Poh Seng Kui, managing director of Nam Leong, said while discussing the company's journey that he believes that the company has been able to overcome challenges because of its careful control of its cash flow and debt positions.

Control cash flow strictly, avoid excessive borrowing

Mr Poh said that the company exercises strict control over its cash flow to avoid excessive borrowing; this has helped it overcome the impact of the current economic crisis. In addition, Nam Leong has also stepped up monitoring of receivables. Even though this will inevitably affect its sales volumes, nonetheless, its operations have continued to run smoothly and regularly.

Nam Leong was initially founded by eight partners in 1958. The father of Poh Cheng Seng and Poh Seng Kui was one of the partners. The company initially started as a licensed moneylender but later started a hygiene products business, supplying sanitary wares and bathroom-related products.

Nam Leong has now grown into a sizeable company with 70 employees - despite starting out as a small business.

Poh Cheng Seng recalled that the company had less than 10 employees at the time. It had no salesmen back then and all sales were done through simple buying and selling. In 1968, the partners of the company separated into two groups under a Nam Leong holding group - including the father of Poh Cheng Seng and Poh Seng Kui as well as their uncle. Poh Cheng Seng, who joined the company in 1974, is now serving as its chairman but he achieved this by working his way up from the bottom, tending to the company's store.

Poh Seng Kui, the younger brother of Poh Cheng Seng, joined the company in 1982. He also started his career by working from the bottom up as a lorry driver delivering goods. However, after he joined, the company went through several transformations. Nam Leong shifted its focus away from hygiene equipment to concentrate on machinery and engineering in 1983. It began producing and exporting steel pipe systems which were mainly used in fire protection and air-conditioning installations and as materials for the shipbuilding industry.

Poh Seng Kui said that the reason the company had to change was because the sanitary and bathroom products it was producing were all fragile items. Sometimes they were broken by careless customers during inspection, thereby causing losses to the company.

"If they were made of steel, they wouldn't break at all even if you drop them! "

This simple idea has helped to sustain Nam Leong in the steel business until this day. The company has since developed into a major supplier of steel pipings, welding parts and industrial valves in the region. Its sales volume climbed steadily to new heights in 2007 and 2008.

But it was tough to change its core business since the company had no prior experience into the steel business. It also had little knowledge about managing hardware products. Nam Leong had no reputation in the industry.

From selling six shelves of products to sixty

How did the company manage to gradually gain a foothold then?

Poh Seng Kui said: "I took the initiative to approach contractors whenever I heard about fire protection installation projects to introduce the features and prices of our products in order to win over more customers and to build market confidence in us. "

This has helped the Nam Leong's sales rise steadily from selling six shelves of products in the first year to a volume equivalent to 60 shelves.

Poh Seng Kui said that the company's strength lay in the fact that it was able to provide customers with a comprehensive system that catered to their needs. Even though the products by Nam Leong may be a little more expensive compared to those offered by other competitors, customers could be better assured of product quality - with an ISO 9001:2000 Quality Management System certification received in 2003.

As the sales of a company reach a certain level, larger storage facilities are usually required. Poh Seng Kui said that Nam Leong acquired a new warehouse not long ago, bringing its total number of warehouses in Singapore to three.

A company that has thrived for over half of a century certainly has its own formula for success. Poh Cheng Seng admitted that the Asian financial crisis 10 years ago had not done much damage to the company. In fact Nam Leong encountered its toughest period in the late 1970s.

He recalled that it was caused by the company's internal problems. His father and uncle, who were both founding partners of the company, parted ways and the company recorded lower turnover during that period. Poh Cheng Seng had just joined the company at that time. Nam Leong was able to ride through that difficult period eventually with the financial support of his father. That crisis taught the company an important lesson that borrowings should be carefully controlled.

Strict credit controls helped the company greatly in the 1997 Asian financial crisis. The crisis was a proving ground for the capabilities of Nam Leong. The market saw the arrival of many competitors, selling similar products at that time.

However, stiff competition did not deter the brothers, as Nam Leong had already acquired an established reputation in the industry. In 2000, Nam Leong sought to expand its business by diversifying its operations to include piping for construction, fire fighting and air conditioning uses in addition to its existing focus on steel plates.

Manufacturing became another part of Nam Leong's business. Other than producing pre-insulated pipes locally, Nam Leong has also invested in producing under its own brand in China. The company has become a supplier of a broad range of steel products. While focusing on Singapore as its principal market, Nam Leong also exports its products to Indonesia, Malaysia, Vietnam, and even Dubai in the Middle East.

As Nam Leong's reputation rose within the industry, the quantity of its projects has increased as well. Currently, Nam Leong supplies steel pipings, welding parts and industrial valves to clients in the shipbuilding, marine and construction industries. These include major shipyards in Singapore. It was also involved in the air conditioning piping works at Changi Airport Terminal Three.

Being in the steel products business, fluctuations in steel prices greatly affect the company's turnover and profits. The recent steep fall in steel prices has resulted in the company facing losses for two consecutive quarters.

Poh Seng Kui is hopeful that steel prices will stabilise in the third quarter. "No matter what business you're in, there's nothing to fear as long as you do not owe too much money. In times like this, the company should adopt a 'defensive' posture, carefully choosing only dependable and creditworthy customers."

Nam Leong will cope with the current economic crisis through exerting careful control over its cash flow to avoid accumulating too much debt, said Mr Poh. Also, the company will carefully monitor its receivables to ensure sufficient liquidity. Although the company's performance has been affected, Nam Leong has been running as usual.

Prudence in loan and credit management

Just as banks have become cautious in giving out loans, Nam Leong has been similarly quite careful in granting credit to its customers, said Mr Poh. In the past, customers could enjoy a credit term up to five to six months. This has now been reduced to 60 to 90 days, a privilege granted only to trusted customers.

Although times are hard, the government has launched a series of measures to help companies make it through this difficult period. One is the Special Risk-Sharing Initiative (SRI), which Mr Poh said has been very helpful to the company. It is also encouraging that the government has kept launching new projects. For now, the company will continue to recruit new staff in preparation for its future growth.

Currently, Nam Leong is involved in several major projects, including the Integrated Resorts. Mr Poh said that the company has enough projects to tide over the year.

In year 2007, Nam Leong reported a business turnover of over $70 million. Last year, the company did equally well and was awarded the Singapore SME 500 Sales Turnover Excellence Award. However, due to the current economic crisis and major fluctuations in commodity prices, Nam Leong expects to see a drop of 20 to 30 per cent in its annual turnover this year.

Maintaining a stable gearing ratio

Tan Siew Meng, Head of Commercial Banking at HSBC Singapore, underlined the importance of maintaining a stable gearing ratio. The optimal gearing ratio depends on the company's nature of business and its stage of development.

In certain industries, companies require a larger amount of working capital. For such cases, bank loans are a necessity. For small and medium enterprises that are expanding, additional capital will help them reach a level of growth that is otherwise unattainable with their own resources.

Ms Tan said, "At HSBC, we spend time understanding our clients and their business needs. This is why we are able to provide advice to help our clients maintain a suitable gearing ratio."

HSBC provides financing based on receivables

She also added that there are a variety of financing schemes available for small and medium enterprises. Each of these is designed to meet different needs. HSBC provides a financing scheme that is based on receivables.

This is different from the traditional secured loan schemes. Small and medium enterprises in need of additional working capital can now receive financing based on their receivables instead of pledging physical assets as collateral. This is especially feasible for companies with a good business track record.

More and more companies are choosing this scheme for its effectiveness. Its terms are more attractive than that of short-term loans as well.