SFC is a diversified asset management company that owns and operates a vertically integrated and multinational leather upholstery business, a precast concrete manufacturing business and a commercial property portfolio in Australia.

SFC derives most of its operating revenues from the sale of leather upholstery to vehicle manufacturers in Europe and Asia and the sale of building and landscaping materials in Australia. 71% of the AUD226.8 million it generated in the 2018 financial year came from leather upholstery sold in Europe, 19% from leather upholstery sold in Asia, 8% from building and landscaping materials sold in Australia and the rest came from other recurring sources.

SFC is a diversified asset management company that owns and operates a multinational leather upholstery business, a precast concrete manufacturing business and a commercial property portfolio in Australia. It owns:

• 83% of Howe Automotive (www.howe.com.au), a vertically integrated and multinational leather upholstery business. Howe Automotive sources hide from international suppliers, primarily in South America, that it processes in its tanneries in Australia, Slovakia and China and sells directly to vehicle manufacturers in Europe and Asia;
• Delta Corporation (www.deltacorp.com.au), which manufactures precast and pre-stressed concrete floors, beams and walling products for civil construction and commercial buildings in Western Australia; and
• A portfolio of industrial properties, interests in several syndicated retail and commercial property portfolios and 83% of an Australian property management company called Gosh Capital.

Product manufacturing is often characterised as competitive and susceptible to currency and commodity price movements, multinational competitors and the adoption of alternative technologies. Companies try to reduce these risks and maintain margins by investing in their own plant and equipment, by hedging part of their delivered raw material and energy costs and by continuously improving their production and supply chain efficiency. Specifically, SFC has indicated its near-term focus is to increase its leather upholstery production and reduce its corporate and processing costs across its building materials businesses [1]. 

SFC competes directly with other domestic and international manufacturers of automotive leather and building products that are also trying to attract customers through various pricing, quality and other customer propositions. Some of its larger competitors within the automotive industry are Eagle Ottawa and GST AutoLeather of the United States and some of its larger domestic competitors within the building materials sector are PERMAcast and Dallcon.

SFC has successfully established a multinational and vertically integrated business model with reliable channels-to-market across a diverse set of countries. It also operates in a range of industries and exports to a number of different countries, giving it the opportunity to allocate more of its resources to sectors with favourable demand drivers and to distribute more of its products to countries with favourable exchange rates. Going forward, it should continue to benefit from increased sales and economies of scale through organic growth, expanding its product range and geographic presence, optimising its operations and vertically integrating up the supply chain as well as undertaking complementary and value-accretive acquisitions. Its downside commercial risks could include: a broader economic slowdown, particularly within the automotive and construction sectors, that could affect the propensity of vehicle manufacturers to purchase its leather upholstery and construction companies to purchase its building and landscaping materials; erosion of market share and gross margins from multinational competitors and synthetic product manufacturers with greater economies of scale; loss of a key customer (two customers accounted for 41% of its revenues in the 2018 financial year), distributor, supplier or employee; changes to the availability, quality and delivered price of raw materials and third party supplier costs that are unhedged and cannot be passed on to customers through pricing increases; an appreciation of the AUD, which would lower the unhedged value of its exports and any foreign capital it chooses to expatriate back to Australia (equally, however, this could lower the AUD-equivalent cost of any manufacturing, packaging and distribution undertaken outside of Australia or raw materials imported into Australia); greater international product restrictions and regulations that may increase its compliance costs or prevent it from selling certain products in some markets; and any inheritance of undue liabilities or commercial risks through new product offerings, acquisitions and entrances into new markets.

2000: Calsil was established by George Schaffer, Mac Mitchell and Albert Jobling in 1955 as a producer of sand-lime bricks in Western Australia. It was first listed on the Perth Stock Exchange in 1963 and moved onto the Australian Stock Exchange in 1974 (CAL.AX), which facilitated its domestic growth and diversification. CAL acquired a competing sand quarry and brick producer called Colortone Holdings in 1966 and two more competing manufacturers called Besser and Hollowstone in 1973, it established a paving products manufacturer called UrbanStone in 1974, it acquired a manufacturer of pre-cast and pre-stressed concrete floors, beams and wall products called Delta Corporation in 1980 and it acquired a leather furniture manufacturer called Shilkin Leather that it renamed Gosh Leather in 1984.

