Oyster farmers anticipate boost in business with new finance plan

Oyster farmers are hoping for greater investment with the release of a new financial strategy.

The strategy, supported by the government’s farming together program, was endorsed by Ocean Watch and the NSW Farmers Oyster Committee.

It is made up of five documents including, industry factsheets and templates, to help address industry priorities.

The aim is to improve the sector’s ability to secure bank and other sources of finance.

READ: NSW gov finds pearl in oyster industry

Kel Henry from Wonboyn Rock Oysters, who is a member of the Oyster Strategy Implementation Group, said this priority stemmed from the finance sectors’ lack of awareness and understanding about the oyster industry and its potential for growth.

He approached the Australian government’s farming together program and developed a finance support pack with consultant, Mel Trethowan.

“It was great to work with Mel on the project. I would recommend the farming together program as a very valuable initiative and in my opinion the outcome for our industry was really outstanding,” he said.

The materials in the pack would help educate the finance industry about the oyster industry and its investment potential, said Henry.

“It will also increase the ability of farmers to access appropriate and timely finance to upgrade, innovate and grow their businesses,” he said.

Farming together program director Lorraine Gordon said it was an enabling project strongly supported by the producers and their wider industry.

“We hope it will encourage new interest and offer new paths to capital from banks and investors.”

The $13.8 million program was designed to help agricultural groups secure premium pricing, scale-up production and attract capital investment.

In two years the farming together program has had contact with more than 28,500 farmers.

In its first year the program turned a $9.21m investment into $20.45m of value-added production, creating 131 full-time equivalent jobs.

The farming together pilot program was delivered by Southern Cross University. It finished on the 30th of June 2018.

Banking services help an F&B business grow

Directus is a leading supplier of processed fruit and vegetable ingredients and speciality ingredients to food and beverage (F&B) companies in the Australasian region. Their clients include impressive names such as Coca-Cola Amatil, Lion and Asahi Beverages. But they provide business-to-business (B2B) ingredients to a diverse portfolio. With a strong focus on innovation, product development and capability enablers, Directus has carved out a name for itself in the industry.

The company is a family business and was founded in New Zealand by Tony Beattie in 1976. Directus Australian operations began with the company importing fruit juice concentrates into Australia from the US in 1984. From the beginning, Beattie has travelled extensively to find products that could not be sourced locally, or products that were in short supply, and marketed these successfully to Australian and New Zealand F&B businesses. This business formula worked, and the company has since expanded to growing operations in the US and Southeast Asia and recently added Directus Equipment Services, dedicated for supply, service and spare parts for a number of specialised principle partners in the food and beverage equipment supply.

An organic evolution
Peter Gates, the CEO of the Directus Group, says these business fundamentals – which are built on bringing suppliers and customers in the F&B industry together for their product and service requirements – have set the company apart from other companies in the sector.

“Directus is always looking for ways to add value. With today’s globalisation it is very easy for companies to source ingredients, but there are special skills required to provide that competitive advantage,” he explained. “Security of supply for brand owners is an important measure alongside quality and price. Directus can ensure ethical sourcing from reputable suppliers and with a consolidated purchasing model we can ensure our customers can obtain products from our local stock holdings.”

The company has also evolved with the F&B industry, gauging the needs of their customers and the market in general. A part of this growth has included the supply of organic ingredients.

“Directus is organic certified and can supply a full range of organic ingredients. We have aligned with world-class suppliers; always leaders in their fields. For example, Doehler is one supplier we are partnered with and they are a recognised leader in specialty ingredient and natural colours and flavours,” Gates said.

In the last few years, Directus has enjoyed a growth spurt. While this has occurred as a result of their diverse product offerings and an increased number of customers, Gates also attributes part of this success to their relationship with St. George Bank.

“With our increasing customer base and product offerings comes higher local inventory hence our enhanced facility with St.George Bank,” said Gates. “Our business is different in that there is a lot of foreign currency and exchange involved and we are a unique B2B supplier – so quite a bit different to other F&B manufacturers or retailers,” explained Gates.

Personalised business service
In his experience at Directus, Gates said that St.George Bank has gone out of its way to understand the business, which has been a real point of difference when it comes to the services they provide.

This has been a particular focus of the bank since they adopted an industry-alignment model several years ago. As part of this change, a F&B portfolio was created. This allows for customers such as Directus to benefit from a team of managers who have in-depth knowledge of their industry and the specific issues that they face within this sector. It entails a more personalised approach to the customer’s needs. As a result of the industry-alignment model, the bank won the “Best Service Business Bank” at the Australian Banking and Finance Business Banking Awards in 2016.

As far as Gates is concerned, this personalised approach and the relationship his company has with St.George Bank has been really beneficial to business.

“We have regular catch up sessions, where we provide our financials, but they also want to understand what aspects of the business can improve the cash flow or might need funding. They really want to get in and understand the whole process of how we contract with an overseas supplier, how we bring in a specific ingredient, store it and deliver it. This is one of the key things we’ve enjoyed in our relationship with St.George Bank and one that we feel is unique.”

