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Rural Industries Research & Development Corporation |
Thirty Australian Champions
Shaping
the future for rural Australia
edited by Keith Hyde
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RIRDC's major publication documenting the experience of thirty outstanding Australians who, through their business enterprise, vision and perseverance, are making a significant contribution to the welfare and economic growth of rural and regional Australia. Each chapter is presentedf as a separate html file which you can view, download and print.
Mt Romance Australia
The development of new industries is frequently a story of persistence and sacrifice. The story behind Mt Romance Australia Pty Ltd is one such story. At one point in the mid-nineties, Steve Birkbeck, the Managing Director, "sold his grave site" to raise the funds to maintain momentum towards his vision of an innovative new enterprise.
Background
The story of Mt Romance began in 1981, when Steve became involved in an emu farm run by the Ngangganawili Aboriginal Community at Wiluna, about halfway between Perth and Alice Springs. The emu farm was established as a government initiative within a larger group of Indigenous farming enterprises focused on emu, turtle and crocodile products.
In 1983, the Fraser Government cut the entire program and the emu farm was shut down. Nevertheless, Steve liked the industry, and approached the Ngangganawili Community in Wiluna, and started working for them, managing the production and marketing of emus and emu products. Together they pioneered the international investments into emu farming.
In 1987, Stephen accepted a consultancy position on emus and crocodiles with the West Australian Government in Perth. The bureaucratic nature of the role and living in the city proved too much, and Stephen and his wife, Karen, exchanged their river property at Wiluna, for a 450-acre cattle property under the shadow of picturesque Mt Romance near Denmark on the southern coast of Western Australia (WA).
After 12 months on the new
property, the Birkbecks realised that they had insufficient land,
equipment and stock to make a viable enterprise out of cattle. "So the
following year I went back to what I knew," he says, "which was the emu.
But I moved carefully because I was a bit circumspect about the emu industry
and I wanted to isolate my own limited investment and resources, and not
be subject to violent, production-related fluctuations. We went into emu
oil because it is the high-value end of the industry that required technology
and marketing skills. We thought it had some potential to develop a luxury
niche market."
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Left: Steve and Karen Birkbeck on their original Denmark, Western Australia, property. |
The Emu Industry
When Mt Romance was in its infant stages, the Birkbecks were processing about 200 litres of oil each year from their farm base. By 1997, they were processing 5, 000 litres. Unfortunately, the value of emu oil dropped in the period, from about $100 a litre to $25 a litre. "I better perspective to look at our growth would be to look at our sales turnover," he says. "We could make lipstick with one per cent of oil. Our sales base increased from $50, 000 in 1990 to $1. 5 million per annum by the end of the 1996."
Champion Qualities
- Good knowledge of industry
- Location in regional development area
- Focus on value adding
- Market chain development
- Sound business practices
- Investment in research and product development
In 1996, the WA Industry
Awards (Austrade and Department of Trade)recognised the Birkbecks' Mt Romance
enterprise as the New Exporter of the Year based on its success in exporting
to France, Thailand and Japan.
The Birkbeck company had a 30 per cent equity from French partners. When the French partners took on new Saudi Arabian investors, pressure was placed on the Birkbecks to re-locate the emu oil enterprise to France. At this same stage in 1996, a great local opportunity arose.
A Change in Direction
During the 1990s when the Birkbecks were building their Mt Romance emu products enterprise, an Indian company, Shalak's Pharmaceutical's, formed an Australian subsidiary, Shalaks Australia, and invested over $5 million on a state-of-the-art factory in nearby Albany. At that time, it was the most elaborate and sophisticated essential oils processing facility in Australia.
In 1996, when the Birkbecks were considering their options to respond to the pressure from their French partners, they had a hunch that the Shalak's enterprise was failing. "I made a telephone call to Shalaks," Steve says. "I called the Chairman and made him an offer for the Albany business. After due consideration, the group said they would accept my offer if I could guarantee the cash within seven days. I made another critical decision on the spot and gave the guarantee without confirmed access to the cash."
Steve and Karen sold their
farm overnight (the 'grave site'). "We sold a really beautiful farm," Steve
says, "but it was sold as the next logical extension of our long-term vision.
Just after we bought the business, the Asian market collapsed. We went
from a budgeted turnover for the 1996/97 year of $2.5 million to gross
sales of $1,200,000 overnight. Our sales into the Thailand and Japanese
markets had been growing fast. Also, before the collapse in October 1996,
it was not uncommon for us to sell $20, 000 worth of product to one duty-free
store in Sydney."
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Left: The spectacular entrance to the Mt Romance Sandalwood factory and tourism complex in Albany, Western Australia. |
The original Mt Romance range of products was based on emu oil, including both cosmetics and therapeutics. After the takeover, Steve investigated other oils, in an attempt to diversify from their focus on emu products. "I became very interested in sandalwood oil," he says, "and I was surprised to find it with an amazing set of circumstances."
Diversifying into Sandalwood
“Sandalwood had been a major industry in WA between 1919 and 1968, although no-one had tried to extract the oil for over thirty years. I gradually looked deeper and deeper and found that the problems were related to viability. It's a low-yield oil. And there's an insecure supply base. But these weren't major problems, just weaknesses waiting to be turned into strengths."
Alongside the diversification into sandalwood oil in July 1997, the make-up and funding of the company also changed. In 1997/98, after the French company had pulled out, a local investor committed $1.3 million which, along with the Birkbecks' personal asset sales of $2 million, kept the company afloat while negotiations for further injections proceeded with Foundation Capital (a venture capital fund).
