Rural Directions Pty LtdPO Box 646 Clare South Australia 5453T 08 8841 4500 F 08 8842 1766Ewww.ruraldirections.comAFS Licence No 221556

Project delivered by:

Carlyn Sherriff

November 2012

Oyster Industry Benchmarking SnapShot

Industry Edition

csherriff@ruraldirections.com

1

Australian Oyster Industry SnapShot 10/11 – Industry Edition Disclaimer This report has been produced by Rural Directions Pty Ltd (herein referred to as “the Company”) and associated consultants/specialists. Whilst all due care has been taken in collecting, collating and interpreting information for this report, some omissions may have occurred. The statements and opinions contained in this report are given in good faith and in the belief that they are not false or misleading. Neither the consultants nor the Company undertakes responsibility in any way whatsoever to any person (other than the Client) in respect to the document, including any errors or omissions therein, arising through negligence or otherwise however caused. This report is copyright. No part of it in any way may be by any means reproduced or stored in a retrieval system, or transmitted without prior permission of the Company.

Purpose

This report has been produced for members of the oyster industry including growers and industry organisations. The purpose of this report is to summarise the performance of Oyster businesses in South Australia, Tasmania and New South Wales that have participated in the Oyster Benchmarking program. This report is a shortened version of the report that participating growers have received. The year of data analysis in this report is 2010/2011, collected on a financial year basis. Every attempt has been made to ensure the identity of businesses within this report is kept confidential and all data is presented anonymously. Would you like to see your businesses performance in the next report? The oyster benchmarking program is open to ALL oyster growers. We will be undertaking another round of benchmarking in January 2013. Please call Carlyn Sherriff at Rural Directions Pty Ltd on 08 8841 4500 to discuss your involvement in the program.

2

Overview

Businesses in data set: 34 Production year: 1 July 2010 to 30 June 2011 Type of grower Table 1: Type of growers within the data Number of growersFinished Oysters only These businesses produce oysters at a mature size and sell to customers and consumers. 25 Nursery and finished These businesses produce oysters at a mature size and also operate a nursery enterprise selling juvenile oysters. 1 On-grower only These businesses grow oysters to a smaller than finished size, selling them to another grower to fatten and finish for the customer. 3 On-grower and Finished These businesses are a combination of on-grower and finishers, selling both mature stock as well as oysters to be finished by other operators. 5 Total growers 34

Developed hectares per business ‘Developed hectares’ indicates the total area that is leased by the business (owned or sub-leased) that has been developed. Table 2: Average developed hectares of each farm by state

Summary Average 17ha Range 1.5 – 79ha

State Average developed hectares (by state)SA 13.69ha Tas 24.47ha NSW 12.47ha

Oysters sold per business Table 3: Average dozen oysters sold by state in 10/11

Summary Average 142,557 doz Range 10,179 – 724,054

State Average sold (by state)SA 119,006 Tas 197,062 NSW 108,791

Table 4: Average total Full Time Equivalents (FTE) in each business

Summary Average 5.86 FTE Range 1.03 – 32.31 FTE

State Average FTE (by state)SA 5.73 Tas 7.90 NSW 3.76

3

The summarised information above demonstrates that, on average, Tasmanian businesses operate the largest lease area (Table 2), have the most labour units (Table 4) and produce the most oysters per business (Table 3).

Performance analysis

The following sections outline the comparative performance of the businesses within this data set. Business performance, cost comparison and whole of business position is presented. SnapShot Premium analyses whole of business performance. Within this report there are businesses operating: different business models; small to very large businesses and multi-state businesses. These business models can still be compared against one another at a whole of business performance level. Business performance comparison This section provides a summary of the results relating to dozens of oysters sold, income and profit per business based on the states each business is located. A range of graphs are provided which outline the results achieved by individual businesses. Individual businesses appear in the same order in each of these graphs; the order is based on total oysters grown (e.g. number 34 produced the highest number of oysters in the year analysed). This structure allows for data to be presented in a manner which respects confidentiality of participating businesses. Dozens sold Table 5: Average dozens sold in 10/11 based on FTE’s and developed hectares

Average All States SA Tas NSWDozens sold per FTE 28,095 26,625 31,113 27,313 Dozens sold per developed Ha 11,989 10,663 10,322 14,776 The variance within these results, (Figure 1), is related to the type of grower and scale of business. The diversity expressed on the right hand side of the graph (Figure 1) is highlighting larger businesses, nursery businesses and/or on-growers.

Figure 1: Average dozen sold per business

4

Business income In 2010/2011 South Australian growers achieved the greatest income per developed hectare, while Tasmanian growers had the highest income per dozen earned and the most income per FTE. Table 6: Average income per business Average All States SA Tas NSWTotal income per FTE $121,029 $125,703 $148,559 $88,055 Total income per developed Ha $46,212 $57,599 $44,476 $32,213 Total income per dozen sold $5.92 $5.23 $6.43 $6.03 Figure 2 shows the range of income received by businesses in 2010/2011. Some businesses were affected by weather events and some by high mortality events. This meant less stock was available for sale during this year. It was common for businesses in this data set to describe 10/11 as a year that they want to put behind them.

