DSG International (Thailand) Plc (DSGT) was incorporated on May 20, 1994 and produces and distributes disposable baby diapers under the brand names BabyLove and BabyLove Playpants and disposable adult diapers under the brand names of Certainty and Certainty Active, both domestically and abroad. Currently, the company has registered capital of 600 million baht divided into 600 million ordinary shares at one-baht par value. It holds 100% in DSGML, DSGMSB, DSGS and PTDSG. Chief executive Ambrose Kam discusses the company’s strategy and outlook.

Increasing raw material costs is one of the biggest risks, says Mr Kam.

What is DSGT’s business model?

DSGT’s core business activities focus on the manufacturing, marketing and distribution of both baby and adult disposable diapers to all trade and institutional channels. We are a regional company with headquarters in Thailand and manufacturing facilities in Thailand, Malaysia and Indonesia. A combination of superior consumer understanding, excellent customer service and strategic partnership with key material suppliers and service providers are the critical success factors for DSGT.

Please provide a breakdown of the sales in each country in which DSGT operates.

Today our sales by location are Thailand (50%), Malaysia (40%), with the remainder in Indonesia, Singapore and other export markets.

DSGT recently bought full control of its Indonesian subsidiary. Why, and what are the plans for Indonesia?

Indonesia has the biggest market potential in Southeast Asia, with the highest number of births per year. Over the past five years, the country has experienced strong economic growth, particularly in the FMCG (fast-moving consumer goods) industries. Currently only about 10% of babies use disposable diapers full-time despite the market size being quite comparable with that of Thailand and Malaysia. Thus, gaining full equity and management control of the subsidiary is the first step in our long-term strategic business development in Indonesia.

What are the current capacity and utilisation of the manufacturing facilities. Does DSGT have expansion or capital expenditure plans, and if so how will they be funded?

DSGT operates within optimal capacity utilisation of each manufacturing facility. In 2010 and 2011 we invested capital to build a manufacturing plant in Malaysia and a warehouse in Thailand. These two developments will sustain continuous growth for DSGT in the coming years. The funding is a combination of both internal cash and external financing.

What differentiates DSGT from its competitors?

A combination of superior consumer understanding, excellent customer service and strategic partnerships with key material suppliers and service providers are the critical success factors for DSGT. In addition to this, DSGT benefits from the synergy of the group’s global diaper expertise in sourcing, manufacturing, marketing and product innovations.

How does the industry trend look for Thailand, Malaysia and Indonesia?

The industry trend for the baby and adult diaper markets in Asia generally and in Southeast Asia particularly could be best described as a sunrise industry. The rising economic affluence and young demographic profile in the region, coupled with urbanisation, represent the key growth drivers and present significant opportunities in the baby diaper market. Longer-term, the adult diaper market will become increasingly prominent, with populations ageing at varying rates per country and Thailand and Singapore leading in terms of the percentage of elderly, while Malaysia and Indonesia will form the basis of the ageing population in the longer term. As mentioned earlier, we are addressing the opportunities in Indonesia with the acquisition of 100% equity ownership of PT DSG, which is the first step in that expansion.

DSGT’s revenue has been growing consistently for the past five years. Can you explain why this is and what investors can expect going forward?

Our financial performance over the past five years is attributable to the innovations made in all functional areas within the company, particularly in new product innovations that truly satisfy the consumer needs. Behind all of these successes are the dedicated employees who take great pride in breaking new ground and achieving profitable growth. The management team is committed to strive for continuous improvement and to scale new heights going forward.

DSGT’s net profit declined significantly in 2011. Why was that?

This was a result of the devastating floods that affected Thailand last November. The profit decline was due to the provision for flood losses incurred during the fourth quarter of 2011 in line with GAAP (Generally Accepted Accounting Practices) even though the losses experienced were adequately insured. Once the insurance claims are settled, the provision will be reversed accordingly.

DSGT paid a management fee and royalty fee of 118 million baht in 2011 to DSGIL. What was the reason for that?

DSGT is majority owned by DSG International Limited (DSGIL), which is a holding company with a global presence. DSGIL owns all the brand trademarks and importantly offers technical assistance, strategic sourcing and management services to all the subsidiaries. It is also responsible for all the products and technological innovations that are critical for the long-term growth and success of DSGT.

What do you feel are the biggest risks facing your business today?

The biggest risks facing our business today are increasing raw material costs and volatile exchange rates tied with the global economy. In Southeast Asia, the relatively unstable social-political economies may have a short-term impact on private consumption in the countries where we operate. Also the global economic cycles, such as those caused by the 2008 financial meltdown and the current euro-zone debt crisis, do affect the profitability of most enterprises that rely heavily on imports of raw materials priced in US dollars.

What impact will the Asean Economic Community have on your business?

The AEC will encourage more free trade within Asia, and this may have implications on our regional supply chain strategy. Diaper manufacturing demands high cost efficiency and scale in most FMCG business.

Where do you see DSGT in five years from now?

Five years from now DSGT’s vision is to be either the No.1 or No.2 player within each country within each of the disposable diaper segments in which we are actively competing. With the implementation of our long-term strategic plan and our insatiable desire for continuous improvement, we shall realise this vision in the coming five years.

Published in the Bangkok Post 20.07.2012

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