Entrepreneurship: Fertilising growth

This article first appeared in Unlisted, The Edge Malaysia Weekly, on September 14, 2015 - September 20, 2015.
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Datuk Ong Soon Ho is a brave man and a great father in the eyes of his son, Datuk Eddie Ong Choo Meng. The patriarch may have had a traditional upbringing, but unlike most fathers, he was open to his son’s ideas despite the fact that Eddie was only 24 when he joined the family business.

Three years later, after bringing in a professional management team to revamp the company’s stone-age computer system and shake up its product line, Eddie took over the running of the business, which is now known as Hextar Holdings Sdn Bhd.

Ong senior’s confidence in his son was not misplaced. Eddie was financially savvy and knew how to tap external funding to grow Hextar into a RM100 million company.

Hextar has seen a compound annual growth rate of 30% in the past 12 years, and it is now the largest local pesticide company in the country. In fact, its 23% share of the RM900 million market is 2.6 times larger than its nearest competitor, according to Eddie.

But he is not half done yet. “In 2020, we aim to triple our revenue to RM2 billion, with a net profit of more than RM120 million,” he tells Unlisted in an interview.

Eddie has big plans for Hextar. For starters, the company will invest RM150 million over the next three years to acquire 20 acres of land and set up four new factories. Two of the factories will be in Malaysia while the other two will be in Indonesia. These factories will manufacture the company’s agrochemicals (including pesticides and chemical fertilisers), industrial chemical products and its newly developed corn seeds.

 

Transforming the family business

Eddie, who had studied economics and finance at the Kuala Lumpur Metropolitan University College, did not join his father’s company immediately after college. First, he started an interior design company with a friend, which generated enough income for him to invest in a soya bean milk factory a year later.

But in 2001, hot on the heels of the dotcom crash, his companies started to have cash-flow problems. It was at this time that his father asked him to join Hextar. “I hesitated because I have no background in agriculture, which, let’s face it, is not a glamorous industry,” Eddie laughs.

The industry may not be glamorous, but it is — as he found out — recession-proof, which is even better. Eddie joined the company as an executive director in 2002 and took the helm three years later. 

Hextar had gone through a bad patch during the Asian financial crisis in 1997/98. Although the company was run along very conservative lines, it was affected by the depreciation of the ringgit, which made its products more expensive. 

The ringgit fell to RM4.80 against the US dollar while interest rates spiked. The effects were considerable and the company lost several million ringgit on revenue of less than RM10 million. It had no choice but to sell 60% equity interest to a new partner who had the cash to tide it over. The partner, who was a family friend, allowed Ong senior to continue running the company.

By the time Eddie came on board, it was already on the road to recovery. Between 2002 and 2004, revenue had almost tripled to RM60 million from RM26 million.  

The first change Eddie suggested was that they professionalise the management. He told his father that the traditional notion of keeping the business in the family would just not work. 

Amazingly, his father did not raise a ruckus. He agreed to the suggestion, which resulted in the company having a management team that included professionals from outside the family for the first time. 

Eddie brought in Ng Kwang Yew to take charge of research and development and Lee Chooi Keng to run operations. Eddie himself was in charge of the company’s finances. Today, Ng, Lee, Eddie and his father are known as the “four pillars” of the company.

Although Eddie did not have a background in agriculture, he was assiduous in running the business and tackled almost every aspect of it, from getting the right computer system to branding its products. 

When he came on board, he was shocked to find Hextar using the old Lotus 1-2-3 software for its daily operations. Lotus 1-2-3 was the first publicly available programme to combine graphics, a spreadsheet function and data management, making it very popular in the 1980s. But by the time Eddie joined the business, it was severely outdated. 

Eddie invested heavily in a new computer system. He faced a lot of internal resistance because, having done things the old way for so many years, the employees were quite content to keep on doing so. But he was nothing if not determined and managed to pull through.

He also streamlined the company’s product range, going for those with more efficacy and efficiency. The company would bring in international products and sell them to the Malaysian market under the Hextar brand name.

Once the company was on a more solid footing, Eddie and his father turned their attention to buying back the 60% equity interest from the partner. “My father said if we could afford to buy back the shares, we should try.”

