If you are planning to buy a new Audi or Honda, maybe even a Bentley, chances are you will be a customer of Dah Chong Hong Holdings (DCH), one of the largest motor vehicle distributors in Hong Kong. With a wealth of experience as the former chief financial officer of Hong Kong Dragon Airlines, Francis Wai is now executive director at DCH. He explains the complexity of the company to FinanceAsia.
Please describe DCH and your role in the company.
DCH is a trading and distributions company with a long history that started its business since 1949 in Hong Kong. Our three core businesses are motor, food and logistics. Over the last few years we have substantially expanded our business in mainland China. Other than Hong Kong and China, DCH also has business in Canada, Japan, and Singapore and recently expanded to Taiwan. The majority of our revenue is generated from the motor segment and China is our key market. In the first six months of 2010, 75% of our revenue came from our motor business and about two-thirds of total revenue came from China.
I joined DCH in June 2008 and was appointed an executive director of the company in January 2010. Prior to this I was the CFO of Dragonair for more than 16 years.
Can you explain the different approaches to your three business segments?
DCH has been doing business in the motor and food industry for decades. We are the distributor and dealer for 11 motor vehicle brands in Hong Kong. In China we act as a dealer for 19 vehicle brands and have exclusive rights to distribute Bentley vehicles and Isuzu heavy duty commercial vehicles throughout the country. Up to date, we operate 53 dealer outlets that we call 4S shops that provide sales, spares, service and survey for motor vehicles.
For our food business, DCH is committed to building a total food supply chain. At this point, the majority of our food revenue is generated from midstream food distribution. We distribute food commodities such as rice, sugar and edible oils and are also mandated to distribute fast moving consumer good (FMCG) products for internationally recognised brands. We have 75 retail outlets called DCH Food Mart and DCH Food Mart Deluxe in Hong Kong, specialising in food products.
Our logistics segment used to be an internal department providing logistics services for our food and consumer product distributions. We have expanded it in recent years to provide third party logistic services. Our logistics facilities included temperature control and import and export bonded warehousing. The new logistics facility in Xinhui, in mainland China, allows us to provide value added services such as repacking, labelling and storage for our customers.
How are your treasury operations coordinated?
There are a total of more than 280 companies within the DCH group structure. Largely speaking we have a company for each line of business and a separate company for each brand in our motor business with a dedicated team of people looking after the operations for each specific brand. The organisational structure was set up so that each company has the ability to operate independently, having its own sales, marketing and support services team. As DCH grew larger it was necessary for us to coordinate the group in such a way that certain functions were merged together at the group level to support the individual companies, ensuring synergy. Therefore functions such as information technology, human resources and finance are centralised at group level.
The group has a very tight control over the treasury function and major transactions have to be centralised and approved by the head office. The head office also arranges banking facilities and extends these facilities to the subsidiaries. All the cash generated in Hong Kong is also centralised and monitored by the group treasury. In China, however, we have made use of entrustment loan arrangements to channel the renminbi that we generate to facilitate entities elsewhere that require funding.
We currently have a financial management system implemented but are looking to further automate our treasury. DCH is very prudent in financial management and exercises tight control over all treasury activities.
Are you facing any difficulties with the renminbi and how does its increasing value affect you?
In general we are in quite an enviable position. For two of our brands, Bentley and Isuzu, we import the vehicles directly to China and pay the suppliers in pound sterling and Japanese yen respectively so we are able to take advantage of the strengthening of the renminbi. However for our other brands we purchase from local distributors and therefore our exchange exposure is neutral. We are happy to keep our capital in China and continue to make use of surplus funds for acquisitions and new investments.
Looking ahead, what can we expect from DCH?
We plan to expand the number of our 4S shops in mainland China by adding 10 to 15 new shops each year. The strategy for our food business is to expand through three directions. Firstly we aim to expand our product range in terms of the number of brands and products that we represent in China. Secondly, we aim to increase the geographic coverage to second and third tier cities and we also want to expand the distribution channel to more outlets.
Additionally we will take steps towards further automation and are looking at the possibility of implementing a treasury system. Our target is to grow our top line turnover by 15% per annum and our bottom line net profit by 20% per annum. In terms of manpower we are dedicated to training and staff development and have implemented a management trainee programme to build up our management and talent for the future.
