Stamford Tyres Probing Markets for Increased Penetration following “Foundational” FY2010

Stamford Tyres is a business of two major halves. Firstly it runs a distribution business in nine countries including its home nation of Singapore; secondly it is the manufacturer of its SSW brand of wheels and the owner of its outsourced manufactured Sumo Firenza proprietary brand tyres, which it displayed in Europe recently at Essen 2010. “We help the plants with technical assistance, with our own designs for products, and we own our own tooling,” explained the company’s CEO and president, Wee Kok Wah when Tyres & Accessories interviewed him on his recent visit to London following Reifen 2010. “That way we can gear our capacity quite quickly and easily. We have a large team of engineers in China to deliver product quality assurance. The product meets the highest standard that you want.”

The Singaporean tyre and wheel distributor announced a net profit of S$9.4 million (£4.5 million) for the end of financial year 2010, which ended on 30 April, over eight times the net profit of S$1.0 million in FY2009. Wee Kok Wah said: “Over the past year, we have worked hard to lay the foundations for the Group’s future growth… In accordance with the much improved set of results the Board of Directors has recommended a final dividend of 1.0 Singapore cents to reward our loyal shareholders.” The company reduced its operating expenses by 16.3 per cent, from S$64.5 million in FY2009 to S$54.0 million in FY2010, while Stamford experienced the slightest of declines in gross profit – down 1.5 per cent to S$66.5 million – and its gross profit margin, which was at 21.4 per cent as opposed to 22.7 per cent the previous year. Higher tyre purchase prices worldwide and lower sales from the Group’s Thai wheel plant were the main causes.

“I am pleased to say that we have made good progress in markets such as South Africa, where we commenced sales of Falken tyres in October 2009,” continued the president. Stamford Tyres’ management aimed to improve forex management in addition to operating costs, resulting in a forex gain of S$1.7 million compared to a S$5.8 million loss in FY2009. Much of this was reportedly due to the “strengthening of the Indonesian Rupiah and the South African Rand against the US dollar”, according to the company’s statement.

“[W]e look forward to enjoying an entire year of its contribution to our bottom line in 2011. We have also managed to secure more manufacturing capacity for our proprietary Sumo Firenza brand tyres, which continues to gain traction in overseas markets… Looking ahead, market conditions remain challenging as tyre manufacturers continue to increase prices due to high costs of raw materials. Nevertheless, we will continue to optimise our product mix, manage our costs and increase productivity wherever possible,” concluded Wee Kok Wah’s statement.

Stamford also revealed that the Group’s cash and bank deposits grew from S$17.0 million to S$35.6 million across FY2010, while the company decreased inventory levels from S$97.0 million to S$89.5 million.

The strong emphasis the CEO puts on the laying of foundations during the last year is also reflected in the company’s presence at Essen, where it displayed its proprietary high performance tyre brand Sumo Firenza, made in China, and its Thailand-manufactured SSW aluminium wheel range: “It was a platform for us to promote our proprietary brands… We took the opportunity in Essen to launch our new high performance radial, the new ST05A. It is a new asymmetric tyre; it is current and meets all the current European required specs, including REACH. It was a good place to get together and communicate that we know what we can do for the coming year.

“At the same time it was also a good platform to get new customers. We noticed that we received a lot of enquiries from North Africa, from the Baltics, from Russia, Northern Europe and across Germany. All in all we are very satisfied with what we have receive from the show… There was a lot of interest shown in SSW, because we are enjoying the cost gap between us and the Chinese. It is a lot closer now with the punitive dumping duty imposed on the Chinese. That closes the gap for us to compete.

T&A questioned whether the company’s participation at shows was specifically targeted at geographical areas where it was interested in developing a particular part of its multifaceted business – Stamford has booked a booth at Sema 2010 in Las Vegas and one at Brityrex. “Of course my main focus is still in Europe, Africa, the Middle East, South-East Asia and Asia Pacific in general. We have left the American market for a while, but I think it’s worth relooking at it and seeing what we get. I’m not too optimistic about the but I think it’s worth spending that money and hope for the best there.” What seems certain from the company’s actions in Essen is that the proprietary brands SSW wheels and Sumo Firenza tyres are an important factor in accessing European markets.

Wee Kok Wah joined the Stamford Tyres business, started by his father in 1933 and named after a British founder of Singapore, Sir Thomas Stamford Raffles, in 1970 after graduating from the University of Singapore. “I started off in the retread plant – I did everything a young kid would do in a retread plant and that’s where I learnt about the tyre industry. It’s a good place to start and a good place to learn.