Banking on growth
In terms of growth, Gates said the business has definitely profited from St.George Bank’s services, such as Invoice Discounting.

Invoice Discounting provides instant cash flow, allowing a business to borrow money that is tied up in outstanding invoices. It empowers businesses by giving them control over working capital and is an excellent way of funding business growth.

“This product has really worked for us as we’ve been growing so quickly,” Gates explained. “St.George Bank has good systems in place. They’re robust but malleable at the same time. They’ve really helped us maximise this facility.”

Other banking products that Gates said are integral to Directus include trade finance and foreign exchange. “Trade finance is really key to our business, as is our foreign exchange cover. They are probably the key products we use besides the invoice discounting. And St.George Bank provide all of these products and services to us, so there is no need for additional consultants,” Gates said. “It certainly makes our work easier, being able to get all of these services from the one bank.”

Approachable and dedicated
Besides the banking products that St.George Bank offer, Gates says the relationship itself is unique between Directus and their dedicated relationship director.

“It’s a formal relationship when it needs to be but can also be quite informal – in terms of being able to regularly touch base and discuss different aspects of the business or bounce ideas off of each other.”

Having a banker who is focused wholly on the F&B sector makes a difference and Gates says that Directus benefits from said much more than they would from traditional banking services.

As part of their unique product and service offerings, St.George Bank provides “industry business snapshots” which give businesses like Directus an insight into current industry benchmarks and trends. It’s another example of how the bank is providing a more specialised service.

“We meet with our relationship director on a regular basis. They are always available, very approachable and looking for ways to help us improve our business,” Gates explained. “We also have access to a network of other businesses in our sector, which can provide us with some interesting and useful insights.”

Directus
www.directus.com.au

St.George Bank
Mark Burgess, Relationship Director – Food & Beverage
mark.burgess@stgeorge.com.au, 0404 832 035

Management backs environmental initiatives, but needs proof of payback: survey

A new study on the eve of FoodTech Queensland has found Australian management is keen to pursue environmental excellence through green energy and waste water initiatives but wary of unproven operators who promise much while delivering little.

The study, commissioned by CST Wastewater Solutions, an exhibitor at FoodTech from June 26-28, finds industry is convinced about the potential financial viability of green energy and water quality initiatives, if sanguine about the failure rate in Australia and New Zealand so far.

“The survey is timely as we head into FoodTech where businesses will be looking at new products and technologies that are cost-effective and environmentally harmonious,” says CST Wastewater Solutions Managing Director Michael Bambridge, who commissioned the report. His company is involved in major food and beverage industry waste-to-energy projects in Australasia, details of which will be presented at FoodTech.

“It’s an important study, which we believe is the first of its kind in Australia, and it will help companies gain a greater knowledge of how management in the industry is perceiving sustainability outcomes. Merging sustainability and financial viability is crucial to success in this area,” said Mr Bambridge.

CFOs and engineering managers responding to the survey were particularly sceptical of “over-cooked” sustainability claims, and of vendors using ethicality as commercial leverage – urging buyers to spend for the sake of the environment while ignoring their real business needs.  The market, by contrast, feels the sustainability industry should become more cost-effective, and be sure that business gets the results that they believe they have been led to expect and have paid for, says the survey report.

Untitled

Mr Bambridge, who has more than 30 years’ experience in major waste water and green energy projects in Australia and the Asia Pacific, says such healthy scepticism is sometimes justified given the number of less experienced operators moving into the business as clean water and green energy become headline corporate issues.

“Too many fulsome promises have been made and accepted, possibly because they haven’t been subjected to sufficiently rigorous financial analysis using the same terms of reference for all parties. This makes it hard for those of us who present realistic proposals and later are left to clean up the mess created by others.

“But we are pleasantly surprised to see how Australasian management is responding positively to environmental challenges. The report is very positive,” said Mr Bambridge, whose company represents proven local technologies as well as advanced international technologies such as those of Global Water Engineering, which recently won the IChemE green energy award of an organisation representing more than 40,000 chemical engineering specialists.

“100% of our respondents strongly or somewhat agree that they are “passionate” about sustainability. We were expecting ambivalence around attitudes emanating from Chief Financial Officers and found some, though we found less ambivalence than expected.

Over 90% of respondents believe their CFO is receptive to sustainability initiatives with a strong cost justification,” he said.

UntitledThe report, is the result of 60 in-depth interviews with senior executives in industries such as food, beverage, agribusiness, processing, resources and energy, which have the greatest potential for new technologies such as wastewater-to-biogas being introduced to Australia by CST.

The report shows respondents in Production, Engineering and Sustainability (PES) management have faith in the economics of sustainability investments, with over 90% disagreeing with the proposition, which is sometimes put, that sustainability is “never likely to be profitable”.

“Yet for over 50% of end-users and two thirds of the consultants we interviewed, there is a “major gap” between the goals and outcomes of Sustainability, while nearly all end-users we interviewed in person believe there are “major shortcomings” or even “failures” in sustainable energy and water projects, particularly around financial payback.

