Schaffer continues to build

PERTH-BASED diversified public company Schaffer Corporation Ltd is quietly enjoying the successes resulting from a robust building sector over the past two years.

The company, which has a diversified portfolio in leather, property and building product investments, produced a 353 per cent increase in revenue for the 2002 financial year from $46.9 million to $212.5 million. Net profit, in turn, has jumped 63 per cent to $13 million, while earnings per share have increased $1.02 per share,

Investors have responded in kind.

Buying into the company, propelled by institutions which hold a combined 15 per cent stake, has pushed the stock price skyward by up to 256 per cent over the past year, making it WA’s 18th fastest growing business in 2001-02, according to the Deloitte WA Stock Exchange Index.

The value of managing director and largest shareholder John Schaffer’s 19 per cent direct interest is approaching almost $30 million. Together with sister Danielle Blain, the Schaffers maintain a one-third interest in the company.

Paterson Ord Minnett research analyst Robert Gee said the high ownership by the Schaffer family created a slight drawback for the group by making the stock less liquid.

Last year the company was listed as WA’s 56th largest company in terms of revenue. The growth spurt will put the company on the brink of breaking in to the top 20 WA public companies.

Paving firm Urbanstone, and concrete floors, beams and wall products firm Delta, both wholly owned and the 51 per cent owned Rotomolding and solar water heating producer Solco, have played a role in the year’s performance, contributing $35.3 million in sales, 17 per cent higher than the previous year.

But the building products’ significance to the company has been watered down. Leather manufacturing has taken precedence over the past year. It now contributes around two–thirds of the company’s revenue stream, after it expanded its interest in Howe Leather parent company Australian Leather Holdings from 42 per cent to 83 per cent in October last year.

Howe produces leather products to car manufacturers around the globe. Over the past three years Howe’s revenue has risen an average 20 per cent per annum placing it as the world’s sixth largest supplier to the niche market.

The car industry demand has provided a welcome relief for the company’s leather business, which has watched its Gosh Leather business fall by almost half from $47 million in 1998-99 to $25 million during the 2001-02 year.

Mr Gee said that, given the chance, the company would find a way to exit the Gosh business.

“It’s a very tough and competitive business. I think, quite honestly, if they had an opportunity to exit they would,” he said.

He believes the automotive leather business ultimately will be the trump card for the business, particularly if the company freed up capital tied up in property and invested more heavily in expanding the Howe business.

“In terms of market exposure they only have 2 per cent to 3 per cent in the US and Europe, so they have plenty of room to grow,” Mr Gee said.

Mr Schaffer said the expanded reliance on the leather business was a matter of capitalising on the expertise that the company had built up since 1984.

“It is our main focus and we intend to build the business up,” Mr Schaffer said. “We are a low-cost operator which competes with the rest of the world. It is 90 per cent exported.”

He said the company would continue to draw its attention back toward its core leather and niche building product businesses.

To achieve this, its non-performing $33 million exposure to 13 properties throughout Australia will be whittled down to free up the company’s finance structure.

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