By MAYBEL CHONG

THESE are difficult times for SMEs in Singapore, given the bleak global economy. But that has not stopped Farlin Timbers from making it to the Enterprise 50 list this year, for the fourth year running.

The timber firm saw a 33 per cent jump in turnover to US$320 million for its fiscal year ended June, 2008, with an after-tax profit of US$1.6 million.

Its push into the Middle East, which is enjoying a construction boom, has helped significantly in boosting revenues. For the first nine months of 2008, the Middle East market alone contributed US$100 million in sales to the group, says general manager Naarayan Raaghavan. Its other key markets are India and China.

The key to Farlin's success lies in its ability to size up promising new markets - some of them in challenging countries - and establish a presence quickly. For instance, it went into the Middle East market two years ago. 'Once we saw that there was a huge potential there, we decided to move over to Dubai (and) we established our own company there in the export processing zone in Jafza,' said Mr Raaghavan.

Using the Middle East as a base, the company expects to target emerging markets such as those in Africa and to capitalise on growth opportunities in the Eastern belt, that is, countries like Iran and Iraq.

In January next year, its warehouse that would be ready in Dubai would become a distribution centre for the entire Eastern belt, according to Mr Raaghavan. Buyers and sellers from countries such as Kenya, Somalia, Iran and Iraq would come to Dubai to source for their finished product requirements and this would be a growth opportunity for Farlin.

The company was set up in Australia in 1988 by Mohammed Farouk, and shifted its headquarters to Singapore in 1999. Mr Mohammed, an Australian citizen, has since taken up permanent residency in Singapore.

China plans shelved

Despite the plans for expansion, Mr Raaghavan admits that the current financial crisis has affected Farlin adversely. 'Inter-bank lending has completely dried up and there's much less liquidity in the market,' he says. This has jeopardised its ongoing activities because banks are reluctant to open up letters of credit or even finance simple transactions. One result of the tight credit market is that the company's plans to build a manufacturing unit in China for veneer products has been shelved for the time being.

While it is taking a wait-and-see approach for now, it fully intends to get back on track in China at some point to capitalise on the growth there.

Meanwhile, volatile oil prices are an issue, leading the company to renegotiate freight fees with both buyers and suppliers. While the dramatic drop in oil prices should spell good news in terms of lower shipping costs, it has not worked out quite that simply.

The problem is the volatility in prices, which has made Farlin's buyers prefer to defer orders as they expect oil prices to drop even further, while suppliers, on the other hand, want to confirm orders as soon as possible, explains Mr Raaghavan.

In spite of these challenges, Farlin's business model - with a multiple-buyer and huge customer base - has worked effectively in helping the company perform well in today's business climate.

Mr Raaghavan says that the company's 500 to 600 buyers - which range from construction firms to toy companies - are still with them, with none having withdrawn from any deals despite the volatile markets. That's because Farlin offers them 'a comprehensive portfolio of products from various countries unlike other competitors who only specialise in one or two countries'. Farlin sources from Indonesia and countries like Gabon and Ghana which gives it a cost advantage as well as a wide range of products.

Farlin's principle of not shipping any cargo that has not been inspected by the buyers or representatives, also plays a part. This has given its customers full confidence in the company as the practice ensures the quality of the shipment.

This provides the company with considerable leverage among players in the industry.

But what its customers appreciate most is the personalised service that allows the company to fully understand their activities, and an assurance of quality.

With a strong presence and a supportive customer base established in its operating markets, the company has big plans over the next few years. It aims for a listing on the Singapore bourse in 2011 and is aiming to become a billion-dollar company by then. Mr Raaghavan expects the total revenue contributed by its operations in Australia, Dubai and Singapore, estimated at over US$300 million each, to meet that goal.

Listing advantage

'If you look at having a public issue in 2011, you'll be essentially merging all these group companies together to prepare a holding company, and the group turnover will be a billion dollars,' he says. A public listing will help Farlin in a big way with regards to reducing its cost of funds. Mr Raaghavan explains that the banks were previously offering Libor plus base rates.

'But that has changed now in the light of the financial crisis,' he says. Today the premiums are much higher and this has directly impacted the business. So a listing would help Farlin access public funds at a lower cost.

In the run-up to a listing, the company plans to grow its current base of 150 employees worldwide to 250 or 300 over the next few years.

The good news for Singaporeans hoping to work with Farlin: the company is looking to employ a greater number of home-grown talent, as it feels that locals here are equipped with the necessary language capabilities particularly when it goes into China.

As part of its expansion strategy, its timber business would not be the company's sole venture in the near future.

According to Mr Raaghavan, the company hopes to 'diversify into coal and scrap business in a big way' in the next 10 years. This aspect of the business currently makes up less than one per cent of the company's income.

It also hopes to be a major player in the finished goods market - such as plywood, medium density fibre woods, veneer and sawn timbers - where the company sees potential for phenomenal growth. Its move to diversify is partly due to the fact that it sees steady growth prospects in the longer term for its trade in the timber round logs market in India, for instance.

It has already taken concrete steps towards that goal, as the company has started to source products from new markets and diversify its supplier base. It is purchasing supplies of finished products such as plywood and veneer from countries such as those in Africa and eastern Europe. It is buying similar products from New Zealand, China, Malaysia and Chile for its Middle Eastern market.

Says an optimistic Mr Raaghavan: 'Keep looking for opportunities because in challenging times there are opportunities that appear, but we sideline them because we only focus on our problems.'

This article was first published in The Business Times on 24 November, 2008.