MORE Malaysians have been opting for food delivery and takeaway, especially over the past two years.

       In the same period, there is also a sharp increase in home-based food and beverage (F&B) businesses.

       These trends have given rise to the strong demand enjoyed by packaging manufacturers, including SCGM Bhd, which is the country’s largest thermo-form food packaging maker.

       SCGM has recorded six consecutive quarters of improved food packaging sales, which constitute 85% of its revenue.

       While demand for its food packaging has exceeded pre-pandemic levels, SCGM has been impacted by costlier raw material prices and the foreign labour shortage.

       This explains why the group’s net profit fell by almost 10% year-on-year (y-o-y) in the first half ended Oct 31, 2021, despite the fact that the turnover increased by almost 20% y-o-y. Operating profit margin also shrank in the period to 14.8%, as compared to 17.8% a year earlier.

       To be sure, the higher raw material costs and labour shortage are industry-wide issues, not exclusive to SCGM alone.

       The sharp surge in resin prices since July 2021 due to the global freight issue and electricity crisis in China has weighed on SCGM, in spite of the company raising its product prices to transfer the cost to customers.

       Resin is SCGM’s main raw material that makes up about 70% of production costs.

       Speaking to StarBizWeek, SCGM managing director Datuk Seri Lee Hock Chai says the move to raise its product prices is only a short-term measure.

       In the mid-term, the group will be improving its operational efficiency by investing in higher-capacity machinery.

       “We have invested about 40% of our RM20mil capital expenditure (capex) plan for financial year 2022 (FY22), which includes buying new higher-capacity and higher-speed machinery to increase output and reduce manpower requirement.

       “We have installed an automatic stretch film wrapping machine that doubles our pallet wrapping speed, and needs only one operator per machine, compared to three people previously.

       “It also helps us reduce labour and time, and save on the cost of stretch film from more consistent and effective wrapping compared to the manual process.

       “Besides, we are currently commissioning two units of German-technology automatic high-speed forming machine that will greatly increase our cutting and stacking capacity from 72,000 units daily to 158,000 units daily.

       “We are also installing an automatic cup-lid production-packing machine that will hasten packing capacity by 33% to 800,000 units daily,” he says.

       On the issue of the foreign labour shortage, Lee says it has been a persistent problem over the past several years across various industries.

       He points out that the most labour-intensive process in SCGM’s operations is the final packing, while the production is largely automated.

       The group has been working to address the labour shortage issue through automation and by gradually increasing the local worker proportion.

       Looking ahead, Lee says that while demand would be sustained in the local market, SCGM is also aiming to generate better growth from overseas sales.

       “We have prioritised fulfilling local demand in the past two years and are now reigniting our export marketing efforts,” according to him.

       In the past one year, most of SCGM’s new customers have been from Malaysia.

       Foreign markets constituted about a third of SCGM’s sales in the first half ended Oct 31, 2021, with the top-five countries being Singapore, Australia, the Philippines, Indonesia and Hong Kong.

       “We intend to increase exports back to 50% of revenue in approximately three years,” he says.

       Currently, SCGM is actively re-engaging with overseas customers, comprising F&B players such as fruit growers, retailers and dedicated packaging manufacturers.

       Lee says that the group will be developing more customised packaging for the customer’s specific requirements. “For instance, we are developing advanced quality packaging that extends the shelf life of food in a safe manner.

       “Another innovation is packaging with enhanced locking systems to keep the integrity of food safety, not just at the point of packing, but also during the robust delivery process,” he adds.

       In addition, SCGM has also developed a new product to capture liquids from fresh food such as raw meat to prevent spillage when the food is removed from the packaging.

       This product removes the need for the absorbent pad, hence reducing the cost for the manufacturer, and prolongs the food’s freshness.“We are initially targeting the fresh meat sector for this particular product, and have sent samples to customers in Australia for product trial purposes,” says Lee.

       When asked why SCGM is more uniquely positioned than its industry peers, Lee says the group enjoys a cost and logistics advantage by virtue of having the largest thermo-form food packaging production capacity in Malaysia.

       The group is also supported by a strong distribution network to the domestic and international markets.

       “Also, unlike pure original equipment manufacturer players, we have a design advantage.

       “We are fully equipped with an in-house design and innovation team that is able to partner with business customers to enhance designs and develop new product features,” he says.

       As of the first half ended Oct 31, 2021, SCGM’s production facility utilisation rate stood at about 65%.

       This is expected to improve on the removal of Covid-19 operating restrictions.

       On dividends, Lee has assured shareholders that the future payouts would be retained as per SCGM’s dividend policy of distributing a minimum 40% of annual net profits to shareholders

       “We kept up our quarterly dividend practice even in the toughest of times in the financial year ended April 30, 2019 when we were in heavy-capex mode in building our current new factory,” he says.