18/03/2010 - 00:00

Patience at a premium as private players outperform many public businesses

18/03/2010 - 00:00


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Big private businesses have generally withstood the shock of the GFC.

Patience at a premium as private players outperform many public businesses

IT has been an extraordinary year for private business, with the global financial crisis proving the value of patient capital in the hands of some of Western Australia’s best-known entrepreneurs.

While the past year for the big players in the private sector has not been without its challenges, or victims, the financial data and anecdotal evidence shows their businesses have proved resilient in the face of a shock that badly knocked many public companies.

A big exception to this is Rick Stowe’s Griffin Group, which is in the process of being dismantled after a big bet on power stations left the coal mining and energy group at the mercy of banks and bondholders.

The collapse of Griffin was extraordinary in more ways than one. Not only was the group seemingly among the biggest and best-connected private businesses in the state, but it was also one of the most secretive, run from Monaco by an absentee executive chairman.

Its failure has shed more light on the company than a decade of profitable operations.

However, Griffin’s tragedy is against the trend, with most of WA’s bigger private players absorbing the economic slowdown that came after several boom years.

Another major development is the proposal by Kerry Stokes to merge his private Westrac business into Seven Network, a listed media company he already controls.

Again, this unusual move has provided a rare look at the inner workings of a once closely guarded corporation.

Westrac is the caterpillar franchise operator for WA, NSW, ACT and north-east China. While its revenue figure of $2.43 billion for the past financial year was no great secret, the profitability of the business, with earnings before interest and tax of $177.2 million, was not previously disclosed.

It has also been made clear how profitable Australia is, with the margin around twice that achieved in China last year.

The Westrac figures also show the inevitable slowdown as a result of the GFC; but the business has hardly fallen off a precipice, with first-half revenue this financial year of $1.05 billion.

However, unlike many private businesses, Westrac has a significant amount of debt, which would be cleared as part of the merger with cashed-up Seven.

Across the spectrum of major private businesses in WA, revenue has held up well, offering something of a guide to the health of the underlying businesses.

In terms of profitability, Stan Perron’s shopping centre and car sales empire suffered more from mark-to-market accounting changes than any real plunge in business.

His flagship Perron Investments made a $71.7 million loss for the year to June 30, driven by a $147.7 million write-down of its core property portfolio and a $56 million downward revaluation of its share investments. This was its first loss in around a decade.

The shopping centre-focused portfolio was revalued to $1.74 billion at year-end, from $1.85 billion in June 2008.

However, at operating level, the company”s rental income was up 14.5 per cent to $153 million and sales revenue up 6 per cent to $82.8 million.

Perron Investments’ total assets at June 30 were valued at $2.45 billion. Its total borrowings were $1.01 billion.

There has also been much made of the changes taking place in WA’s big private businesses as their founders hand over the reins to the next generation.

A good example is the Holmes a Court family, which split up its interests between Janet Holmes a Court and two of her children, Paul and Catherine, just over a year ago. Eldest son Peter sold out of the family business a decade ago to pursue other ambitions, such as running AACo and being joint owner of National Rugby League club South Sydney Rabbitohs.

Under a late 2008 deal, Paul took outright ownership the family companies whose assets include cattle business Heytesbury Beef, thoroughbred operation Heytesbury Stud, and Margaret River winery Vasse Felix.

It is understood that Mrs Holmes a Court received the Heytesbury art collection, valued at $37 million, as part of that deal.

The buyout is just one of the many options available to family business.

In many cases succession has evolved, with independent management playing an interim role or, in other cases, outside expertise being brought on at board level to offer the next generation assistance and the founders some sense of comfort in the governance process.

Among WA’s top 20 or so private businesses, such a process can be seen in numerous cases.

Of course, this is not always the case. As many of the state’s leading entrepreneurs point out (see page 13), key long-serving staff have been integral to their businesses growth and survival during the cycles of business, which include the recent GFC.

BGC founder Len Buckeridge is one who has already made the transition, putting the key parts of his business in the hands of his son, Sam, who has taken on manufacturing, and his stepson Julian Ambrose, who is in charge of housing.

BGC is the nation’s biggest housing company.

Mr Buckeridge, who has bounced back after a long illness, remains very active in the business and continues to invest. He has just returned from a trip to China, where he bought equipment to produce more supplies for his home-building outfit.

He is also the nominal head of the BGC Contracting business, though he admits it is somewhat incongruent with the rest of the business and could be sold if the right buyer came along.

“If someone wanted to buy it they could have it for a student discount,” Mr Buckeridge said in his flippant fashion.

Property players are writ large among the major private businesses, representing the top three Australian homebuilders in BGC, Alcock Brown-Neaves Group and JWH Group. This reflects the unusual make-up of the WA market, which is far more consolidated in hands of majors than east coast markets.

JWH managing director Julian Walter is one who believes that the GFC has done the private sector a big favour by exposing the financial engineering of many listed players.

“My gut feeling is what the GFC did was show the strength of private and family companies. We can make our decisions much more long-term. That is an observation the banks make,” Mr Walter said.

“You also don’t have the skulduggery and things that some of the public companies have done.

“Prior to the GFC there was an attitude that public companies were big and safe. The GFC showed, in many cases, there was nothing there.

“Private companies have always been well scrutinised.”

Gull Petroleum is going through a transition of a different type.

Founder Fred Rae has already stepped down from the board in favour of his son, Neil. The family has built up a big property portfolio – of undisclosed size – and has decided to capitalise on its land holdings in Kwinana by quitting the terminal business.

The $40 million price offered by Gordon Martin’s Coogee Chemicals for the Kwinana terminal will not only shift Gull from the low-margin terminal business, it will allow the group to apply that cash to other investments.

As a terminal for one independent retailer, the land was under-utilised and it is expected that Coogee will attempt to relocate major players Shell and Caltex from the former’s North Fremantle storage facilities.

Another successful field for big private businesses is motor vehicles. While car sales is a high-turnover-low-margin businesses, Perron Group has real scale in this sector as local wholesaler of Toyota, which represents one in every four vehicles sold in the state.

Perron’s car sales interests are held through Prestige Motors. It owns about 85 per cent of Prestige, with the rest of the company held by early employees of the group or their families. It turned over about $820 million last financial year, slightly down on the previous corresponding period.

Perron owns 100 per cent of the Toyota spare parts business, Autoparts.

The Di Virgilio family has the 14-year-old DVG Automotive Group (DVG) with seven brothers represented as directors overseeing 500 staff across 14 new and used car dealerships around Perth.

According to the WA Business News Book of Lists, DVG sales have jumped to $475 million in the last financial year, up from $323 million the previous 12 months.

Another big car dealer in WA is John Hughes, a businessman feted by the advertising sector because of his big marketing spend.

At around $451 million in sales, Mr Hughes’ is the third biggest motor vehicle dealer in WA.

Interestingly, one of the key competitors in the sector, listed player Automotive Holdings Group, has its roots firmly in the private sector. AHG has 45 dealerships in WA. In terms of branches, that represents more than 40 per cent of its retail motor vehicle business, which turned over $2.74 billion nationally last financial year.

When AHG listed, the property side of the business, including the showrooms as well as land for development and subdivision, was kept in the hands of the pre-float owners. The pre-listing ownership structure of the automotive sales business was about 65 per cent held by founder Vern Wheatley and 20 per cent held by current chairman, Bob Branchi.

Together they held about 50 per cent of the company when it floated, but their interests have been watered down to about 30 per cent by the issue of additional shares in AHG, which has a market capitalisation of about $540 million.



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