Staying ahead in a tough business

PHOTO: Staying ahead in a tough business
Mr Koh Boon Hwee.

Sunningdale Tech is a generally well-managed company which was previously led by Koh Boon Hwee with his vast experience and financial capability. In 2011, the group achieved a record revenue of S$426.1 million and a net profit of S$12.3 million before the impairment loss of goodwill of S$23.7 million. Including the impairment of goodwill, the group recorded a net loss of S$11.4 million.

Contract manufacturers and plastic parts makers continue to face tough competition and pricing pressure from customers. What more can Sunningdale do to upgrade its technology and processes so that it is the preferred partner of customers?

The group's balance sheet has improved in the past few years. Net debt (including current liabilities) to equity ratio was a healthy 0.5 at end-2011. How can Sunningdale use its balance sheet strength to take it to a higher operating plane in the sectors in which it operates?

Is investment in R&D and organic growth the way to go, or should it be more aggressive again in acquisitions, to add to its portfolio of products and services?

Mano: Please tell us about your group: its origins, current business and overall size.

Khoo Boo Hor: Sunningdale Tech Ltd is a leading manufacturer of precision plastic components. The group was formed through the merger of Tech Group Asia Ltd and Sunningdale Precision Industries Ltd in July 2005. The group provides one-stop, turnkey plastic solutions, with capabilities ranging from product and mould designs, mould fabrication, injection moulding and complementary finishings to the precision assembly of complete products.

Boasting a total factory space of more than 2.5 million square feet, with more than 600 injection moulding machines and a tooling capacity of 2,500 moulds per year, Sunningdale Tech is focusing on serving four key business segments - automotive, consumer/IT, healthcare and tooling.

With manufacturing facilities across Singapore, Malaysia (Johor), China (Tianjin, Shanghai, Suzhou and Zhongshan), Europe (Sweden and Latvia) and Mexico (Guadalajara), Sunningdale Tech is strategically positioned to target and capture opportunities in diverse business sectors from reputable customers globally.

Mano: What is your business model and strategy and how did you get to where you are now with your competitive advantages?

Khoo Boo Hor: The year 2006 was a challenging one for the group when one of the major telecommunication customers changed its procurement strategy to the ODM (original design and manufacturing) model which resulted in lower capacity utilisation. The group also anticipated trends in mobile phones moving away from plastic keypads to touchscreen technologies. Many suppliers in the industry were not spared. We also faced higher resin prices and pricing pressure from customers which affected margins.

In response to the challenges, the group took the strategic decision to convert the telecommunications capacity to other business segments, especially automotive, because of its long experience and solid reputation in this region.

The group also embarked on a restructuring exercise to optimise regional production resources, moving production to more cost- competitive locations, transforming Singapore into a management hub overseeing higher value activities such as global business development effort, programme development, process engineering, research and development work and overall management of the group.

Then in 2008, oil rose above US$140 (S$171.3) a barrel and the US dollar was at its weakest in the first half; orders began to fall as the global financial crisis hit. The US went into recession in the fourth quarter. The automotive segment was the hardest hit. Demand for automobiles in North America was expected to be the lowest in several decades. Automakers were all cutting back production and inventories.

However, not all things were bad. The group had many successes in the consumer/IT segment. The group was awarded several high-volume precision moulding and assembly projects. It also successfully acquired assets in Mexico to increase production because of its successful business relationship with a customer in Asia.

The healthcare segment, which has a longer gestation period and which the group had targeted for growth in 2006 due to more outsourcing of projects to Asia and more demand originating from Asia, started to yield some results.

Our competitive advantages are our tooling capabilities, expertise in high cosmetic parts, protection of customer's intellectual property, credibility in our healthcare business, scalable robust system and processes that we have built over the years.

Mano: What were your success factors in earlier years? Please elaborate on whether it was people, technologies, finance, access to markets, products/services, business environment or any other factors.

Khoo Boo Hor: The group was one of the earliest plastic companies in this region to transform its tooling operations in Singapore into designing and fabricating of high precision, high cavitation and technically demanding parts tooling. We thus moved up the value chain and stayed ahead of the competition.

The group was also one of the pioneers in Asia to specialise in automotive radio and climate control plastic bezels more than 20 years ago. The group developed capabilities in lacquering, laser etching technologies and other secondary processes to meet the changing automotive audio and climate control design trend.

Mano: You are progressing well as a group now. What are the success factors that keep your group growing?

Khoo Boo Hor: The group continues to build world-class capabilities for a competitive advantage. For example, we benchmark our tooling operations with world-class tool makers in Germany, Switzerland and the US. We invest in our process engineering to take on challenging high-gloss lacquering projects.

We compete in a global market. It is inevitable that we have to be very focused on our global business development initiatives to build a reputable and diversified global customer base. We take the Farmer-Hunter approach, growing with our existing customers as well as developing new ones. We also invest in marketing initiatives to establish our brand name globally.

We continue to identify new opportunities for growth. Five years ago, the group strategically identified the healthcare segment to further grow the company. We put together a business plan, dedicated team and production facilities with systems and processes that meet regulatory compliance and are ISO certified. We started with two customers and today the group has more than a dozen reputable multinational healthcare and pharmaceutical customers. Over the last few years, the healthcare segment was the highest growth segment in terms of percentage, year on year.

We continuously focus on operational excellence and cash flow management. Our clear focus on capital management and capital expenditure discipline has served us very well, generating positive cash flow. We have been able to reverse our net debt position of S$39.6 million at the end of 2006 to net cash position of S$23.1 million by the end of 2010. In 2011, we spent S$15 million cash to acquire three companies to expand our product portfolio offering, capabilities, market opportunities, customer base and footprint. We also invested S$23.3 million in property, plant and equipment, which included major expansion in Johor, Malaysia, as part of our manufacturing strategy.

Last but not least, we invest in our people, system and processes development for long-term growth. The group has implemented an ERP system to better manage the business.

Mano: What are your strategies for continued success in your activities (new or old) and how are you implementing these strategies?

Khoo Boo Hor: The business environment continues to be challenging. The strategies and fundamentals we have built over the last few years will serve us well as we head into an even more volatile period.

We remain very focused on building capabilities for competitive advantage, expanding our customer base, product portfolio offering and penetrating new markets through organic and good merger and acquisition opportunities.

Mano: What could go wrong with the group, given the many risk factors in your business overall?

Khoo Boo Hor: There are two challenging external risk factors:

?Due to our customer base, revenues are denominated primarily in US dollars and the euro, while costs are denominated primarily in Singapore dollars, Malaysian ringgit and the Chinese renminbi. The rapid weakening of the US dollar and the euro in recent years contributes to pressure on margins;

?The rising oil price trend over the year has been very unfavourable to the cost of our raw materials, which primarily are resins and paints. To mitigate the risks, we negotiate with our customers to include foreign exchange and raw material price fluctuation riders in the terms and conditions of contracts.

Mano: What would you consider to be key learning points for people in your company or group?

Khoo Boo Hor: To stay ahead of the competition and build sustainable long-term growth, we must remain focused on priorities:

?Improve capabilities and expand our product portfolio offering for a competitive advantage;

?Identify and develop new markets and business opportunities;

?Build a reputable and diversified customer base;

?Keep up operational excellence and cash flow management;

?Maintain robust systems and processes.

"We benchmark our tooling operations with world-class tool makers in Germany, Switzerland and the US."

- Mr Khoo