Continuing the picture of optimism towards environmental initiatives presented in the report, over 80% of respondents agree it is “a genuine investment priority” with almost 60% agreeing strongly, yet almost half feel it is at least to some extent a response to “politically correct pressure”.

“Over 90% of respondents believe the CFO is receptive to sustainability initiatives with a strong cost justification, though a third agree that Finance has higher investment priorities than Sustainability.  In the open comments for the survey on “major challenges” in Sustainability, a number of respondents said that raising its importance over other investment priorities was either their first or second challenge, while in the “Opportunities’ section many respondents cited business growth or new product development as their key Sustainability opportunity.

A number of PES managers candidly said that the first priority of the business was growth, in which context while environmental sustainability and energy efficiency came last – unless, as one respondent said, Federal policies change, and then it could be a whole new ball game.

“Another Chief Engineer described Environment and Sustainability as the “poor cousin” on the production side. So the responses are mixed, with a tendency for production and sustainability staff to be fairly optimistic about the CFO’s approach to their proposals.

“Respondents are divided on whether sustainability is ‘Efficiency management with a new name’ or something else, with half saying ‘yes’ and half more emphatically saying ‘no’, with 8% ‘neutral’.

“Yet 85% say it is a “much wider agenda than efficiency” and this tallies with the feedback from CFOs, as well as open responses indicating that even product innovation and growth are construed as being Sustainability”

Mr Bambridge said the study’s sample size is large enough for valid indicative reporting, particularly taking into account with the candid, in-depth nature of the research interviews. “This is in fact one of the most comprehensive reports of its type in recent times in which CFOs have been very willing to invest time to speak candidly about the subject, because they passionately feel it has been over-cooked by the supply side. The CFO’s position as custodian of the company’s financial well-being is often misunderstood.  CFO’s are keen to field well-documented business cases for investments that are realistic and genuinely address risk management.  This is borne out in our research with end-users and consultants.

“Given the level of scepticism and over-selling experienced by CFOs, and their responsibility for managing risks, staff and vendors should present objective business cases to CFOs, without ethical rhetoric.

“In particular, business cases should fully expose and explore financial, contract, technical and other risks and controls.  An approach involving extensive due diligence – showing where it has worked elsewhere and what mistakes are commonly made – is a good way to cover concerns with senior management. For CFOs it is advisable to proactively partner with production and engineering staff using the sustainability manager as a conduit to make these expectations clear, and assist staff in meeting them.  It is clear that sustainability appointments should be vetted by the CFO to ensure a close working relationship is tenable.” A full copy of the report can be viewed at www.cstwastewater.com/managing-sustainable-energy-water-investments.

 

Tax cuts “a shot in the arm” for small business: Ai Group

Last night’s federal budget included cuts to company tax rates for small businesses, which have been welcomed by industry groups.

Included in the pre-election federal budget was a broadening in the definition of small business, from a turnover of $2 million to $10 million a year. The current 28.5 per cent rate for small businesses will be lowered to 27.5 per cent.

Innes Willox of the Australian Industry Group called it “a shot in the arm for up to 60,000 small to medium-sized businesses and for the economy from 1 July this year.”

News Corp notes that the threshold will then increase to $25 million in 2017/18, $50 million in 2018/19, then $100 million in 2019/20. There will eventually be a flat company tax rate of 25 per cent in 2026/27, according to treasurer Scott Morrison (pictured).

Yesterday’s changes to small business taxation were “truly applauded” by the Australian Advanced Manufacturing Council, who said that it would assist smaller companies to grow and scale their operations and be more competitive globally.

“We called for an increase of the threshold to $20 million turnover in our Pre-Budget Submission.  We’re delighted they have met us half-way,” said Jennifer Conley, executive director of the group, in a statement.

“Lowering the corporate tax rate over time is a positive support for the ambition of many of our small businesses to become medium-sized – and even large-sized.”

Image: AAP

Investors consider Tegel Foods ahead of share float

Prospective investors in Tegal Foods were yesterday considering the estimated value of the company ahead of its plans to float on the Australian and New Zealand sharemarkets.

DataRoom reported that Deutsche analysts estimate Tegel’s market value sits between $NZ628m and $NZ704m, while Goldman Sachs analysts have opted for a slightly higher range of $NZ628m to $NZ790m.

These estimates are about nine to 10 times the company’s forecast earnings before interest, tax, depreciation and amortisation for 2017.

As the Business Spectator points out, Tegel benefits from import restrictions in New Zealand and holds a dominant position in that market.

According to the AFR, potential investors will also need to consider factors like the low cost of feed in recent years which has benefitted Tegal and the notion that the company may have already hit peak efficiency after being twice-owned by private equity companies.

Another important factor is the company’s potential for export growth into Australia as well as Asia.

Bellamy’s looks globally as formula sales boom

Organic milk formula company Bellamy’s Australia is seeing massive revenue growth and is on its way to become a global business.

The Weekly Times reports that half-yearly earnings were $105.1 million, following last year’s net revenues of $125.3 million (after beginning the year with a forecast of $83.8 million).

Its 2014 sales were 85 per cent domestic, with exports to Singapore, Vietnam and other Asian markets on the rise.