“I changed the business model a bit; after a couple of years I started to import tyres. The first relationship we built in 1974-75 was with Falken Tyres. Then the following year I started a relationship with Continental and Toyo. After then, we have not looked back – the same relationship exists, we just expanded the areas where we distribute those brands. Basically we are focused in South East Asia, China, Hong Kong, Africa and India.

“Those brands are the key products we sell in the wholesale business and we have built warehouses and infrastructures to support that. There are nine countries – quite wide. In each country we’ll have around 500 dealers, so the network of dealerships throughout these countries is quite vast. In China alone we have about 7,500 resellers of the brands we have through a joint-venture company. It’s quite an interesting challenge in logistics and marketing and sales in such a large country.

“This is what we are about as a company,” he summarised. “We know all the aspects of running a tyre business. We are very comprehensive. And we have been doing this since 1975 when we developed our relationship with the major brands. Then our proprietary brands came in early 2000s; this is where our second wind comes from.”

The second wind of Stamford’s proprietary brands is currently blowing steadily through the European market, according to Wee: “Europe is going to become more important for our proprietary brands now – especially our wheels – because it has now become more of a level playing field with Chinese tyres and our Thailand-made rims. It will end up with a 25 per cent duty on the Chinese rims, which will equalise the costing differences. The Chinese always had export rebate subsidies and preferred pricing for aluminium ingots if the aluminium was processed locally. We don’t have that; we have always competed on the open market, we buy everything in the open.

“Our tyre business in Europe is small for a proprietary brand. Our focus is in the high-performance segment and we only recently launched our brand [Sumo Firenza, branded as a “premium budget” offering according to Wee Kok Wah] in a slow and steady way. It has been well-received and geared for Europe in terms of sizes [sizes range from 13” to 18”], and the tyres are made to European specs, so we think we should do well with that. We plan for more capacity for Sumo Firenza, and I think TBR sales is being stressed because of the currency differences.

“The plans we had for Europe included completing the range of Sumo Firenza tyres. So the plans we had for Europe are now complete for us. It is still important for us, but we’ve got to bear in mind that currencies are against us.”

How do sales and marketing challenges in a country like China differ to those found in Europe for Stamford? “I think in China, it is just emerging, so most of the dealers are open to allowing their shops to be co-sponsored by the manufacturer, who then paints up the shops and gives them the branding. So they become informal shop franchises and the dealers like that; it seems to represent a close affinity to the brand, and a closer relationship to major brands. The proprietary brands are just emerging; they are not as aggressive as the major brands would be in the emerging markets.

“In emerging markets you tend to promote the major brand as a kind of pull item. And normally the operating margins are quite low for the retailer, so you tend to make money from the value added services – car repairs, car workshop services, tyre related services, truck related services and truck retreading services.

“There is a tendency for customers to follow the OE brand, and the recognition of the brands and the logos. Price is important, but not that important; branding, the total package, the benefits for the dealer and above everything the service, because it’s very competitive. Everybody is there, everybody can do quick delivery – same day or half-day – you just have to be on top of it.”

Wee suggests that the coming year will not be one in which to expect terrific tail winds in terms of growth: “I think the growth will be gradual – nothing fantastic. When you look at what’s happened in Europe, when you look at the forex movements, you are concerned. The world is sorting out its financial pattern… and the total debt situation is clearly not resolved yet. But it looks much better than in 2009. Bankers are more confident. Export insurance credit is almost dried up, so we hope that things will come back and become more affordable for us to use.”

Will any markets outside Europe represent an area of focus and perhaps faster growth? “We’ve been in South Africa for about nine years without doing too much; it’s only in the last two years, after we secured the distribution of Falken there, that we decided to activate it. Coupled with our Firenza brand and SSW wheels, we also had Double Coin distribution, so our brand profile there is not too bad. We invested there by building warehouses in Durban and Johannesburg, and we are now building one in Cape Town. So the team there is fairly in place; we service around 500 dealers.

“We still think there is a lot more work to do in South Africa. We are selling all categories of tyres: light truck, SUV, OTR, truck, farm and we’ve got wheels, so there’s a lot of work to do. We don’t have any investment in any retail operations or truck centres or retail centres; we may consider providing some total tyre management services for the OTR or mining business.

Cost per kilometre is quite popular in South Africa, especially for truck; in order to do that you need a retread plant – we are looking at putting in a retread plant once the whole distribution network is more settled in. That will compliment the distribution of truck tyres.”

Stamford is also looking at the truck business in South East Asia (including fleet management services and therefore also retreading), where the increased radialisation of commercial vehicle tyres is providing an opportunity for development. The impression Wee Kok Wee leaves is that, while ambitions for growth remain strong, especially in terms of the company’s private brands, the economic situation currently prevailing suggests room for cautious optimism rather than bluster.