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10. May 2006

MALAYSIA: CST to raise tyre output

Source: Daily 'The Star', Kuala Lumpur; 10 May 2006

PETALING JAYA: Continental Sime Tyre Sdn Bhd (CST) is
targeting to raise its output of passenger car tyres
to 5.5 million by the middle of 2007, up from last
year's 3.5 million units.

The company, a 70:30 merger between Continental AG and
Sime Darby Bhd, said it is attempting to increase
production at its Alor Star factory to 4.5 million
tyres by the end of this year and move passenger tyre
manufacturing from its plant at Petaling Jaya to Alor
Star as well.

CST chief executive officer Dieter Saar said 9 May
that the Petaling Jaya plant would focus on producing
commercial tyres. The company has two more smaller
factories, in Kulim and Alor Gajah.

“So far, Continental has invested about RM250 million
in the factory at Petaling Jaya and in Alor Star.
However, we cannot expect a return on these
investments yet as we are in the middle of several
upgradings,” Saar said.

CST is also targeting to increase exports to 20%-25%
of production by the end of this year from 15%
currently, and possibly to 40% in the long term, he
said. Currently, Malaysia, Thailand, Indonesia, China
and Australia are the company's biggest markets.

The tyre manufacturer recorded a total turnover of RM1
billion in 2005, with passenger tyre sales
contributing to 50% of total revenue. Saar hopes
earnings would continue to improve but conceded that
high raw material prices such as rubber could pose a

He said: “Due to higher prices of commodities such as
rubber, tyre manufacturers around the world are
bearing the brunt. However, we would be looking to
improve our cost management programmes to improve
efficiency without having to compromise on quality.”

Saar said the company could look to pass on about 25%
of the increase in costs to its customers. CST had
raised tyre prices by about 3% in February and could
be increasing prices again this year, but Saar said
most of the company's customers understand the

With the tyre industry no longer being
government-protected, there is stiff competition from
local as well as regional rivals entering the country,
he said, and this could also be a challenge.

“At present, Continental is spending about 3% of its
15 billion euro turnover last year on research and
development to improve its products.

“In Malaysia, we are investing about 3% of our revenue
in promotional and advertising initiatives. We hope
these efforts would pay off and help boost net
earnings in the long run,” he added.

(Syed Rashid Ali, Karachi, Pakistan)

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