This article first appeared in The Edge Financial Daily, on March 28, 2016.

JOHOR BARU: When Turkish soap heavyweight Evyap Holdings AS (Evyap Group) commenced operations of its Malaysian plant here in 2014, crude palm oil (CPO) prices had just tumbled to the lowest in over five years to RM1,914 per tonne a month earlier, weighed by larger-than-expected global vegetable oil supplies and low crude oil prices.

“Challenging” was the word Evyap Group chairman Martin Rudolph used to describe how it was for the group back then, as its profit margin came under pressure because it could not price its products higher with low CPO prices.

“We were at the lower end [of prices]. Margins were really melting,” he told The Edge Financial Daily after a media visit to the group’s Evyap Sabun Malaysia plant last week.

“It [suddenly] didn’t look so promising anymore. So we had to fight hard, to learn to fight in hard times. We have [learnt] to be patient because prices will go up eventually,” he added.

It seems the time is now here, as the prolonged El Nino phenomenon has been hurting oil palm production, trimming supplies and pushing up prices. With expectations of drier weather to come, CPO prices are expected to hit the RM3,000 mark before the end of the first half of this year.

“It is a good time to breathe,” said Rudolph, laughing. “Last year was really tough,” he stressed, adding that changes in CPO prices typically take between three weeks and a month before they impact production costs.

However, as Evyap Sabun Malaysia is not an upstream palm oil player, Rudolph said it does not get to enjoy as high a profit margin as oil palm planters tend to when prices recover. Therefore, innovation — in both coming up with new products and raising its manufacturing efficiency — is key to further margin expansion.

“We are talking to downstream customers to collaborate and find good ways to innovate our product portfolio,” he added.

Its Malaysian operation now has six to eight suppliers that provide the company with CPO, palm kernel oil, crude palm kernel oil and palm stearin.

Evyap Group, one of the largest privately owned soap manufacturers in the world, which also produces baby diapers, toothpaste and a myriad of other personal care products, was founded by Mehmet Rifat Evyap in 1927.

The group — which has production plants in Turkey and Egypt — plans to shift its entire bar soap production from Turkey to Malaysia by the end of this year.

The move was initiated due to cost effectiveness, following the shift in the feedstock of its soaps from tallow to palm oil in 2010 — in line with the general movement of the soap industry — and Malaysia is the second-largest palm oil producer in the world.

It has invested US$200 million (RM806 million) so far in the Johor plant and 60% of the 22.5ha integrated factory is currently in operation, with the remaining 40% reserved for future expansion.

The plant is now operating at 75% capacity. At full capacity, it can produce up to 350,000 tonnes of bar soaps, fatty acids and glycerine, making Evyap Sabun Malaysia one of the largest downstream palm oil players in Malaysia.

In 2014, the Malaysian plant produced 136,660 tonnes of bar soaps alone for the group’s own captive consumption.

The group, which also offers contract manufacturing to other multinational corporations (MNCs) such as Johnson & Johnson, sees the highest sales of its products coming from Turkey, Iraq and Russia.

Rudolph said the group plans to distribute its products in Malaysia in one to two years, and is currently looking for partners to build a local distribution network.

He said the group is currently conducting market research in Malaysia to cinch it market share in Malaysia’s saturated soap and personal hygiene market.

“Everywhere in the world, you have Colgate and Unilever. The important thing is to cater to the unique needs of consumers not served by MNCs,” he added, saying the disadvantage of MNCs’ products is their uniformity and standardisation.

Rudolph, who previously served for more than two decades in Nivea, said the group plans to increase the Malaysian plant’s capacity utilisation to 85%, in line with its plans to launch new products in new markets and expand its customer portfolio.

Though the group is poised to enter the Malaysian market, he said attracting the right professional talent had been difficult.

“We are not known in the industry. We are not on people’s radars,” he said, adding that many applicants are not knowledgeable in the bar soap segment of the fast-moving consumer goods industry.

“We have been producing bar soaps for 80 years in Turkey. The employees there are very well versed in operations there. So we have to train staff [here] to get them up to date,” he said.

However, he said the Malaysian business environment had been very accommodative to the company. “We get export tax breaks for 10 or 15 years. It is highly appreciated.”