Most of its organic milk supply comes from New Zealand and Europe, with only a small local supply of organic milk available. This was an area of opportunity for dairy farmers, said managing director Laura McBain.

“We source our milk powders from a global supply chain,” McBain told The Weekly Times.

“The reason is that, if you took the entire Australian ­organic milk supply, it would last us about a month.

“Bellamy’s Australia does not own processing plants, having made a decision early in its business operation to remain flexible and agile by remaining unencumbered by factories.”

Manufacturing is performed under contract by Tatura, Soon, this will also be provided by Fonterra.

Cut both spending and company tax levels: Australian Industry Group

The Australian Industry Group has advised reductions to both government spending and company tax levels in its submission for the May federal budget.

The Australian reports that the Ai Group describes the current fiscal position as “clearly unsustainable”, and in need of sensible cuts to spending without these being “excessive”.

The lobby group representing 60,000 businesses, including in the manufacturing and engineering industries, said the measured cuts should “recognise the tentative nature” of recovery in non-mining sectors.

"Reducing the company tax rate is the central policy measure that can be taken to lift private-sector investment and increase productivity, real wages and Australian living standards," the group’s submission advises, according to The Australian Financial Review.

It also suggests committing to investments in defence (and leveraging opportunities for businesses to participate in defence global supply chains), investing in STEM, and continuing support for innovation.

There was also a need to lift immigration to 220,000 annually, “both with a strong emphasis on skilled migration and by lifting the Syrian refugee intake”, according to the Ai Group.

To read the budget submission, click here.

4 ways to value a business

Understanding how your business will be valued by potential buyers will allow you to better evaluate offers and recognise a fair deal. By David Baveystock and Ben van der Westhuizen.

A commercially rational valuation will provide the business owner with a realistic assessment of what can be realised and prepare them for the on-going negotiations throughout the sale process.

Buyers use a number of approaches when valuing potential acquisition targets, including: discounted cash flow (DCF) methodology; multiple based valuation approach; and replacement cost or liquidation value approach.

1. Discounted Cash Flow

A common approach to value a business is the Discounted Cash Flow (DCF) valuation methodology. The DCF takes into account the future cash flows the business is expected to generate and the risk associated with those cash flows. The future cash flows are discounted back to ‘today’s value’ using a discount rate that reflects the future earnings risk and cash flows of the business. The business is valued on a standalone basis and any personal expenses of the current owners are reversed (or normalised). Similarly, historical once-off income and expense items that are not expected to be repeated in the future are not included in the forecast of free cash flow. In practice, the current year’s budget and future forecasts are used as a starting point for determining future cash flows.

The choice of discount rate can dramatically change a valuation. Corporates often use the Weighted Average Cost of Capital (WACC) as a discount rate for investment decisions. The WACC represents the minimum required rate of return (or hurdle rate) that investments made by the corporate should achieve.

The discount rate can also be viewed as an opportunity cost, e.g. what rate of return do available investment alternatives with similar risk profiles earn in the market place? The rate of return an investor can earn on an investment of comparable size and risk, is the opportunity cost and therefore the discount rate for the DCF valuation. A DCF valuation can be a complex calculation and small changes in certain input variables can impact the end result.

2. Multiple based valuation

A multiple based valuation is normally used to corroborate a valuation obtained using the DCF methodology. One of the more common approaches used is to apply to the earnings before interest, tax, depreciation and amortisation (EBITDA) of the business an appropriate multiplier to arrive at the Enterprise Value of the business. The Enterprise Value is then adjusted for the net debt of the business to calculate the equity value for the business.

Business owners frequently ask why valuation multiples vary greatly between transactions; this is driven by a number of factors including:

Size – listed businesses are normally larger with diversified products and income streams, implying a lower risk profile and therefore a greater multiple;

Quality of earnings – businesses with high quality earnings and good prospects will attract a higher valuation multiple than businesses with low quality earnings and bad prospects;

Control premium – where a purchaser acquires control of a business (more than 50 percent shareholding interest), the valuation multiple will include a control premium to reflect the value of obtaining control of the business.

3. Replacement cost or liquidation value approach

Where a business owns unique or specialised machinery, the buyer may also consider the replacement cost of plant, equipment and property to corroborate the other valuation approaches. The replacement cost method is rarely used as the primary valuation approach.

4. Value of synergies

Buyers with existing businesses in the food and beverage sector may benefit from cost or revenue synergies when combining an acquired business with their current business. Examples of synergies include access to new customers for cross selling, increased raw material purchasing power or a reduction in the overall number of employees required. When valuing a business, trade buyers will first determine a standalone valuation of the acquisition target. The buyer then calculates the present value of  the expected synergy benefits that will flow from an acquisition of the target.

The sum of the standalone value of the business and the value of the synergy benefits represent the maximum value that the buyer can get from an acquisition. Generally, buyers are not keen to pay more than the standalone value of the business, but in a competitive situation buyers may be required to share part of the synergy benefits with the seller in order to complete the transaction.

