06/03/2007 - 22:00

Buoyant times but issues remain

06/03/2007 - 22:00

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Western Australia’s second biggest home building group, Alcock/Brown-Neaves Group, neatly illustrates the challenges facing private businesses trying to manage the combination of rapid economic growth and spiraling costs.

Buoyant times but issues remain

Western Australia’s second biggest home building group, Alcock/Brown-Neaves Group, neatly illustrates the challenges facing private businesses trying to manage the combination of rapid economic growth and spiraling costs.

One of the group’s main subsidiaries, Dale Alcock Homes, enjoyed a boom result last financial year, with turnover increasing to $148 million and profit soaring 51 per cent to $11.3 million.

Yet a second subsidiary, Webb & Brown-Neaves, suffered a fall in turnover to $83 million and a 39 per cent plunge in net profit to $3.6 million.

Both companies said they were affected by shortages of staff, contractors and some supplies.

Director Dale Alcock said the key difference was that Webb & Brown-Neaves built larger homes with longer construction periods.

“Those homes are vulnerable to the increase in labour and material costs,” Mr Alcock said. “The builder is locked into fixed-price contracts without any rise or fall provisions.”

In contrast, Dale Alcock Homes was able to increase turnover and margins.

The published results of other home building companies indicate that most have managed to prosper.

Julian Walter’s JWH Group posted a bumper $7.8 million net profit last financial year following a $340,000 loss in the previous year.

JWH, which includes Oswald Homes, Rural Building Company and WA Country Builders, lifted sales by 52 per cent to $299 million, according to accounts lodged with the Australian Securities and Investments Commission.

Its turnover will be even higher in the current financial year when it has a full contribution from Plunkett Homes, which it bought for $3.6 million.

Gino Bastow’s Content Living also had a good year, with sales increasing to $94 million and net profit rising 15 per cent to $8.2 million.

While property has been booming, the resources sector has been red hot.

A succession of well-established WA companies with exposure to the resources and property sectors have opted for a stock market listing, to take advantage of the strength of the market and raise extra capital to fund their growth plans.

By far the biggest WA listing in the past year was Emeco Holdings, which is a major supplier of heavy earthmoving equipment.

It raised $944 million in its initial public offering, which it used to strengthen its balance sheet and fund international expansion of the business.

Henderson-based Nomad Building Solutions opted for a stock market float, less than a year after private equity funds had financed a management buy-out led by chief executive Phil Guy.

The $78 million float enabled the private equity investors to make a quick profit and also enabled Nomad to fund the acquisition of Wangara builder McGrath Homes.

Coote Industrial, Mineral Resources, VDM Group and Swick Mining Services were other established companies that opted for a float so they could exploit the current mining and construction boom.

VDM, for instance, has completed six acquisitions since raising $8 million in its February 2006 float and a further $12 million in June 2006.

The result has been rapid growth in revenue, up 428 per cent to $112 million, and net profit, up 182 per cent to $5.1 million.

Several WA companies were sold last year, in most cases to listed competitors.

These included the $34 million sale of mining software developer Surpac Minex Group to Canada’s Gemcom Software and the $30 million sale of Willeton-based Monarch Pool Systems to listed company GUD Holdings.

While many private businesses have enjoyed the boom, several prominent WA companies have gone through a major restructuring in the past year, including seafood producer MG Kailis, trucking company Mitchell Corporation and textile supplier Canningvale.

MG Kailis has either sold or restructured its interests in lobster processing, tuna farming and pearl production during the past 18 months, enabling it to reduce its debt and its trading losses.

Its most recent accounts for the year to June 2006 showed that revenue fell 25 per cent to $117 million while its net loss was $437,000, down from $4.8 million previously.

Mitchell Corp sold most of its east coast trucking operations late last year, following a period of rapid expansion.

With backing from AMP Capital Investors, Mitchell had expanded its trucking fleet so that it could chase new mine haulage contracts, but was badly affected when some of the contracts were delayed.

Rising fuel costs also hit the group, which reported a $21 million loss last financial year on revenue of $121 million.

Another AMP Capital-backed company forced to restructure its business was Canningvale, which closed its towel manufacturing operations.

Canningvale was hit by rising costs and increased import competition, and sees its future as an importer and supplier of towels to the Australian market.

The family-owned D’Orsogna group completed a major restructuring last year, designed to put its operating business on a stronger footing for national expansion.

The restructure included separation of the operating business from the family company D’Orsogna Bros Pty Ltd and conversion of debt to equity.

This followed a fall in profit to $2.7 million on sales of $81 million, which were unchanged for the year.

Rick Stowe’s The Griffin Group, one of WA’s largest private companies, is pursuing rapid expansion in its core coal mining operations and its energy generation business.

The scale of its expansion plans was highlighted by ratings agency Standard & Poor’s, which issued ratings reports on two debt issues by Griffin which totalled $US450 million ($A585 million).

S&P said Griffin was planning to spend $240 million over the next three years on the development of its coal mines and the refurbishment and expansion of the charring plant and coal-drying facilities.
Griffin is also developing the $400 million Bluewaters coal-fired power station, following construction of the $180 million Emu Downs wind farm.
Griffin is one of only two coal mining companies in WA, with its open-cut mining operation located adjacent to Wesfarmers’ Premier Coal business.
Gordon Martin’s Coogee Chemicals is another business that appears to be enjoying strong growth, albeit not on the scale of Griffin.

Coogee is planning to spend at least $48 million buying Nufarm Ltd’s 80 per cent interest in the Nufarm Coogee joint venture, which operates two chlor alkali plants in WA supplying feedstock to titanium dioxide manufacturers.
In the 2006 financial year, the joint venture generated an operating profit contribution to Nufarm of $9.1 million, up from $6.9 million in the previous year.

The transaction is due to be completed in July, with the final price determined at the completion date.

It will substantially boost the turnover of Coogee, which generated estimated sales of $198 million last year.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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