A LOSS of nearly $50 million in an established enterprise would set investors’ hearts pounding in the listed sector, but the patient capital of private business views things differently.
A LOSS of nearly $50 million in an established enterprise would set investors’ hearts pounding in the listed sector, but the patient capital of private business views things differently.
At MG Kailis Group, managing director Alex Kailis appears unfazed by the red ink, which has resulted from big accounting write-downs linked to a restructuring process and the global financial crisis.
To some degree these are the same matters that put MG Kailis in a loss-making position last year, however the numbers are much bigger, with the company recording a $48.5 million loss for the year ending June 30 2009, compared to a shortfall of $2.4 million the previous year.
The operating loss was $5.2 million after sales of $81.1 million, down from a $4.4 million operating profit the previous year on sales of $95 million. Net assets were $105.4 million, down from $155 million.
Mr Kailis argues that accounting standards treat biological assets harshly, notably pearl production.
“We are still in a period of transition,” Mr Kailis told WA Business News from the company’s Mews Road office boardroom overlooking Fremantle’s Fishing Boat Harbour – that odd amalgam of seafaring industry and retail offerings, a mixture that has been mimicked by the modern day composition of the 47-year-old business.
“The big thing that happened in this accounting period was exiting the pearl farming.”
MG Kailis, a pioneer in the farming of Broome pearls, sold out for an undisclosed sum to Darwin-based Paspaley, the biggest player in the sector.
The pearl sector has slumped and MG Kailis, which own the pearls harvested in 2010, has been forced to write down the value of those assets.
Mr Kailis expects to realise significant cash flow from those assets in the future.
Pushing itself further up the food chain has been something of a recent hallmark for the company that boasts a quality board led by chairman Tony Iannello, the former CEO of Western Power, who is joined by investment banker Jenny Seabrook, former banker Barry Nazer and Mr Kailis’ brother, George, a business academic.
Despite exiting the pearl production business, it remains in jewellery with its Kailis brand. Mr Kailis said the luxury goods market had suffered in the downturn but he was confident that business, like all the restructured assets, was well positioned for the future.
In recent times it has also moved to open a retail seafood outlet at Joondalup, branding it as a regional offering from Exmouth.
MG Kailis has long-running prawning operations at Exmouth and has expanded its business there by adding fishing licences. However, in recent years it has been quitting other production operations in the field, including WA lobster and South Australian tuna.
“We have moved out of areas where we are just an export producer, a price taker,” Mr Kailis said.
“The cost and currency squeeze is real in a lot of industries we are in.”
The company has also invested in marine services, offering maintenance for vessels operating in the oil and gas industry. While that is mainly occurring in Fremantle, Mr Kailis sees the Exmouth base as strategically important in that field.
Meanwhile, MG Kailis remains wary of plans for a big salt operation on the eastern side of the Exmouth Gulf.
A leading part in a coalition of community and commercial players opposed to the Yannarie Solar Salt project, Mr Kailis is dismayed that the long battle continues after the matter was apparently sent back to the Environmental Protection Authority for further review.
Yannarie was owned by Straits Resources but the listed player this year sold a majority stake in the project to Thailand’s PTT Group of Companies, the conglomerate that owns the ailing West Atlas oil project in the Timor Sea.