Understanding the potential synergy benefits, a business owner can highlight these to a potential buyer who may have existing interests in the food and beverage industry. The external adviser can assist this process by creating an Information Memorandum (IM) that is tailored to specific industry players and outlines the potential value creation opportunities.

David Baveystock (L) (david@cometlineconsulting.com.au) and Ben van der Westhuizen (ben@cometlineconsulting.com.au) are with Comet Line Consulting, an advisory business that specialises in acquisitions and divestments within the Australian food & beverage industry.  

 

Final wording of China-Australia Free Trade Agreement to be known soon

The
full details of the Chinese-Australian Free Trade Agreement are expected to be
released before the end of June.

The ABC reports that the wording of the agreement, which had its negotiations
conclude last November, is being finalised.

Michael Clifton,
Austrade’s Senior Trade Commissioner in china, told ABC’s The Business, “My understanding is that we’re on track towards a signing
of the agreement, in the next six to eight weeks,” he said.

“And we would hope to see entry
into force before year’s end.”

The exact details of the agreement
have been a mystery since the November 17 signing. According to the office of trade minister Andrew Robb, finalisation was likely to be made before June’s end.

At the time of the signing, the federal government said
that “ChAFTA” would see 95 per cent of Australian exports to the People’s Republic eventually be
tariff-free, and wine and dairy to both be tariff-free after four years.

China is Australia’s biggest trading
partner, with two-way trade worth nearly $1600 billion in 2013-2014, according
to the Department of Foreign Affairs.

Australia’s biggest export, by far,
was “iron ores and concentrates”, worth $57 billion. The number one import from
China was clothing, worth $5.1 billion.

Image: https://dfat.gov.au/

80 jobs axed at Hobart Cadbury factory

Mondelez
International has continued cost-cutting, with news this morning that it would
be shedding 20 per cent of the jobs at Claremont’s Cadbury factory.

The
ABC reports that workers were told at the beginning of their shift 80 jobs were
to be cut at the site, which in March withdrew a grant application worth $16 million for its visitor’s centre.

“In March this year we announced
a $20m investment in the Claremont site for this year as the start of a journey
to make Claremont more efficient and therefore sustainable,” Mondelez’s
local managing director Amanda Banfield said in a statement.

“As a result around 80 roles
will no longer be required; however we’re confident the majority of these will
be attained via temporary contract conclusions and voluntary
redundancies.”

The
AMWU said the $16 million grant application should be re-invested into Tasmania’s manufacturing sector.

“As we see major job losses all over Tasmania, we’re seeing the
State and Federal Governments just shrugging their shoulders. It’s not good
enough,” said the union’s state secretary, John Short, who added that the
factory had been operating for 90 years.

“Some of the people at
Cadbury — their parents and their grandparents worked here. But where are their
kids going to work?” he told the ABC.

Independent
Denison MP Andrew Wilkie said that the job losses would be hard on the Hobart
area.

“This is 20 per cent of the chocolate factory’s
staff, many of whom live in the Glenorchy city area which already has one of
the highest unemployment rates in the state,” he told The Mercury.

The
company has blamed a decline in sales for recent cuts.

Mondelez
announced a 3 per cent decline in revenue for the year to December earlier this
month.

However, net profits were up 43 per cent, following cost reductions such as a 60 per cent decline in R&D spending, 186
redundancies and a size reduction in its Freddo Frog and Cadbury family-sized
chocolate blocks. It also booked a $30 million tax credit.

Image: https://www.themercury.com.au/

CASE STUDY: Ribs and Roast expands using debtor finance

When Ribs and Roast realised they were outgrowing their factory and having to turn away orders, they committed to an ambitious expansion plan.

Cooked meats specialist, Ribs and Roast services major steakhouses across the country, and also have retail lines with some of our major retail giants.

General Manager, Ryan O’Shea, said by 2013 the business was struggling to keep up with orders due to the size of their Sydney factory (300-400 square metres).

"We were getting so much interest in our products, it was very frustrating having to turn down business due to our limited capacity," he said.

"Our broker referred us to Scottish Pacific and their debtor finance facility allowed us to have peace of mind around cash flow while we transitioned to a bigger factory."

O’Shea said their broker referred them to a debtor finance facility, which allowed the business to cope during a period of great growth – an estimated 50 percent to 60 percent growth month on month for the business, which has been trading for about six years.

The business continues to grow thanks to the new factory, where space has more than quadrupled to 1500 square metres.

"Debtor finance allowed us to buy better – we had to purchase a lot of raw materials to enable us to service new clients, knowing that we wouldn't see the money for some time from these clients, so we needed the facility to help us," O'Shea said.

"We have now established great relationships with our new clients and our margins are higher due to the expansion and being able to produce to scale."

Debtor finance is a line of credit secured against accounts receivable. Also known as invoice finance, factoring, cashflow finance and invoice discounting, it provides access to working capital that would otherwise be tied up in receivables for 30 or 60 days or more. There are currently more than 4500 Australian SMEs, with combined annual revenues of $65 billion, using debtor finance.

 

$50 million: the magic number for optimising profitability

There might be a magic number for Australian manufacturers to hit before they start really optimising profitability, and its sings to the tune of $50 million according to Grant Thornton's latest benchmarking analysis.

