25/07/2006 - 22:00

Plant to close despite $20m in assistance

25/07/2006 - 22:00

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Australia’s largest towel manufacturer, Canning Vale Weaving Mills, plans to close its manufacturing operations in Perth and lay-off 140 staff, despite having received $20 million in state and federal government assistance over the past eight years.

Plant to close despite $20m in assistance

Australia’s largest towel manufacturer, Canning Vale Weaving Mills, plans to close its manufacturing operations in Perth and lay-off 140 staff, despite having received $20 million in state and federal government assistance over the past eight years.

The privately owned company has invested more than $40 million in recent years to try and remain competitive but the mounting challenges eventually became too much for chief executive and company founder Frank Prainito.

Canning Vale, which had operated for 30 years, is to some degree a victim of the resources boom. The boom directly pushed up labour costs and also led to higher staff turnover, which in turn increased staff training costs.

A company spokesperson said the dramatic improvement in the quality of imported towels was another challenge.

The final nail in the coffin was new water discharge standards introduced by the Water Corporation in 2004.

The company said it invested heavily in new equipment to reduce its ‘total suspended solids’ discharge and would have required further multi-million dollar investments to achieve greater reductions, and even then may not have been able to meet the new standards.

The progressive closure of its manufacturing operation will leave the company with about 75 warehousing and distribution staff in Perth and Melbourne, down from a peak of nearly 420 staff in 2003.

Canning Vale was one of the last large-scale traditional manufacturing businesses in Western Australia and claimed to have “Australia’s most modern weaving facility where the highest international standards of efficiency, quality and customer service are met and often exceeded”.

Despite its big investment in technology and training, and substantial government help, the company’s manufacturing operations  could not survive.

The state government assistance was in the form of a $4 million interest-free loan that was used to assist with the 1998 purchase of land for a new manufacturing facility.

The loan converted to a grant after the company achieved investment, employment and sales targets.

At the time, then commerce and trade minister Hendy Cowan said the new factory was designed to double production capacity and would increase employment to almost 450 people.

He also predicted that sales would reach $90 million by 2003 and that export sales would increase to $16 million per year.

The company failed to reach those targets, despite producing well-known brands such as Sheridan and Country Road and exporting to clients including Bloomingdales and Macys in the US.

The federal government assistance came via the Textiles, Clothing and Footwear Strategic Investment Program, which was designed to help TCF companies across Aust-ralia become more efficient so they could cope with planned reductions in import tariffs.

The federal government has provided a total of $677 million under this scheme and plans to provide a further $767 million to TCF companies over the next five years.

Industry, Tourism and Resources Minister Ian Macfarlane said the new scheme was focused on promoting investment in new equipment and innovation.

“This diverse package provides the industry the long-term security it needs to make the major investment and innovation decisions of the next 10 to 15 years,” Mr Macfarlane said last year.

Canning Vale Weaving Mills was granted a total of $14.9 million over the past five years, including $4.9 million in the year to June 2005.

The big federal grant was not enough to save the company from a sharp fall in net profit, according to records lodged with the Australian Securities and Investments Commission.

The company’s net profit fell to $673,000 in the year to June 2005, down from a peak of $3.1 million in the 2002 financial year.

Canning Vale said this followed a 14 per cent fall in sales to $53 million, which it attributed to “the difficult retail trading climate experienced during the latter half of the financial year”.

Frank Prainito established Canning Vale Weaving Mills in 1977 after he migrated from Italy.

He retains majority ownership of the business and has been joined as a shareholder by private equity investor AMP Capital Investors, which holds a 32 per cent stake, and private Sydney textile company Charles Parsons Holdings.

Chairman Michael Perrott also has a small stake in the business.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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