Limited downside for private players

04/03/2009 - 22:00

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The conservative management of WA’s private businesses has left them in good shape

Limited downside for private players

IF there is a sanctuary from the global financial crisis in Western Australia, then big private business is clearly it.

Diversified and with limited debt, the leaders of some of WA's most established companies have provided insight into the longevity of their businesses through a series of in-depth interviews with WA Business News.

It might be the worst economic conditions since the 1930s, but iconic WA businesses such as Coogee Chemicals, Lionel Samson & Son, MG Kailis, Milne AgriGroup, and Betts are simply not showing the signs of stress apparent in their publicly listed peers or smaller brethren.

Of course, it would be wrong to say they have not been affected.

All of them are conscious of the current climate and have moved to limit the potential damage to their businesses.

Most have trimmed costs and, in the main, cut back staff numbers that reflected a high-growth footing. They have slowed expansion strategies to a more cautious pace, keen to take advantage of opportunities and lower costs, but only where the business case is cut and dried.

Those that were in the midst of significant developments remain on track, taking the view that nothing has changed enough to halt investment already under way.

In Coogee Chemicals' case, that is an expansion of its tank terminal at Kwinana and plant in Mount Isa, Queensland. For MG Kailis it's a major foray into seafood retailing, and for Lionel Samson's transport group Sadleirs it's the completion of a new administration block and terminal at Kewdale.

"We are not changing things much," Sadliers managing director Ian Cook said. "We're maintaining our [investment] cycle."

While the transport group has cut back overtime because it has less work, it has no plans to reduce staff at this stage, keen to retain the expertise in the ranks.

Apart from the changes to its premises, which were well under way when the crisis hit and are soon to be completed, Sadleirs is also mid-way through a big technology expenditure program.

"We are making a significant investment in IT," Mr Cook said.

A new transport system, through which loads can be tracked and traced, is being developed internally.

MG Kailis's new operational focus is different. Having acquired a number of Pilbara fishing licences, the company is planning to retail seafood for the first time with a new outlet set to open within weeks at Joondalup.

"In some ways it's a test-and-tune probe," managing director Alex Kailis told WA Business News.

"It will be something we can replicate."

A comparative newcomer to the scene compared to some of the other players is Croissant Express, a 22-year-old food retailer controlled by Jonathan Huston.

Mr Huston said business was up on last year, though he noted some store sales were down, suggesting factors at play other than the economy.

Like many of the businesses contacted by WA Business News, the staffing balance at Croissant Express was shifting back to the employer, allowing it to increase permanent employment and reduce casual labour.

"There is a fundamental reorientation in supply and demand in so many things," Mr Huston said, pointing out that staff, property and inputs were effectively in oversupply.

He has seen that in his efforts to develop new sites. With outlets at the international airport and Garden City planned, Croissant Express also wants to grow into the northern suburbs, where it is not represented.

"We are being selective with our sites," Mr Huston said.

"Negotiating terms with landlords and shopping centres is becoming more reasonable."

It's hard to imagine this business-as-usual approach being taken so universally across the listed company sector or among small business.

Listed companies are typically much higher up on the gearing scale and are pushed to produce growth by shareholders who compare them against their peers and broader benchmarks.

Small-to-medium enterprises are typically hammered hardest in a downturn because they have less diversity and financial strength to weather the buffeting.

A survey released last week by National Australia Bank found business conditions among SMEs were at their lowest rating since the data series began in June 2006.

Twenty-seven per cent of SMEs said conditions were "poor or very poor", compared with 23 per cent of them who said things were "good or very good".

NAB said SMEs were hoping the federal government's $42 billion fiscal stimulus package would boost consumer spending and improve conditions.

Business directly affected by the downturn in consumer spending, notably property services, residential construction and motor vehicle retail industries, were finding conditions tough.

The survey comprised interviews with 650 firms with an annual turnover of between $2 million and $10 million.

It found smaller firms - those with annual turnover between $2 million and $3 million - were the worst performing segment, while large-sized (turnover between $5 million and $10 million) companies had coped best.

On a state-by-state basis, the NAB survey found SMEs in South Australia, Victoria and WA appeared to be faring best.

However, business conditions remained poor in Queensland and New South Wales, which were the worst and second-worst performing states, respectively.

The economic picture is slightly different to that of Malaga-based shoe retailer Betts, which has 168 stores spread around the country."We are a reasonable barometer ... for what is going on both nationally and by state," said Betts managing director Danny Breckler, who offers his view with the distinction of having run the family company for 30 years.

In Mr Breckler's opinion, WA and Queensland remain the two strongest performing states, having not been as badly affected by the downturn at this stage.

But overall, business is down.

"There are lower levels of demand in the marketplace than there has been for two to three years, but it has been pretty good for two to three years so all of us are coming off a good base," Mr Breckler said.

Confirming that Betts will keep adding new stores, though probably at about half the rate of the past five years, Mr Breckler offers a shopping list of strategies that his company has employed in reaction to downturn.

It will also continue to develop its fledging offshore business, which started in August with a store in Dubai, and wholesale its Airflex shoes.

Like some of the other businesses that import, Mr Breckler said that sourcing products was becoming easier because the heat had also come out of the areas of production such as China.

Betts has tightened up expenditure, become more cautious about capital spending, stopped non-essential spending, cut staff numbers slightly and reduced hours for its large casual workforce, and dropped prices to keep products turning over.

These activities are not much different to most of the businesses spoken to by WA Business News.

Without banks on their backs, big private businesses don't have the pressure that many in the public and SME sectors do when it comes to debt.

None of the businesses that discussed the economic environment had high gearing, or even significant gearing, and all of them said they were on good terms with their banks.

Milne AgriGroup chief Graham Laitt reckons the big private players are less likely to have refinancing difficulties because they didn't have the relaxed borrowing practices in the first place.

"There is a big distinction between public companies and private companies because we never got runaway credit from the banks," Mr Laitt said.

"When we got loans, it was against tangible assets."

He said that, as a result, there had been no material change for his business on the finance side of the equation.

"We are finding that the banks are quite logical, cautious and logical," Mr Laitt said.

"The challenge for them (the banks) is to work out who will be hurt by this crisis."

From the conversations that WA Business News has had, the chances are that well-established private businesses are best placed to deal with the fall out.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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