So we question ahead of the Federal Budget next week, why Government support cuts out at this crucial point, where Australian manufacturers are on the verge of contributing vast amounts back into the Australian economy.

It is this magic number where Australian manufacturers achieve efficient economies of scale, start contributing larger amounts of tax dollars back into the economy, along with job creation. And it is here, where the Government funding cuts out for the Export Market Development Grant (EMDG), according to Mark Phillips, National Head of Manufacturing, Grant Thornton Australia.

“Mid-sized businesses contribute substantially to the total tax revenue generated in our country. In this sense, our desires are aligned with that of the Australian Government; we want our mid-sized businesses to operate profitably and sustainably.

“Currently the EMDG ceases to be available at that crucial moment a business hits the threshold of $50 million. We would like to see this threshold lifted to at least $100 million, and preferably up to $250 million, such that manufacturers are supported to reach and continue to operate in the most profitable size category,” said Mr Phillips.

Michael Climpson, Partner, Grant Thornton Australia is responsible for the firm’s benchmarking analysis of Australian mid-sized manufacturers and uncovered the magic number for Australian manufacturers.

“Our latest benchmarking analysis of Australian mid-sized manufacturers clearly shows that on average, manufacturers substantially benefit by operating with annual sales revenue in excess of $50 million.

“Reaching appropriate scale ensures the gross margin achieved is sufficient to cover a fixed overhead structure, and the profit achieved represents an attractive return on investment.

“We’ve found from our analysis, that profitability for manufacturers in the size threshold above $50 million sales revenue (average profit margin 7.8 percent in 2014) is substantially higher than those below that threshold (2.3%),” said Mr Climpson.

 

New Midfield dairy factory in VIC to create 250 jobs

Meat processing business Midfield Group has received approval to build a milk factory in Warrnambool, Victoria, which will be constructed adjacent to its abattoirs.

The ABC reports that 250 jobs will be created at the factory. The news follows the announcement last week that Midfield will begin building another, “almost identical”,facility in Penola, South Australia.

The Victorian factory was approved by the state parliament yesterday.

The Warrnambool Standard reports that Victorian planning minister Richard Wynne denied their Warrnambool approval was a knee-jerk reaction to Penola.

South West Coast MP Denis Napthine, who was premier when the factory expansion was announced last year, said the news was beneficial for jobs and the agricultural sector.

"Growing marketing opportunities in the rapidly-expanding Asian economies underpin this important local investment," he said.

Construction in Victoria will begin immediately, and there are plans to begin production in July next year.

Midfield will spend $60 million converting the Penola site from a former potato processing plant to a dairy processor. It has said it will not open the Warrnambool site until Penola is operational.

Both will serve the growing Asian market for dairy products.

"The milk powder produced at the site will be targeted at exports markets that include China," SA premier Jay Weatherill told The Australian Financial Review.

 

10 EOFY resolutions for SMEs

The promise of a new financial year is the best time of year to come up with resolutions, especially for small to medium sized enterprises.

“Way too many SMEs are in set and forget mode when it comes to cash flow management,” says David Henderson chief executive of accountancy group ROCG Asia Pacific.

“It’s never too early to start planning for the end of the financial year. In fact preparing for the June 30 is a year-round job,” he said.

10 EOFY resolutions for SMEs:

Embrace change

What works one year might not work the next: unsettled markets, fickle clients, different suppliers and staff, changes in operational procedures, refurbishments, capital asset shifts, different taxes, and complying with updated legislation can all have a big impact on cash flow.

As well a changing lifestyle – mortgage, children, travel, retirement plans – can see those cash assets repurposed or diminished.

Resolve to not only embrace change each and every financial year, but to adjust accounting and management practices to accommodate this change. Sticking with the same old way of doing things could limit growth, productivity and profit.

Leverage low interest rates

Cash reserves are not getting the return they were even just a few years ago but low interest rates can be made to work in an SME's favour.

Consider if it is worth investing in capital equipment and paying off debts while keeping lines of credit open.

Resolve to leverage low interest rates but budget now for higher rates over the next few years.

Cash upfront and in advance

It might seem counterintuitive to pay for some services and utilities including insurance and phone plans upfront when such outgoings can be managed on a monthly basis.

It is possible though to save up to 10 percent by shopping around and being willing to make a one-off, advance payment. This is especially true when it is known that certain premiums, such as health insurance, rise annually. Paying for the following year in advance before the price rise can see a saving of 3 to 6 percent.

Such savings can be much higher than current interest returns on cash deposits.

Resolve to shop around or negotiate savings on fixed costs.

Direct debit not direct debt

Another tactic to improve cash flow is to set up direct debit accounts when discounts for this payment method are offered.

Direct debit can lead to savings of around 4 percent on fixed costs, but this will be more than wiped out if there are insufficient funds and the supplier and bank impose heavy penalties.

This style of auto debt can also damage a good credit rating.

Resolve to manually check that there is no danger of the autopilot failing.

