One of Australia’s largest and most successful family businesses is almost entirely unknown outside of its industry.
But there are three very unusual things about the Coneliano family’s Redox Group, a Sydney-based importer and distributor of chemicals, and a top 100 private company:
1. The family loves paying tax -- Redox pays the full 30 per cent, and a bit more;
2. They publish a full set of accounts every year, like a listed company; and
3. Their capital structure and succession solution is totally unique, and elegance itself.
In the 2014 financial year accounts, Redox reported sales of $452.5 million, up 11.6 per cent on last year. Profit before tax was $26.1m, up 20 per cent, and tax expense was $8.1m -- 31 per cent of gross profit.
In fact, managing director Robert Coneliano says he and the family pay no attention to net profit; they only watch gross profit, because “we love paying tax -- we think it’s the most patriotic thing you can do.”
Take note Google. Pay attention Apple, not to mention all the family businesses in Australia that shelter their cash from the tax man.
The Conelianos use no trusts or offshore tax havens, and they barely even use any deductions. Crazy! I hear you say. But their $10m annual dividend isn’t crazy, and nor is the constant stream of international chemical businesses trooping through their offices trying to pay them hundreds of millions of dollars to buy the business.
They all get knocked back. The founder of Redox, Roland Coneliano, 86, one-legged and hearing impaired, still controls 100 per cent of the votes and comes into the office four days a week, doing deals by email. He’s not for selling, and the 35 other family shareholders are fine with that.
Why do they publish accounts? To show suppliers and customers how sound the business is, so they’ll increase payment terms.
So here’s the unique capital structure, as laid out in the 2014 accounts.
There are three classes of shares: 20,000 A class, 20,000 B class, and 2,285,909 C class.
Under the heading “Share Rights”, it says:
“‘A’ class shares entitle the holder to vote, to receive dividends as declared by the board of directors and to participate in capital on a winding up.
‘B’ class shares entitle the holder to vote when ‘A’ class shares are no longer in existence, to receive dividends as declared by the board of directors and to participate in capital on winding up.
‘C’ class shares entitle the holder to vote when both ‘A’ and ‘B’ class shares are no longer in existence, to receive dividends as declared by the board of directors and to participate in capital on a winding up.”
All of the A class shares are owned by Roland. All of the B class shares are owned by his eldest son Robert, who is now managing director.
The C class shares are distributed among the rest of the family, and the allocations were decided by Roland.
What the share rights mean is that when the patriarch dies, his A class shares will convert to C class in the hands of his estate; that is they’ll cease to exist, and the only voting shares will be the B class shares owned by Robert.
When Robert dies (he’s now 62, like me, so that event is a very long way off) the same thing happens, but Robert is lobbying to get that changed. He wants one family member, probably his brother Renato, currently marketing manager, to inherit all of the B class shares, so that there aren’t any fights and also to ensure the business is not sold.
Roland Coneliano started the business in 1964 with a partner named Krikor Krikorian (yes, an Armenian), and they called it C&K Traders.
They had been in business together in Cairo, where they had both been born, and they emigrated together to Australia in the 1960s.
Their business involved selling East German machine parts to Egyptian businesses. It was easy, and they made plenty of money, because Egypt was aligned with Moscow and Egyptian manufacturers had no other source for parts.
But after Gamal Nasser came to power in 1956, things started to get difficult for Europeans in Egypt, so in 1960 Roland, then 32, and Krikor decided they had to get out.
They got to Australia and tried to set up the same business -- selling East German parts and machinery -- but found the standards here were all different, and the equipment either wouldn’t work or wasn’t allowed.
So they flew to East Berlin and asked their Communist Party suppliers whether there was anything else they could supply them for the Australian market. “What about chemicals,” was the reply. “Right”, said Roland and Krikor, “we’ll try chemicals”.
This was the Soviet bloc in the early 1960s, the height of the Cold War, so we’re talking really basic inorganic industrial chemicals, like potassium hydroxide and magnesium chloride.
These two Italian/Greek and Armenian blokes from Egypt could barely speak English and knew no one, especially in the chemical industry. They door-knocked and cold called and gradually, because their stuff was so cheap, they got some deals.
Robert remembers joining them in 1971 at the age of 19, his first job. At that stage there were three employees -- the two partners and one secretary. Also, 1971 was the year of their first profit -- $3000.
At that point they were only selling on indent -- no stock. They would arrange for a wholesaler to import directly and get a commission. It was a tough business.
In 1974 they hired their first salesman, and at the same time rented some warehouse space and started building up stock.
That’s when Roland and Robert both learned about the importance of capital, and how not having enough of it means you have to grow slowly, which is what they did, reinvesting all profits back in the business.
In 1983 Krikor Krikorian died, which Robert says was their first disaster. Instead of Krikor as their partner, they suddenly had his wife, whom they quickly bought out, with support from the bank.
At that point, 30 years ago, they still had only seven staff and were still very small indeed.
Six years later came the second disaster -- the end of the Berlin Wall and the collapse of the Soviet Union. Their biggest suppliers -- Poland, East Germany and Russia -- dried up overnight and they quickly had to find other sources.
And guess where they turned. Yep, that other Marxist paradise, China, which now supplies 40 per cent of Redox’s output.
The GFC in 2008 was not, as it turned out, the third disaster, as it was for many companies.
Redox had little debt after years of careful financial management and frugal living by Roland and Robert, so when the banks tightened up it was their competitors that suffered, not them. Robert says Redox’s turnover increased $52m, or 25 per cent, in one year.
After that, growth was slower than the 15-17 per cent compound the family had enjoyed before 2008, largely because of the high currency, but last year’s 11.6 per cent showed that sales are picking up again.
There are currently 12 direct family members employed in the business and two cousins. Total staff is 291 on 13 sites in three countries (Australia, New Zealand and Malaysia). Next is California, where they are in the final stages of incorporating.
And these days they sell a lot more than basic Soviet-style industrial chemicals: they supply sweeteners and other ingredients for the food industry, detergents, solvents, pigments, water treatments, chemicals for making bricks and other building materials, as well as products for leather tanning and the mining industry.
All in all, the Coneliano family’s creation is an extraordinary achievement -- a large, complex and innovative Australian business that is now taking on the world. When asked to nominate their key advantage, Robert nominates the computer system, which Robert and his brother Richard wrote themselves.
The plan now is to get to $1 billion in turnover by 2020. Not much doubt they’ll do that.