Building a big business brick by brick
(2000-11-13)

Building a big business brick by brick

FEDERAL Hardware Engineering Company's story is typical of many rags-to-riches, small-to-sizeable enterprises.

From its humble beginnings at a 100 sq ft rented office space at Koon Seng Road, the company is now the owner of two freehold terraced premises in Genting Lane and a detached factory in Tuas.

That founder and chief executive Koh Kian Kiong is extremely proud of this fact is, well, patent. He has chronicled every brick-and-mortar purchase as major milestones for Federal. The company brochure proudly records this fact in the introduction.

But more important than the hardware is the software that Federal provides its customers - its reliable and quality services.

"We are the only company which has the products and is able to do the testing in-house as required by the customers at no charge," said Mr Koh.Federal's other edge is its ability to deliver fast to customers and to modify and install according to customers' needs.Profitable from the start The company was set up in 1974 to supply valves and related products such as pipes, pipe joints and valve accessories to the building, heating, ventilating and air-conditioning industries.

"We have been profitable since day one," said Mr Koh, adding that he and his partners, John Yeo and Ronnie Chew, ploughed back the profits into the business.

"In 1975-76, we diversified from water to oil and gas, where the money was," he said. Federal expanded its activities to distribute engineering goods and materials to the oil and gas industry. In the '80s, it moved into the oil rig industry. Federal grew slowly as the conservative partners preferred to finance expansion with profits rather than bank loans.

Today, Federal's main business is distributing flow-line control products to the oil and gas industry. Sales of valves and pipe fittings account for more than half of the company's turnover.

One of the company's strategies is to stock as many different products as possible to meet the emergency needs of its customers. "When there's an emergency, we are talking about yesterday's delivery," said Mr Koh. In other words, customers are willing to pay a higher price for the products.

Federal also does procurement for builders of onshore and offshore oil rigs. It also has a service centre which does fabrication, modification and testing work. The other divisions distribute electrical and marine-related products.

Provision of fire protection and detection systems, as well as information technology system solutions, is now also part of its business.

Federal's major markets are Malaysia (30 per cent), Singapore (25 per cent), Indonesia (20 per cent), and China (7 per cent).

Last year, it raked in profits of about $8 million on a turnover of about $80 million.

This year, the business environment is tough, said Mr Koh. "Because of the economic crisis, many projects were suspended or put on hold. Also, we have a rather unstable situation in Indonesia."

The business is there. But the customers ask for long-term credit and some of them may not be able to pay. "So we dare not touch them. We'll have sleepless nights. We don't want to age ourselves this way," said Mr Koh.

Prospects, he reckoned, will be rosier in 2001/2.

Mr Koh noted that Federal had gone through many recessions and had managed to pull through with marginal profits. Luck, he said, played only less than one per cent in those outcomes; more than 99 per cent is hard work, how much time you spend with a customer, he said.

Vision, attitude and commitment are key

The key success factors are vision, attitude and commitment, said Mr Koh.

All these years of hard work seem to have paid off for Mr Koh. Just two months ago, Federal realised the dream of every company - a public listing.

A holding company, Federal International, was set up to own Federal Hardware. Federal International then issued 44 million shares at 30 cents each for listing on the main board of the Singapore Exchange (SGX).

Mr Koh said Federal intends to use the net proceeds of $12.2 million from the initial public offer to expand its service and testing centre and consolidate its business operations in Singapore.

He also intends to further broaden its already extensive distribution network in the Asean. In addition, he plans to set up a sales and procurement office in Europe and in Houston, Texas, in the US.

In addition, Federal may also go into joint ventures with its principals to manufacture certain goods here. Most of Federal's products come from Europe, the US and Japan. Enterprise 50 is an annual ranking of the top 50 privately-held Singapore companies and is organised by The Business Times and Andersen Consulting with the support of the Economic Development Board. Federal Hardware was ranked 47th last year.

  
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