Dance with the dollar

Even if a business is not an importer or exporter, chances are somewhere along the supply chain it could be slugged with higher costs as the Aussie dollar slumps or reap the rewards when it rebounds.

A rising or falling Australian dollar has an impact on consumer confidence and influences if buyers will go offshore for a better deal, even if it is to buy everyday items online from an offshore outlet. 

Resolve to keep an eye on the Aussie dollar.

Time the annual return

If the tax office owes the business money, try and get it back as soon as possible after June 30. The refund might also beat the rush and take less time to process.

Small companies lodging their own returns have until late February 2016 or October this year if there is a history of late reporting.

An accountant will advise on the due date as will the ATO. 

Resolve to get that cash back as quickly as possible or avoid paying it out for as long as possible.

Choose the best GST option

Compulsory collection of the goods and services tax can artificially inflate cash assets by 10 percent. Refunding that 10 percent to the ATO as a one-off payment can blow a big hole in any business budget.

To help maximise cash flow, choose a GST payment option carefully.

A small business with an annual turnover of less than $2 million or with a GST turnover of less than $2 million can pay GST by monthly instalments or quarterly.

Resolve to choose the best option for GST payments.

July 1 changes

July 1 is the usual date for a raft of tax changes to take effect.

In 2015 there will a reduction in the company tax rate from 30 percent to 28.5 percent. This could be offset by an additional levy for businesses with a taxable income of more than $5 million.

Other changes to personal tax such as a freeze on income thresholds for private health insurance and the Medicare levy as well as changes to family benefits taxes could indirectly impact business cash flow as household expenditure changes.

Resolve to know how 1 July changes will affect the business.

Off peak rates

Prices drop and there is more choice when holidaying out of peak season. The same can be said for financial and legal advice.

Even if accounting and legal fees stay the same year round, seeking advice in off peak times can mean an adviser might be better focussed or more appointments are readily available.

It also means end of year planning can start as soon as possible.

Resolve not to leave finding out what is needs to be done until the same time as everyone else.

Depreciation, deductions and donations

To make the most of a favourable depreciation deal, buy in July.

Grab all cheaper directly deductible bargains right up until midnight on June 30. A deduction is a deduction based on its purchase date, not whether or not it was used.

Be aware too that charitable donations and gifts can offset tax liability. To claim a tax deduction, first check that the organisation has DGR, deductible gift recipients’ status.

David Henderson is a chartered accountant and the CEO of ROCG Australia Pacific and founder of CashMaxforecaster.com.

 

New Coke product hoped to revive falling Australian sales

Coca-Cola Amatil is hoping the upcoming launch of a new product in early April will reverse the company’s falling Australian revenues.

The Herald Sun reports that the new product, Coke Life, will launch on April 7. The launch will be worth $10 million and see a million cases of Coke Life delivered to 30,000 stores by the end of July.

A general move by consumers away from highly-sugared drinks has hurt Coca-Cola Amatil’s sales, which were down 2 per cent in 2014. Net profit was down 25 per cent in the year.

"We've seen a fairly steady decline in the sparkling category over a period of years in volumes of 2 to 3 per cent,” CCA CEO Alison Watkins told The Australian Financial Review.

“We would hope for people who have given it up and don't like Coke Zero it gives them an alternative and people who only have one a week can feel a little less guilty about that.”

Last year also saw CCA announce the closure of its Bayswater plant and the relocation of its three lines to other sites, as part of a three-year cost-cutting effort.

Coke Life is the first new product from Coca Cola since Coke Zero in 2006. Life has 35 per cent fewer calories than regular Coca-Cola, and is sweetened through a combination of cane sugar and stevia.

 

Hockey approves JBS’s $1.4 billion takeover of Primo

Brazil’s JBS has been given approval to acquire Primo Smallgoods.

The ABC and others report that treasurer Joe Hockey approved the $1.4 billion sale to JBS’s US subsidiary, with conditions that contact processors retain access to Primo (Australian Consolidated Food Holdings).

Under the conditions, JBS must ensure:

– “the Scone abattoir in NSW must remain open and retain its capacity for consignment killings accessible by third parties

– JBS reports to the Foreign Investment Review Board (FIRB) on its compliance every six months, and

– the transaction be reviewed in three years.”

Primo’s operations include five pig processing plants in Australia and New Zealand and about 3,000 employees.

Dow Jones reports that JBS will benefit from an Australian reputation for premium farm produce. It comes after last year’s China-Australia free trade agreement was reached, from which Primo would benefit through lowered tariffs for imported smallgoods.

The announcement came after the ACCC last month said it would not oppose the sale, as it would not substantially reduce competition in the beef processing sector.

Nationals Senator John Williams said this was evidence that competition laws were not doing their job against “creeping acquisitions”, he told the ABC.

“If you just go along buying one company, then another company, then another company, taking small steps, that's OK by the law,” he said.

"We need to change the law so that cannot happen because we're going to end up having two or three companies running this nation, which would be a disaster."

His concerns about reduced competition were highlighted by NSW Farmers Cattle Committee chairman Derek Schoen, who said that JBS and Primo were direct competitors, and prices for farmers would be pushed down.

