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Whistling the profitability tune in manufacturing

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 our 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% in 2014) is substantially higher than those below that threshold (2.3%),” said Mr Climpson.

Helina Lilley - National Public Relations Manager, +61 2 8297 2421 M  0437 725 520 E