But despite seeing a rapid increase in revenue, there wasn’t enough capital to buy back the shares. “After two years, we decided to take a loan and make an offer,” says Eddie.

Here, his financial knowledge came into play. Unlike his father, who was conservative and would not have dreamt of taking out a loan to pay off a shareholder, Eddie knew it was fine to borrow for the right reasons.

“My dad is more conservative. He will only invest with money he has or buy what he can afford. But I studied finance and investment, and I know about the principle of leverage. After I joined the company, we started to build our reputation and become more well-known,” he says.

They tried to mortgage their home to get the loan, but the bank’s CEO informed them that it could not be approved because they were asking for too much. Eddie refused to accept the verdict. “I argued and reasoned with the CEO until the deal was approved,” he recalls.

Eddie based his arguments on the strength of the company and its demonstrated growth over the past few years. And true to his word, he paid off the loan promptly, thereby sealing the bank’s trust in Hextar.

“The bank grew to trust us because it saw that we were genuine and capable of repaying our loan. We built a relationship with other banks as well. We valued our integrity and have never failed any of our financiers, suppliers and customers,” he says proudly.

 

A new playing field 

After buying back the shares, Eddie focused on growing the company further. “We were already one of the largest agrochemical companies in Malaysia by 2007. We wondered what else we could do,” he says. 

Hextar decided to move into fertiliser trading and planned to leverage its existing customer base; those who bought pesticides would also buy fertiliser. Nobody could have foreseen the extent of the devastation caused by the 2008 global financial crisis, which saw fertiliser prices falling by more than half only a year after the business started.

Fortunately, as fertiliser trading only made up a small portion of the company’s business, it didn’t suffer huge losses like it did in 1997. “We sold both pesticides and fertiliser to the same people in the plantation industry. The drastic drop in fertiliser prices didn’t affect our core business, which is pesticides, as our customers continued to support us,” says Eddie.

Also, Hextar was only trading in fertiliser at the time. It was not until 2010 that it acquired a manufacturing plant to produce fertiliser.

The financial crisis held back the expansion plans of many companies, but not Hextar. Instead, Eddie saw it as a time of great potential and continued to make inroads into the fertiliser business. At first, his plan was to set up a manufacturing facility. But in 2010, when he was introduced to an owner of a fertiliser plant who was looking to retire, he grabbed the opportunity to acquire the company, Yinpolin Agriculture Sdn Bhd.

Once again, Eddie called on the banks to help. “Like the management buyout before, the difficulty was in financing the acquisition. We were a growing company and didn’t have a huge war chest for a big acquisition,” he says.

“We went to the banks and gave them the story behind the acquisition. We told them the fertiliser business was very similar to ours and we would be able to run and grow the company.”

This time, in view of the company’s growth as well as his track record, he was able to persuade the bank without much fuss. Three years after acquiring Yinpolin, Hextar was three times its size. Today, 65% of the group’s revenue comes from pesticides, 30% from fertiliser and 5% from industrial chemicals and the oil and gas industry. 

“I am 37 years old. I am young and the growth element is very much in me. I am very aggressive in growing the company and I am always looking for businesses to venture into,” says Eddie.

Hextar recently acquired a majority stake in a local mechanical engineering company to pave the way for the group’s further development in the O&G industry. Eddie says the biggest challenge for Hextar now is to maintain its track record of double digit annual growth rate, which it has maintained for the last 12 years. It is also planning to expand globally, but he is not willing to divulge any details yet.

Hextar exports its pesticides to more than 30 countries in Southeast Asia, Africa and South America, and its fertiliser to six countries.

 

Creating the right platform 

Eddie is now trying to do for others what his father did for him — create the right platform for the employees to grow. Hextar today has 17 people in top management (including 11 directors in the group’s subsidiaries), and he tries to support them in whatever way he can.

Eddie does not think a company can grow by just increasing its revenue. It ultimately goes back to the people and platform you can provide for that growth.

“How can a company grow if you don’t create the platform and infrastructure for the people? A lot of people claim they want to grow their employees. But where is their platform and infrastructure?” he asks.

“They don’t create, but I create. I not only bring in top people, but also machinery and land. I bring in top assets. That’s how we grow.”
 

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