Winning formula in diversified food products

A down-to-earth business philosophy combined with laudable foresight planning as well as Malaysia's rich natural resources and stable political environment has turned a small trading company into a billion-ringgit multinational over the course of 27 years. Today, agriculturebased QL Resources Bhd whose core business includes marine products manufacturing, integrated livestock farming and crude palm oil (CPO) milling, is the largest fishmeal maker in Malaysia and the largest producer of surimi (processed fish paste) in Asia.

The group is also among the country's leading operators in animal feed raw materials and poultry farming, with a production rate of about three million eggs per day.

The diversified group made its debut on the then second board of the Kuala Lumpur Stock Exchange on March 30, 2000 with a market capitalisation of RM100mil.

In the same year, the group posted a net profit of RM12.9mil on the back of revenue of RM407.2mil.

In the 11 years after its listing, the group enjoyed phenomenal success with a 22% average ROE (return on equity) as well as profit after tax's CAGR (compounded annual growth rate) of 23% and turnover CAGR of 15%.

Today, the group's market capitalisation stands at RM2.7bil. It has more than 4,500 employees across Malaysia, Singapore, Indonesia and Vietnam.

For its financial year ended March 31, 2011, the group posted a 16.5% year-on-year jump in net profit to RM124.5mil on the back of revenue of RM1.78bil.
Income from the sea: The group has a fleet of 25 fishing boats covering Johor and Sabah.

Humble beginnings

QL Resources Bhd managing director Chia Song Kun points out that the group's rags-to-riches story was a no-nonsense, step-by-step journey.

The group's roots lie in the sleepy fishing village of Sungai Burong in northern Selangor.

“We started with very little capital. No bank would lend us money as we were small and had no track record. In those days, we collected sea or cockle shells from the fishing village and sold them as animal feed to poultry farms,” recalls the 61-year-old Chia, who founded the venture together with several of his brothers in 1984.

At that time, Chia, who is a University Malaya mathematics graduate, had left his job as a lecturer in Universiti Teknologi Mara, Shah Alam where he had served for 11 years.

“I was looking at starting a business and went back to my brothers in the fishing village. We thought it was better to do something that we knew well. At least my brothers did not need to be fishermen anymore it's a tough life,” he says.

Chia, who comes from a family with 15 children (he is the third eldest son among the nine brothers), had long-term goals for the business.

“We thought about what we could do in a fishing village. It should be a business that has good growth potential, and we decided on fish processing and poultry. These are typical and traditional activites; we just needed to do them in a big way.”

Chia also co-founded private college group Inti Universal Holdings Bhd in the mid-80s, which was taken private in late-2008 after being acquired by Laureate Education Inc.

Sniffing out opportunities

According to Chia, the formula behind the succees of the group, which was recently awarded “Company of the Year” at The Edge Billion Ringgit Club Corporate Awards, are its corporate values, namely “integrity, win-win, teamwork and innovative.”

“This is our corporate culture which has been practised as much as possible since the founding of the business,” says Chia, who cited as an example, the value of innovation in the growth of the group's marine products division which manufactures fish-meal, surimi and surimi-based products.

Surimi paste and products such as fish cakes and balls are processed from minced, small fish.

“Innovation is very important in our business strategies.”

Chia explains that there is typically a lot of post-processing waste in the manufacture of surimi products.

“In the old days, the fish cakes and balls were mostly hand made. The waste is very smelly and a nuisance. What we did was to use available technology to treat the waste in our factories and process it into fishmeal for aquaculture feed. So, there is zero wastage as the whole fish is utilised.”

In 1994, the group started to expand its revenue base by exporting surimi to Japan.

Chia points out that many Malaysian surimi manufacturers cater only to the domestic market.

“It is not easy to sell to overseas markets like Japan they are very particular about quality. But we had to attempt it in order to achieve a higher level of value creation. So we bought Japanese technology, learnt about their processes in making surimi, and manufacture according to their standards.”

Today, the group exports surimi to China, Singapore, Japan and South Korea.
A typical layer farm such as this one at QL Poultry typically contains about 1,000 chickens which can produce up to 100 tonnes of manure per day.

Value for all

Another example is the construction of a 500kW capacity biogas facility at the group's poultry farm in Pajam, Negri Sembilan, which could save up to RM100,000 per month in energy costs.

The biogas facility, fuelled by chicken manure, is due to be completed by the end of this year.

Chia says that with around RM5mil invested in the facility, the project's payback period was five years.

He points out that the project is also in line with the group's “win-win” corporate value.

“This is also part of our corporate social responsibility (CSR). By doing this, we remove the smell from the poultry farm which can be a nuisance for the nearby community, and generate power at the same time. I think a five-year payback period is acceptable to our shareholders.”

If the project proves to be successful in providing significant cost savings, Chia plans to install more biogas facilities at poultry farms in Kedah and Sarawak.

In fact, the group's very name incorporates its “win-win” value.

QL stands for “quan li (value for all)” in Mandarin.

“The business should benefit all stakeholders owners, employees, partners, customers, suppliers.”

Perhaps an interesting example of this is the group's financial assistance scheme for fishermen which started in 1987.

To date, the scheme has provided more than RM25mil in interest-free advances to 700 fishermen in rural villages.

Chia says the scheme, which is similar to microfinancing by the Grameen Bank in Bangladesh, allows fishermen to build and modernise their boats and at the same time, enables QL to secure its long-term supply of marine catch.

“To produce high-quality surimi, the fish needs to be fresh. So, the fishing boat must be well-equipped with a cold room and methods of keeping the fish fresh. We provide financial help to the fishermen, and they sell fish to us at market prices.”

Chia adds that QL's three marine product factories in Hutan Melintang (Perak), Endau (Johor) and Tuaran (Sabah) also provide employment opportunities for local communities.

QL's Hutan Melintang complex is the largest integrated marine processing plant in Malaysia.

“In order for a business to carry on smoothly and grow, all participants in the venture must win. However, a win-win situation is only possible if we create extra value that is the challenge.”

Surviving tough times

Meanwhile, Chia points out that QL's core value of integrity has also been crucial.

“The banks never pulled back our credit lines in the 1997-1998 Asian financial crisis, which was a challenging period for us. The US dollar was high (ringgit was pegged at RM3.80 to the US dollar) and it was tough as we import a lot of raw feed materials,” he recalls.

Chia says QL's core value of integrity stemmed from the group's humble beginnings.

“We started from scratch. So to gain trust from customers, suppliers and financial institutions, one must build a good reputation. In other words, be honest and always honour agreements even if you have to make a loss. This is easy to say but tough to practise. So you also need to have a lot of business savvy. In the long run, you still win.”

On the value of teamwork, Chia says all employees of the group need to “sing as a team”.

“Of course, one must have tolerance in any team, there are bound to be differences of opinion. One important philosophy we have is leadership by example. The management must not be involved in unethical practices.”

Chia says employee turnover is very low. “We offer attractive incentive packages.”