Figure 2: Average income per business

Cost comparison This section provides a summary of the results relating to average costs as a percentage of income and the costs associated on a per dozen basis. The section focuses on the key costs for an oyster business including: freight, fuel, lease fees and wages. The key costs presented in this report are those that oyster business operators indicated were of importance to their business. Costs as a percentage of Income Wages and spat purchases consume the largest percentage of income for all states, they also cost the most on a $/dozen basis. Repairs and maintenance and finance costs were also high. This confirms the feedback from oyster growers, as shown in Table 7. Licenses and lease fees were 4% of income (Table 7). This is not as high as some businesses may have expected. This figure does not take into account businesses that pay a sub-lease for leases that they do not own. There were less than 10 businesses with all or part of their leases set-up this

5

way. If these extra lease payments are added to the calculations above (licenses and lease fees), the revised average is 5%. This is still not as significant as spat purchases and wages. Table 7: Average costs per business based on percentage of income results Average – percentage of income (%) All States SA Tas NSWFreight 2% 1% 3% 2% Fuel and Oil 4% 3% 3% 5% Licenses and lease fees (Inc. industry levies, QAP / food safety)

4% 4% 3% 5%

Total Repairs and Maintenance 8% 7% 6% 13% Spat and on-grower purchases* 14% 13% 18% 11% Total Wages (paid) 29% 29% 34% 22% Total wages (imputed) 19% 8% 5% 44% Total Finance costs 6% 7% 6% 4% *Spat purchases includes purchase of spat and juvenile oysters less than <10mm. Costs per dozen sold

Figure 3: Average costs per dozen sold

Profit All profit figures below are reported at the Net Profit level (before tax and after imputed labour amount). This figure has considered a labour rate for family members remunerated via drawings. This figure is the most appropriate profit to compare business models. Average profit per business in 10/11 was $89,746, with Tasmania achieving the highest average profit of $71,060. NSW businesses achieved the lowest average profit in 10/11 (Table 8). Table 8: Average profit per business Average All States SA Tas NSWProfit (before tax and after imputed labour) $89,746 $37,087 $71,060 $17,848 Profit as percentage of income -5.6% 4.7% 5.2% -29.5% Profit per developed Ha $4,285 $5,583 $6,144 -$677 Profit per FTE $7,941 $7,105 $18,599 -$4,182

6

One of the biggest impacts on the profit figures for NSW was imputed labour, which is based on the hours worked in the business by owners remunerated via drawings. This does not mean the NSW growers work harder than the other states, it indicates that in 10/11 the income received by the NSW businesses was not enough to cover all essential businesses costs; including setting aside money for owners wages. Figure 4 indicates that the most profitable business on a per hectare and FTE basis are not necessarily the businesses who are selling the most oysters. Three of the four businesses achieving profit per FTE of greater than $50,000 were finished producers and the other was an on-grower. They produced between 100,000 and 500,000 dozen oysters per business and profit per dozen varied from $0.72 to $2.92. This highlights the difference between business models for each of these profitable businesses.

Figure 4: Average profit per business

Whole of business position – key performance indicators The section relates to whole of business performance of the businesses analysed. In this section, profit performance analysed in association with the balance sheet. Some indicators have been coloured based on the benchmark key (Table 9). This table outlines standards relating to a strong (green), okay (orange) or poor (red) benchmark result.

Table 9: Key to benchmark results

Key performance indicators

Benchmark Key Weakness OK Strength

Equity % Less than 70% 70 - 80% Greater than 80%

Debt to Income Ratio Greater than 1.5 1.5 - 1.2 Less than 1.2

Total Financing Costs (as % income) Greater than 15% 15% - 7% Less than 7%

Operating Costs (as % of income) Greater than 60% 60% - 50% Less than 50%

7

Operating costs as a percentage of income is high (Table 10). Ideally, a business should not commit more than 60% of their income to paying operating costs (variable and overhead). The 10/11 data shows that the industry was spending an average of 73% on operating costs. Table 10: Average operating costs as a percentage of income Average All States SA Tas NSWOperating costs as percentage of income 73% 72% 74% 72% Finance costs as percentage of income 6% 7% 6% 4%

The average results for the benchmarks in Table 11 are all within the strength range. This indicates that on average, the industry is not stressed or overcommitted with debt relative to their income and businesses are building strong net worth positions. Table 11: Net worth, debt to income ratio and equity results Average All States SA Tas NSWNet worth $1,935,480 $2,262,056 $1,812,545 $1,018,636 Debt to income ratio 0.77 0.74 0.91 0.74 Equity 81% 85% 73% 84% Ideally, return on equity greater than 5% is good but greater than 10% is the target. This result was not achieved by the oyster businesses in 10/11 (Table 12). Table 12: Return on equity results by state and grower type Average All States SA Tas NSWReturn on Equity (%) 1% 2% 4% -5%

8

Summary

The purpose of this report was to summarise the performance of oyster businesses in South Australia, Tasmania and New South Wales that have participated in the Oyster Benchmarking program. Data was analysed for the financial year of 2010/2011. This was the first round of oyster benchmarking analysed within the SnapShot Premium system. Business size, oyster species grown and business model varied among the 34 participating businesses analysed across New South Wales, South Australia and Tasmania. Profitability levels across the businesses analysed also varied. It was common for businesses in this data set to describe 10/11 as a year that they want to put behind them. Some businesses were affected by weather events and some by high mortality events. This meant less stock was available for sale during this year. In 10/11 South Australian growers achieved the greatest income per developed hectare, Tasmanian growers had the highest income per dozen earned and generated the most income per FTE. Average profit per business in 10/11 was $89,746, with Tasmania achieving the highest average profit of $71,060. NSW businesses achieved the lowest average profit in 10/11. The report also provided analysis on some key benchmarks and found that on average the businesses were performing okay in regards to finance costs as a percentage of income and debt to income ratio. Operating costs as percentage of income was high but future benchmarking analysis will determine if this benchmark needs to be adjusted or if there is an underlying issue for the industry. The businesses within this report have highlighted the diversity that exists within the oyster industry and also showed similarities with the other industries in managing large costs such as wages. Future rounds of benchmarking will provide a valuable trend for the individual businesses and industry.

Please contact Rural Directions Pty Ltd if you wish to discuss these results further or if you would like to be involved in the next round of benchmarking - phone 08 8841 4500.