 March 2011, PT PEI has appointed 17 sales outlets and 30 after-sales service centres/authorised workshops throughout Indonesia and PT. PEI is looking at expanding its sales coverage to 25 outlets in FY 11/12.

PROTON has established itself as the 12th top brand in the Indonesian automotive market; just below Chevrolet and Hyundai. Total Industry Sales increased by 57% to 764,710 in 2010 vs. 2009 while the Passenger Segment increased by almost 55% to 447,336 units. While PROTON's growth was not as spectacular, it still managed to increase the volume by 23.45% to 2,060 units in 2010.

The Exora has again been the best selling model and achieved a growth of 57% as opposed to that of 2009 and has remained the core product for Proton Indonesia with 1,038 units in 2010. In FY 11/12, PT PEI aims to improve sales by 50% leveraging on the positive response for the Exora.

While Indonesia's economy is expected to grow, there were some question marks on the sustainability of last year's growth in the automotive sector. Firstly, possible increases in tax for second and third cars in a household will likely dampen growth.

Further, a decrease of fuel subsidies will also challenge the growth of the automotive industry in 2011. In this perspective, PT PEI has charted short term and long-term implementation plans to sustain the favorable response towards PROTON, by capitalising on the positive response for the Exora.

Growing market confidence in PROTON has enabled PT PEI to garner support and cooperation from several leading finance and banking institutions. This confidence has also stimulated interest from the car rental and public transport sectors throughout Indonesia which in turn can assist in increasing PROTON's resale value. With the current outlook and barring any unforeseen circumstances, PT PEI is expected to perform even better in the new fiscal year.
 

SINGAPORE

The new car market in Singapore is regulated by the Certificate of Entitlement quota (COE) which is issue by the Land Transport Authority (LTA). TIV has consistently outgrown the road space development which leads the LTA to introduce a drastic change in the formulation of quota supply. This new measure has created a drastic decline of quota supply and as a result, the quota premium (Category A for 1.6L and below) witnessed a jump of 157% (from S$18,502 to S$47,604) within the year 2010 which is a ten year record high.

Due to the high COE prices, Singapore's 2010 TIV contracted over 39% compared to 2009; with Category A in particular shrinking over 51%. A few China makes have thus withdrawn from the local market due to this high COE. PROTON's sales also suffered a 38% drop in this tough environment. However, the premium segment has gained the opportunity of this COE price and the robust Singapore economy to increase its market share.

Besides continuing to be more cost efficient and productive, Proton Singapore is planning to restructure its operations so as to obtain a better balance of economies of scale. Moving forward, a long-term plan is being formulated to ensure sustainability and continuity to enhance PROTON's network and presence.

Outlook for the next two years will be tough as the COE quota supply will continue to reduce and increase competition in Category A from premium brands. The TIV in 2011 is forecasted to be hovering around 25,000 units, due to the COE regularisation process.

PROTON Singapore's team has a clear focus on the future; and with the new business structure and attractive model lineup, Proton Singapore is confident of growing stronger once the local market recovers.
 

AUSTRALIA

Over this period the Australian industry volume increased by 10.5% compared to the previous year. Improved economic conditions and heavy promotion by industry competitors lead to an overall volume of 1.035 million sales. The sales result was the second highest annual volume recorded in the Australian market.

Proton Cars Australia recorded a 16.1% increase in sales on the back of the improved trading environment. The main sales increase came from the successful launch of the S16 (Saga) which was overwhelmingly accepted by the Australian public.

The introduction of Chinese and Indian manufactured vehicles continues to place pricing pressure on the wider market. The outlook is for prices to fall slightly with an increasing number of players however the strong Australian dollar will result in an increase in gross margins.

The 2010/11 financial year was one of rationalisation and consolidation. The improved economic conditions attracted many new entrants to the market hoping to capitalize on the increasing sales. The induction of new dealers kept overall representation stable as the consolidation and rationalisation of the network continued.

Proton Australia continued with its sponsorship of the West Tigers Rugby League Football team, who qualified for the finals series for the first time in the five-year sponsorship. An estimated 420,000 people attended matches live during the season enhancing the PROTON profile in Australia.

Proton Australia also continued the Miss Universe Australia pageant association where the winner acts as PROTON's ambassador in Australia. This year Jesinta Campbell was the successful contestant who subsequently went on to represent Australia in the Miss Universe Pageant in Las Vegas where she finished second runner up.

Proton Australia has also continued with its support of the Safe Drive Training program which trains school students throughout New South Wales and Queensland.

On the back of an increase in sales volume, Proton Cars Australia is committed to overhead cost reduction via innovative supply chain improvement. The combined effects of these activities will yield improvements in the financial results.

Proton Australia continues to grow and is bullish in its outlook for the coming financial year. Despite a forecast decline in total industry volume, Proton Cars Australia is expected to continue to improve unit sales and the overall financial result.

The launch of the Exora and S16 toward the end of the financial year will assist in leveraging new dealer representation and set a footing for continued growth over the next decade.
 

UNITED KINGDOM

The UK car market in 2010 was certainly a game of two halves. In total the TIV grew by nearly 2% over 2009 but the increase was entirely due to the strong performance of the fleet/business buyer segment which accounts for over 50% of UK sales.

The retail buyer segment saw a 7% decrease in sales and this would have been significantly lower had it not been supported by the government scrappage scheme which ended in the first half of 2010. High fuel prices and economic factors drove demand for smaller more fuel-efficient cars, with "B" segment (Supermini) vehicles accounting for 37% market share and diesel vehicles increasing market share to over 46%.

The UK government's commitment to lowering emission levels was spearhead by changes to annual car tax costs which saw higher CO2 cars paying more tax while lower emission cars saw reductions or even zero tax rates on some models. This along with other initiatives such as exemption from London congestion charges and free parking for lowest emission vehicles increased consumer demand for these models.

Continued reduced demand in the retail segment where PROTON Cars (UK) Ltd mainly operates and competitive pressure saw PROTON sales fall by 20% over 2009 although first half sales were over target.

In such tough market conditions it was important that the company continued to drive cost cutting and efficiency programs while maintaining industry leading service levels.

Towards this end significant overhead cost reductions were achieved while service was maintained as evidenced by a UK wide survey of new car dealers where Proton Cars (UK) Ltd was awarded six first place positions for various categories of support to its dealer network.

The UK Vehicle market is forecast to improve from this year and expected to return towards the record 2.4 million annual sales levels of previous years in the short to medium-term.

Strong growth is forecast in the supermini, MPV and Crossover vehicle segments while demand for alternative fuel vehicles which took a 1% market share in 2010 is sure to grow thereby supporting PROTON's plans in these areas.

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