“The acquisition of Primo by JBS will (make it) incredibly difficult for any new entrants to enter the market," Farm Weekly reports him as saying.

 

The Little Brewing Company finds a crafty cash flow solution

When The Little Brewing Company expanded distribution through Woolworths' liquor outlets, factoring helped their cash flow and ensured the business kept bubbling away.

Sealing the "big customer" is something most SMEs dream of – then many have to deal with the frustration of not being able to secure funding to support their growth.

At Port Macquarie on the NSW Mid North Coast, husband and wife team and craft brewers Kylie and Warwick Little are in the process of a major expansion of their brewery’s capacity. The brewers of Wicked Elf and Mad Abbot beers have found a market niche, including a distribution channel into Woolworths' businesses BWS and Dan Murphys.

According to Kylie Little, The Little Brewing Company's CEO, cash flow became a big issue because, despite Woolworths' regular monthly payment cycle, there were still the timing issues that come when one big client accounts for 60 percent of a business, or when all your small customers order at once.

"When we have many small orders for a couple of cartons or kegs, each orders on 30 to 60 day terms all at one time , the combined value of orders can be substantial to our small business," Kylie said.

"So being able to factor the combined value of smaller invoices, as well as our major customer's invoices, helps cashflow planning. Factoring really helps us bring cashflow a little closer to the point of sale."

Successful factoring is all about building the right relationships with your invoice finance provider, and ensuring they understand what makes your business tick.

"We'd been approached by many factoring businesses in our early days. Some of them told us we were too small, but FactorONE looked at us and understood our expansion plans and backed us."

She says FactorONE provides additional services such as issuing statements and chasing overdue debtors.

"Another positive is FactorONE has been prepared to look at circumstances as they change for our business, and structure arrangements accordingly.

"They've been willing to discuss how to handle the situation of a slow debtor who exceeds an acceptable term beyond the due date of an invoice, so that funds are recovered without affecting our relationship with the customer."

In mid-2012, when The Little Brewing Company signed up with FactorONE, they were brewing $60,000 in stock a month – and have now doubled production capacity.

"We've got great relationships with Woolies and FactorONE, who have now increased our limit on Woolworths invoices to $100,000 at any one time to cover this."

Kylie said they are on a path to build a whole new brewery with automated packaging and the capacity for a minimum of one million litres annually. They installed two large new tanks last November, which enabled them to distribute through BWS, and they've recently secured the next door unit with an eye to expansion.

 

Cadbury chocolate blocks get smaller

Blocks of Cadbury family-sized blocks of chocolate will be shrunk by one row, with high manufacturing costs blamed.

Fairfax Media reports that the chocolate market leader in Australia cited “unprecedented” cost pressures over the last 18 months, and chose to decrease size by roughly 10 per cent rather than raise prices.

The blocks would be reduced from the current 220 gram size to about 200 grams.

Confectionery companies worldwide were “feeling the squeeze” from higher input costs, Cadbury said on its website. Among these costs is the price of coca, which spiked last year and has contributed to difficulties for other confectioners such as Ernest Hiller, which was placed in administration last month.

“We’ve reached a point where we can no longer absorb these increasing costs into the price of our chocolate blocks,” explained Cadbury.

A backlash from chocolate fans was predicted.

"Clearly any chocolate lover is going to be a bit disappointed," conceded Amanda Banfield, managing director of parent company Mondelez International, in an interview with Fairfax.

Around 60 per cent of the company’s chocolate is sold in Australia through Coles and Woolworths.

The Cadbury factory at Claremont, Tasmania, produces about 80 million blocks per year, and has a planned $66 million upgrade. $16 million of this was pledged as government co-investment by then-opposition leader Tony Abbott during the 2013 federal election campaign.

Family-sized blocks of Cadbury were decreased in 2009 from 250 to 200 grams, note Lifehacker and others, before being increased to 220 grams in 2013 following consumer anger.

Image: https://www.glogster.com

Brewing industry profitability decreases: IBISWorld

IBISWorld has released the latest version of its beer manufacturing industry research figures.

The Beer Manufacturing industry in Australia market research report finds that overall growth is stagnant, traditional brands out of favour, and craft/premium beers dominating growth.

The sector employs 3,768 workers at 209 businesses.

The industry is worth $5 billion overall, according to IBISWorld’s research, and grew at only 0.1 per cent in 2010-15. It is dominated by two foreign owned players, the South African SABMiller (which acquired Foster’s in 2011), and Lion Nathan (owned by Kirin Holdings of Japan.

The two major brewers are hurting profitability through their battle for market share, as is the overall decline in per capita beer consumption.

“Industry revenue growth over the past five years has been constrained by falling beer consumption and intensifying competition,” said an analyst from IBISWorld, Jem Anning.

Overall growth is put at 2.5 per cent for 2014-15. This was being driven by premium and craft beers, which are expected to drive revenue growth over the next five years.

According to an article in The Australian this month, almost half of all craft beer in Australia is sold by the big two.

Image: https://www.franchiseopportunitiesjournal.com

 

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