Australian importers and exporters in the medical sector have a colossal opportunity to grow their businesses by taking advantage of burgeoning Asian markets and demographic shifts. But they need to have access to robust funding facilities to do this.
Economic forecasts demonstrate the immensity of this opportunity. According to the Business Council of Australia’s figures, healthcare will comprise between 12 per cent and 15 per cent of Australia’s GDP over the next 30 years. HSBC believes the healthcare sector will grow by a healthy 4 per cent a year from 2014 to 2019, partly because of the ability local exporters have to sell to Asian hospitals whose patients are increasingly members of the growing middle class.
One business taking advantage of this development is Livingstone International, which imports and exports an extensive range of medical, healthcare and laboratory consumables.
“We operate in a growing market, given Australia’s ageing population. The rising population in the Asia Pacific region also means healthcare will be a booming market in the coming decades,” CEO Daniel Linn says.
The nature of Livingstone International’s business means it’s particularly capital intensive. “Capital and finance is especially important for importers and exporters of medical products. We have to hold inventory because when customers place an order, they require products immediately. They can’t wait for products to be manufactured and then shipped to them,” Linn says.
The business can operate on a nine-to-12-month time frame from the point it sends an order for a product to be manufactured to the time it receives payment from a customer for the goods.
He says the growth of the business is related to access to funding; the more capital to which it has access, the higher the volume of business it does and the higher its profits.
The mature nature of Linn’s business determines its funding model. “Everything is very predictable; it’s not like an early stage venture such as a start-up that manufactures medical devices that requires risk capital. Our underlying cash flow and profits are very predictable.”
From a bank’s perspective, Linn says Livingtsone is an attractive proposition because there are substantial barriers to entry in its field, which makes the business relatively stable. For instance, it must meet the requirements of government health departments, as well as the Therapeutic Goods Administration. This is a significant hurdle new entrants would have to overcome before entering the sector.
Linn says the company accesses a range of different financial services from its lenders, of which HSBC is one. Trade financing facilities such as lines of credit to fund imports are important for the smooth running of Livingstone’s operations.
“Strong cash flow is essential because we rely on banks to fund our inventory, receivables and ongoing expenses.”
In terms of Livingstone’s future, Linn says it will continue to attract new customers because of the added value it provides: the vastness of its product range means clients only need to deal with Livingstone for most of the consumables they require, rather than having to deal with numerous firms.
“We are in the process of expanding in a measured way, so we need good relationships with our banks. We have had valued and strategic relationships with our bankers for many decades and we understand what they want from us. We are able to use this relationship to grow and develop our very capital intensive business,” he says.
Dickson & Dickson, which was founded in 2008 and is based in Sydney’s western suburbs, is another enterprise riding the crest of the healthcare services wave. It imports hospital equipment such as beds and powered mattresses, as well as highly specialised clinical devices for the prevention of deep vein thrombosis. It also imports the latest global technology available in operating theatre equipment and systems from the United States.
CEO Paul Dickson explains his company’s ethos has always been to bring the latest technology, with the highest quality product, but at sustainable margins to the Australian market. To achieve this, three things are needed: a reliable manufacturing base, a robust supply chain and a trusted banking partner.
The business was initially self-funded by the owners using their real estate as security and loans from directors, Dickson explains. As the company grew it was able to build relationships with second-tier financial institutions, before achieving the required size at which it could attract funding from top tier banks.
It now has a fixed loan with HSBC to cover its working capital requirements as well as a flexible line of credit to accommodate the variable nature of large capital equipment orders. Many of the products Dickson & Dickson sells are specialised, high-tech and made to order.
“We might get a million dollar order from a hospital for a theatre fit-out, which means our cash requirements are very lumpy. We have a relationship with our bank so it pays our manufacturer directly when we receive an order. Working like this means we have multiple short-term loans that are settled once an order is finalised. It gives us the flexibility to expand into new markets,” Dickson says.
Andrew Skinner, head of global trade and receivables finance for HSBC, says the bank has the appetite for healthcare clients, thanks to the industry’s rock solid customer base: government-funded hospitals.
“We’re seeing more and more Australian exporters expand into Asia as the middle class’s expectations of the quality of the healthcare they receive increases. Customers in the healthcare sector are benefitting from this,” he adds.
The Australian Financial Review