Pacific Green Industries (Fiji) Ltd BRIEFING TO STAKEHOLDERS 2 August 2012
Background and history of the company 1990: Pacific Green founded in Sigatoka 1991: Export sales to Australia and New Zealand 1995: Exclusive partnership with Harvey Norman Group 2001: PGI listed on SPSE 1999: Export sales to USA 2001: James Bond, Pierce Brosnan, becomes Environmental Spokesman 2004: Sales on target for $12M 2004: Fire destroys entire manufacturing complex 2011: Insurance settlement allows PGI to start again
General overview Major branches are located in Sigatoka and China Principal activities are design and manufacture of furniture and architectural products Vision to be the leader in manufacturing sustainable lifestyle products. Strategy to promote Pacific Green s unique furniture to consumers in all major international cities.
PGI operates within a unique set of circumstances 1. International furniture is supremely competitive, driven by cost. - In Fiji we cannot compete with Asia in our current manifestation. 2. PGI survives by manufacturing an expensive product for a niche market. - This needs favourable international exposure 3. PGI is a small company and to explore the niche requires a wide operational coverage. 4. To make special products, PGI must invest continuously in the creative side - Most international furniture sales are based on copies 5. PGI subsidiary, Golden Palmwood, is of international standard 6. Fijian export structure was totally different when PGI was set up as an export company
Fundamental changes are needed for PGI to make adequate returns Prevailing circumstances mean that no matter what PGI does its company structure is unsuited to existing conditions. Non-payment of insurance cost PGI s shareholders dearly. - Setting up in China was the only means of survival. PGI Fiji went from receiving 100% of the gross to 70% of the profit on items manufactured in China. - PGI Fiji operation had no manufacturing ability and negligible income for over 6 years. 6 lost years - Beyond those 6 years, momentum was completely lost. We are effectively starting again. - The effects of the non-payment on profitability and revenues can be expected to be felt for a number of years.
Fiji rebuild is part of an agenda to progress in spite of impediments Factory rebuild has progressed well. Significant funds have been spent - 3 operational factories (one new one to be completed). - Machinery has been imported (from China and New Zealand) - Skilled and executive staff employed. Fiji now has the ability to make export quality furniture providing there is strict quality supervision. But we did not rebuild to be a local company. We rebuilt as an export company. Recreating export markets is expensive and time-consuming. It can be done quickly providing home based non operational impediments/imposts can be overcome.
Export market must be rebuilt In 2003/2004 Pacific Green had strong and expanding markets for our Fijian manufactured products mainly in the USA and Australia - Revenue to Fiji had increased to over 10 million dollars per year. - Local employment exceeded 200. - Profit for the period prior to the fire exceeded 1 million dollars. Fiji s sales to the end of June 2012 $1M+ Export sales under 1/2 million - Group sales were $41/2 M+ In order to regain lost territory (for Fijian manufactured goods) we need to attack and consolidate. One market at a time.
Current marketplace is depressed but this must be overcome It s an accepted fact that international markets for furniture are difficult even depressed in most major centres. These factors are however obstacles that a unique product such as ours can and has overcome previously.
Proactive marketing programme implemented to drive sales Fiji range is to be rebranded as South Pacific Style. Happy bright enjoyable furniture. Exhibitions are the best possible medium. USA well placed for a election confidence jump - Las Vegas (August) - Highpoint in North Carolina (October). Shanghai in September we release our 2013 Continental Masterpiece design range.
Proactive marketing programme implemented to drive sales Dubai in October Moscow in Sept and Nov Exhibitions will unfortunately feature products made by our subsidiary Golden Palmwood - Chinese government rebate means exhibition participation costs from China are 70% less than comparable costs from Fiji.
Investment in showrooms is important (but costly) part of growth Showrooms are the only way to quickly re-build image and sales for our Fiji manufacture But far more difficult and expensive since 2004 Australian showroom will require F$268,000.
Fiji showroom is a model for Fijian Centres internationally Fiji showroom completes the iconic image of Pacific Green and Fiji. Investment continues this year to show visitors the life cycle of the Coconut Palm. Fiji complex should be the centre piece of other showrooms in Australia and Los Angeles. This project could be expanded as part of a Fijian Centre based around the Fijian Embassies.
Flow of profits from China operation is restricted to PGI shareholders Our partner has a 30% share and PGI receives 70% of the profits. Current FIRCA ruling states that this dividend is subject to a 20% tax before consolidation. If this holds PGI only receives 50% of the net profit from the China subsidiary and could be subject to double taxation. This will be insufficient to absorb costs incurred by our promotion and executive staff in servicing group activity.
Fiji operation struggles to make profit under heavy structural costs PGI Fiji is a small company that relies on imports for much of its material. Import tax ranges from 3 to 5% Profit from our current sales only defrays direct expenses (which befit a much larger support/turnover base): - Compliance cost of being a listed Fijian public company - Audit and compliance costs include China travel costs - Extra office staff to consolidate GP accounts in the PGI accounts - Vat on orders placed in Fiji if dispatched from China factory - Vat and WT on all overseas payments All these factors contribute to our group s ongoing losses. The only way to move forward is to overcome the obstacles and to sell more Made in Fiji
Conclusion PGI continues to achieve its objectives in rebuilding the Fiji operation but taking the current set of circumstances into consideration the future holds little promise for necessary growth and profitability. Our products are unique therefore never easy to sell. It is obvious from our financial results that we need to sell much more to make our Fijian operation profitable. Our commitment to Fiji over a long period shows our approach has been honest, hard working and direct. An export company needs waivers and incentives so that it can be successful in the global market place.
Action plan to return to profits (the 2003 and 2004 good years) Management continues to prioritise activities to (1) grow sales and (2) establish a level playing field to export Fiji made products. However, corresponding structural changes are required: 1. Re-establish PG Fiji as a stand alone designer, manufacturer and exporter of South Pacific style furniture. 2. Apply to the Fiji investment Board for export incentives commensurate of a new company that has reinvested 3 million dollars in Fiji manufacturing. - At minimum an exemption from VAT and Withholding taxes on overseas payments directly related to design/marketing. - Maximum would be to allow PGI to regain its 6 years of lost tax free status providing it pays the legislated 20% tax on profits. 3. Request FIRCA to re-positioning the proposed 20% dividend tax (on repatriation of shareholder profits to Fiji from China).
Prologue The presentation is not a complaint. It is all about attaining a level playing field for a Fijian manufacturer that operates under a different set of circumstances to its international competitors. If we can obtain our objective, of making our Fijian manufactured furniture famous, throughout the world, everyone will be pleased: the Fijian Government, our shareholders, our staff and the people of Fiji all participating in a project of which we can be proud.
Outlook Outlook is pessimistic given global economic forecast If implemented, structural changes covered would strengthen PGI s position enormously
ANY QUESTIONS
THANK YOU Peter Ryan, Ravin Chandra