In early discussions, a Foundation Capital executive advised Steve that he would need to secure a significant percentage of the WA supply of sandalwood (which totals 2, 000 tonnes per annum) in order to be considered seriously for funding. In 1998, the WA supply of sandalwood went to a national tender and Mt Romance was successful in September 1998 in winning the contract with the WA Government for 50 per cent of the State's sandalwood production (1, 000 tonnes per annum) over a period of ten years.
Subsequent to this, and after further technical progress, marketing developments and arduous negotiations, Foundation Capital confirmed Board approval for a $2 million investment into the company (December 1999). Shortly thereafter a second tranche of external investment was secured from European pharmaceutical interests.
Mt Romance has grown in huge leaps from its modest beginnings. The company now employs 35 people in Albany and Steve hopes to commence commercial sales of the sandalwood oil in 2000/01.
This will see gross income rise from $2, 500, 000 in 1999/2000 to $4, 000, 000 in 2000/01, and then increase significantly as the volume of wood processed reaches maximum capacity in 2001/02.
With this growth, the Birkbecks'share in the company has been diluted to 60 per cent. More importantly," e are able to access the key skills to turn a successful family company into a corporation that will be able to successfully float on the stock exchange" envisaged to float in June 2003).
Mt Romance hit the market
with sandalwood oil in November 1999. "We are selling a cruder grade of
oil in Australia and into Asia, specifically into the aromatherapy and
incense industries, with the remainder being sold into the perfume industry.
We've forward sold everything we've got, "Iteve says, "and we haven't overexposed
ourselves to the market. We've only gone to a selected market and found
that the take-up has been significant.
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Left: The lipstick
machine at Mt Romance produces
8,000 units daily. |
“At the moment we're increasing our production capacity and we're ahead on budget and production schedules. It has been a big shift from emu oil to sandlewood —emu sells for about $25 a litre, while sandlewood sells for between $400 to $600 a litre."
Mt Romance is setting up its own research program with help from a $880, 000 R&D Start grant in April 2000. The research, in collaboration with Western Australian universities, will involve work on extraction, fractionating and therapeutic trials on sandalwood oil.
Challenges
Steve considers retaining his personal values, keeping his sense of humour, keeping it fun and keeping it a sense of adventure to be the biggest challenges he has faced with Mt Romance. “Corporately, the greatest challenge was taking over the new facility just when the Asian market collapsed," he says. "I didn't budget on that. But ultimately, many of the challenges are ahead of us. We have set ourselves the business plan to get the French master perfumers to use Australian sandalwood oil. We'd like to see Chanel and YSL put a new perfume together using our product as the backbone, and hopefully using our region as part of the marketing launch. And we are getting closer and closer to that, but there are so many things that need to be in place before they commit to us. They really want to see 55 different people producing the oil with a 67-year history or one hell of an investment by one company before they're going to expose themselves to one company."
The Birkbecks'main competitors for international sandalwood supply are Timor-based operations.
Sandalwood is a precious substance and the world market is often disturbed with inconsistencies in quality, supply and price (the price of oil has doubled over the past five years). Each year, there are 200, 000 kilograms of sandalwood oil produced in Timor and India and exported at a price of around A$100 million.
Possibilities for Expansion
According to Steve, there are two directions in which Mt Romance can expand. "We can move vertically within sandalwood or laterally into other essential oils. Either option may require corporate acquisitions" he says. "Either through acquisitions or dynamic organic growth, we will seek to consolidate our world sandalwood position.
“Our shareholders have strong
experience in corporate expansion, and within our industry we believe there
is a need to generate volume and create a significant essential oils resource
base."
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Left: The Mt Romance
factory has provided new employment opportunities in regional Albany. |
It is envisaged that corporate turnover within the next couple of years will reach $20 million per annum. "The good thing with our group now is that we together bring a lot of varied expertise and credibility to the project which, either through existing shareholders or other routes, enables us to access capital quickly."
Advice for Newcomers
The advice Steve would give to others interested in new industries centres on four key areas:
1. Customer Focus. "Australian rural industries have too much of a production mentality. When we're talking to an economist or someone from an agricultural department, we say things like, 'I can grow this and this takes so long to grow and I end up with this much.'I would completely reverse all that, and what I believe we need to do is come from the customer level down."
2. Competitive Advantage. It is essential that in context to the defined customer base, which identifies product and volumes and market share, that an identified competitive advantage is demonstrated as this is often the" ancerous downside "Ito developing industries. "Often I see a new industry start to glimmer and so the State subsidises the new industry. And we all get taken up by that momentum and it becomes a trend. But sometimes we have to be cruel to be kind and the best thing we can do for people is to give them the hard truth, that unless they have what it takes to take on Coca-Cola, we need to say, 'pack up'. We can prolong these things, but remember we are talking about the most tenacious nation in the world, and if we give our regional folk half an opportunity, and a suggestion of economic sustainability on the land, they will persevere, to the best and worst that this can bring out. At its worst, they'll bang their heads against the wall for a long time. I believe it's our responsibility in new industries not to allow that to happen.
Left: The international
showroom in Perth featuring a range of Mt Romance emu and sandalwood oil
based products.
“I think, therefore, you have to establish some fairly hard and clear definitions of what competitive advantage means. If the government starts saying'look, to keep these people happy, we'll give them this industry, we'll throw in five years of our money and they'll put in five years of their time.' Time is more valuable than money — they're wasting their life."
3. Concentrated Specialisation. In terms of direct advice to growers, Steve describes his own advice as simple. "Narrow the focus. That's why I prefer vertical integration to lateral expansion. You can go in with a magnifying glass and eventually get somewhere pretty close to where you want to be. Look at the emu industry — most people tried to be all things to all people, farmers, and marketers in emu meat, leather, and oil; each is an industry in it's own right."
4. Customer Service. "My
personal passion is customer service. Always the customer comes first and
last, so whatever you do, do it well," Steve concludes.