George Schaffer died in 1988 and CAL was renamed Schaffer Corporation (SFC.AX) in honour of its founder. It sold most of its brick and paving assets to Boral before going through an extended period of domestic and international growth and diversification. By 2000 it had: moved its Gosh Leather operations under a new 49% owned leather upholstery business called Australian Leather Holdings that had commissioned tanneries in Australia and Mexico; acquired a complimentary Australian vehicle leather upholstery exporter called Howe & Company, which it moved under Australian Leather Holdings; acquired 50% of an Australian construction and landscaping materials business called Sydney Sandstone Quarries; established a portfolio of directly-owned and syndicated commercial and industrial properties across Western Australia; acquired an Australian funds management and investment company called Loftus Capital; and acquired 51% of an Australian manufacturer of solar hot water systems called Solco Industries, which included a 25% shareholding in Solco Zimbabwe and a 17% shareholding in Nell Solco Malaysia

2001: SFC sold 7% of Australian Leather Holdings

2002: SFC acquired a further 41% interest in Australian Leather Holdings, increasing its total shareholding to 83%. It also chose to exit Loftus Capital and its 50% interest in Sydney Sandstone Quarries

2003: SFC restructured its leather furniture business, Gosh Leather, on the back of increased competition from cheaper furniture imports into Australia

2005: SFC sold its 51% interest in Solco Industries, which it no longer considered a core part of its operations. During the the year, it also expanded vehicle leather upholstery production capacity by commissioning two new leather cutting facilities in China and Slovakia

2007: SFC continued to expand its domestic building and landscape materials operations by acquiring two of Western Australia’s largest producers of natural and reconstituted limestone block walling products, Limestone Resources and Archistone. During the year, it also closed its underperforming leather furniture operations, Gosh Leather, and renamed Australian Leather Holdings as Howe Automotive

2011: SFC chose to exit the American vehicle upholstery market and closed its leather cutting and tanning facility in Mexico after a period of reduced sales and margin pressure, driven in part by the global financial crises

2014: SFC established Gosh Capital, a property management and investment business with the aim of redeveloping the land on which Gosh Leather previously operated. SFC also amalgamated its Archistone and Limestone Resources businesses into UrbanStone

2016: SFC expanded its cutting facilities and commissioned a new leather finishing plant in Slovakia

2018: On the back of continued underperformance within its building materials division in Western Australia, SFC divested its Urbanstone business

SFC was first listed on the Australian Stock Exchange on 01 January 1974. It had 13.8 million shares on issue at the end of the 2018 financial year, 20% of which were owned by John Schaffer & Associates, 11% by Danielle Blain & Associates, 9% by Sterling Equity and the rest by a mix of approximately 1,300 retail and institutional investors.

The SFC Board collectively owned 5.3 million shares at the end of last year. The Board currently comprises:

• John Schaffer has been the Managing Director since June 1987 and the Non-Independent Chairman since September 1988, after taking over the position from his late father, George Schaffer, who founded the business in 1955;
• Anton Mayer has been a Non-Independent Director since November 2001. Anton is the Chairman of Howe Automotive, which is 83% owned by SFC;
• Danielle Blain has been a Non-Independent Director since June 1987;
• David Schwartz has been an Independent Director since June 1999. David also currently serves on the board of ADG Global Supply; and
• Michael Perrott has been an Independent Director since February 2005. Michael is also a Director of GME Resources.

John Schaffer has been the SFC Managing Director since June 1987 and Non-Independent Chairman since September 1988. John comes from a manufacturing background and was initially appointed as Operations Manager of SFC in 1974.

Unless otherwise stated, all numbers are based on those reported at the end of the prior financial year.

SFC’s historic Annual Reports, Presentations, Prospectuses and Other Announcements can be viewed below or they can be sourced from its website (www.schaffer.com.au) or the Australia Stock Exchange (www.asx.com.au)

SFC.AX Annual Report 2018 - SFC.AX Annual Result Presentation 2018 | SFC.AX Annual Report 2017 - SFC.AX Annual Result Presentation 2017 | SFC.AX Annual Report 2016 - SFC.AX Annual Result Presentation 2016 | SFC.AX Annual Report 2015 - SFC.AX Annual Result Presentation 2015 | SFC.AX Annual Report 2014 - SFC.AX Annual Result Presentation 2014  | SFC.AX Annual Report 2013 - SFC.AX Annual Result Presentation 2013  | SFC.AX Annual Report 2012 - SFC.AX Annual Result Presentation 2012  | SFC.AX Annual Report 2011 - SFC.AX Annual Result Presentation 2011  | SFC.AX Annual Report 2010 - SFC.AX Annual Result Presentation 2010  | SFC.AX Annual Report 2009 - SFC.AX Annual Result Presentation 2009  | SFC.AX Annual Report 2008 | SFC.AX Annual Report 2007 | SFC.AX Annual Report 2006 | SFC.AX Annual Report 2005 | SFC.AX Annual Report 2004 | SFC.AX Annual Report 2003

[1] Refer to page 3 and 4 of the SFC Annual Report 2018