Wednesday, August 26, 2009

Modernform plans expansion via M&A activity

       Furniture manufacturer and distributor Modernform Group is planning mergers and acquisitions next year, both domestically and abroad but especially in other Asean countries.

       The move will be part of a long-term growth strategy, CEO Thaksa Busayapoka told a press conference yesterday.
       The M&As will involve firms that are at least related to the furniture business, but the company cannot say now how much it will spend, because that will depend largely on the opportunity presented, he |said.
       Funding can come from the company's cash flow, bank borrowing or debenture issues, depending on how much is needed. However, the company's debt-to-equity ratio is now only 0.2, giving it much leeway to assume more debt if funding must come from banks or the bond market, Thaksa said.
       Modernform Group is Thailand's furniture leader. Ninety-six per cent of its revenue comes from domestic sales and the rest from exports.
       Its main market is contract projects, accounting for 70 per cent of revenue. These include both residential and office developments, both private and government. The rest comes from retail sales.
       The group wants to maintain annual growth of 15-20 per cent over the next three to five years, and the company must expand to meet this target, Thaksa said.
       However, it achieved first-half revenue of only Bt1.13 billion for a net profit of Bt114.11 million, down 21.5 per cent and 41.7 per cent |year on year, respectively.
       Thaksa said the drop in revenue and net profit was in line with the country's economic slowdown and that most of its customers - property developers - had delayed their construction projects.
       This meant Modernform had to delay delivery of its products, forcing it to hold on to Bt670 million worth of inventory. Seventy per cent of that will be delivered in the current half of this year and the rest next year.
       Its high inventory combined with stiff competition caused Modernform's gross margin to drop from an average of 37 per cent last year to 36 per cent in this year's first half, Thaksa said.
       However, the company believes demand in the furniture market will recover in the second half, raising the gross margin to 36.5 per cent by year-end.
       The company has targeted full-year revenue of Bt2.46 billion for net profit of Bt283 million, down 14.28 per cent and 26 per cent, respectively, from last year.
       The company expects full-year revenue of Bt3.2 billion for a net profit Bt420 million in 2011 following its aggressive expansion next year, Thaksa said.

No comments:

Post a Comment