Two tales from the port city

A bit of news late last year aroused my interest – the results of two private companies that had restructured their business with positive outcomes.

The pair was Craig Mostyn Group and MG Kailis Holdings Pty Ltd.

While the resources sector has boomed and taken much of Western Australia with it, the agribusiness sector is somewhat detached from that activity.

As a consequence, the results of players in this industry are a little less disguised by the strong performance of minerals or oil.

In recent years, both Mosytn and Kailis have rationalised their businesses – notably in lobster, where both Fremantle-based businesses competed as processors until recently.

They are both textbook cases of reducing revenue by selling poor-performing units to deliver better profits. This is not a new story, as you can imagine, but it’s rare to get this much detail and thinking from a pair of private companies.

A second-generation family business, Kailis is probably the most extreme example of the impact of change. It has gone from a loss-making position to generating $4.8 million after axing its tuna farms and lobster processing operation, and restructuring its pearl operations.

It has cleared bank debt along the way and now has more capital to fund its profitable ventures.

Not far away in the port city, Mostyn has a similar kind of story.

Mostyn took the knife to its operations, paring back from 18 businesses turning over $350 million to four core centres with revenue around $300 million. Much more private about its accounts, Mostyn chief executive David Lock said this move generated a better return for investors.

The biggest part of that was the sale of Westar Lobster to Geraldton Fishermen’s Cooperative in September 2007.

Mr Lock said the WA lobster industry was dominated by Geraldton, an efficient and large player.

“We struggled to be more efficient than them,” he said.

“There was just no future.

“Having exited Westar next year (turnover) will be lower, probably slightly below $300 million, but profit has risen very significantly.”

Mostyn, which moved headquarters to Perth from NSW only a few years ago, is looking to put capital into the businesses that have performed best for it.

It has capital expenditure plans of between $40 million and $50 million over the next couple of years, and is targeting expansion throughout the meat-processing sector, where it dominates pork in WA.

Mr Lock said there was room for a second major beef cattle abattoir in the state, a $20 million investment that could also handle sheep.

The company was buying pig farms so it could better manage its throughput.

From the meat business, the company also had developed a separate waste recycling business that was growing strongly.

Its other divisions are trading and seafood.

Kailis managing director Alex Kailis has a slightly different story to tell.

The business competes in a few sectors that Mostyn does, seafood being an obvious example, but overall the most the two companies share is that they’re based in Fremantle.

Mr Kailis said the family company had sought to get into the branded segment of the markets it was in, seeing better profitability in adding value.

The pearling business is the most striking example of that.

While remaining in the production side of the sector, Mr Kailis said his company had come to an infrastructure sharing deal with the Darwin-based Paspaley family, which meant it could focus on its pearl brand, especially through the jewellery business.

“One of the reasons we did that is very much focusing on the value-added side of the business,” Mr Kailis said.

“We have had a lot of success with our pearl jewellery business.

“That has been well-received in the marketplace.

“Commercially, it has driven up a sound business. We have really redirected a lot of resources there rather than growing the production side of the business.”

He said the decisions that led to the turnaround occurred about three years ago, when agribusiness was being squeezed.

“We wanted to release capital to go into more exciting business areas we were in,” Mr Kailis said.

One of the toughest decisions was to sell out of lobster in WA, a sector where Mr Kailis’ father and company founder, Michael, had been a pioneer.

“We are now positioned to grow into new areas we have identified,” he said. “Our capital is in working capital rather than licences and fixed costs.”

But Kailis remains in seafood, catching prawns near Exmouth to sell fresh and strongly branded to the Perth market, where it believes it has a profitable niche.

Aquaculture and marine services such as asset maintenance and support are areas Kailis is developing.

“We are at the start of a process rather than the end of a business,” Mr Kailis said.

“Going into a program of renewal the most important thing was positioning the business to do that.

“We had to make sure we had capital and resources freed, not tied up in business that are really going nowhere.”