It can't get any worse for Abric, can it?


SECURITY labels and seals maker Abric Bhd has definitely seen better times. Its chief financial officer William Soong and chief operating officer (COO) Derek Wong readily admit that the past two years have been nightmarish for the group given that it has had to face one negative force after another. 

But while the outlook for world economy is still murky given the hard-to-assess impact from the just ended US-Iraq war and the outbreak of severe acute respiratory syndrome (SARS), Soong and Wong concede that perhaps things may pick up for the group, which has businesses spanning across the United States to Europe and Asia, from this point onwards. 

After all, the group has gone through a very difficult period where many tech companies did not make it. 

Derek Wong

“We are cautiously optimistic about our prospects from here. While we can't say when Abric will post stellar results, we can assure you that what happened to Abric over the past two years will not happen again,'' Wong tells BizWeek in an interview in Shah Alam. 

The higher you climb, the harder you fall is definitely an expression the Kuala Lumpur Stock Exchange (KLSE) second board company well understands.  

Once a favourite among retail investors, the stock price had reached a high of over RM20, largely boosted by the dotcom frenzy in early 2000.  

Today, in contrast, Abric stands as a much-snubbed stock currently trading at about RM1. It closed Thursday at 73.5 sen. 

After posting an all time high pre-tax profit of RM28.06 million in the year ended December 2000, Abric's profit shrunk dramatically to RM8.68 million in the following year (2001) and was driven to a pre-tax loss of RM64.2 million in 2002. 

Soong attributes the bulk of the losses to write-offs in investments totalling RM37 million namely those in quoted shares, which totalled RM13.5 million and impairment in value of goodwill of its British subsidiary Encrypta Electronics Ltd of RM1.6 million.  

In addition, Abric also wrote off about RM6 million worth of listing expenses incurred from the aborted listing of e-Locked on the Hong Kong Stock Exchange (a plan that had initially caught many analysts' attention), as well as the adjustment in the estimated useful life of the group's software that cost the group another RM15.5 million. 

“We are of the view that the adjustments, while painful in the short term, are in the best interest of the group in the long term,'' says Soong. 

So, what has Abric been up to of late? 

Wong says Abric had taken steps to cushion itself from the slowdown of the US economy and the projected spill over effect on the world economy as far back as the last quarter of 2001, soon after the Sept 11 incident. 

Soong

“The measures are two-pronged. One prong focused on the technology division, the other focused on manufacturing. In the tech division, one of the first things we decided to do was to move away from the dependence on the North American economy, large as it is.  

“We diversified into India – both in terms of market (for our software) and our technical capabilities and resources. We also began building management and technical resources in Malaysia to complement the team based in the United States and India,'' Wong says. 

At the core of this diversification effort is a programme to migrate the software expertise, which had been residing in the United States prior to Sept 11, to India and then to Malaysia. 

The rationale, according to Wong, was simple – there was no shortage of equally competent software engineers and programmers in Malaysia and India, at a fraction of the US cost. 

In fact, according to Wong, Abric has managed to reduce its costs significantly through the migration process. An example is the renting of premises. The company used to pay a high rental of US$50,000 a month for its facilities in United States. 

“Now, we are able to rent the same space at only one tenth of that cost, and still be able to operate as efficiently as before,'' Wong says.  

Apart from that, the company has also managed to trim down labour costs significantly in India compared with the United States, while maintaining the quality of work.  

“Today, our technical expertise and our software knowledge base resides in Malaysia, with a competent support team based in India and Malaysia as well. We have also continuously reviewed our business model to adapt to the competitive and fast changing environment especially in India and the United States,'' Wong says. 

As for Abric's manufacturing division, he notes that the group has made strong efforts by focusing on growing new, non-traditional markets such as the Middle East and Eastern Europe, while continuously pushing the limits of quality and efficiency at its plants. 

The result? Abric is seeing improvements in both the manufacturing and technology divisions. 

Orders for security seals are picking up, thanks partly to new orders coming out from the Middle East and the United States. 

At the same time, the group is also beginning to benefit from its enormous cost cutting measures through the migrating of technology division into India from the United States.  

“The common thread at both divisions was cost cutting. We are of the view that we have pared costs down to the minimum. Still, we continue to review our costs critically every month,'' Wong points out. 

Although things are starting to look brighter for Abric now, the two gentlemen (Wong and Soong) are still conservative.  

“We would like Abric to post a turnaround as soon as possible. But as we have all witnessed in the last few years, timing is a matter, which few companies can control.  

“Even best-laid plans have often been de-railed by volatilities halfway across the globe.  

“However, with the measures we have put in place, we believe operational performance will improve,'' Soong adds. 

“There will be light at the end of the tunnel, it is a matter of time. (But) at this juncture (we) are not in a position to discuss. Let's wait for our first quarter results first,'' Soong says. 

The hard times for Abric

 

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