Manufacturing here to stay: K Care Healthcare Equipment keeps it local in Australia

Ben Hurley Reporter

Manufacturing here to stay: K Care keeps it local

Published 21 August 2013 20:34, Updated 22 August 2013 08:55


Alan Lipman at the Malaga paint line: ‘I don’t want to lose the skill to produce things in my factory.’Photo: Ross Swanborough

Mid-Market Awards 2013 | Best Mid-market Business ($10m to $50m): K Care Healthcare Equipment

A few dollars saved by manufacturing a product in China is not worth the trouble for K Care Healthcare Equipment, which is a staunch advocate of keeping a manufacturing presence in Australia. CEO and equity holder Alan Lipman says outsourcing manufacturing creates risks with quality control, as well as shifting exchange rates and the timing to get things shipped. It would also open up a hole in the group’s two local factories that would need to be filled with something else. “I don’t want to lose the skill to produce things in my factory,” says Lipman, who has a long history of directing healthcare companies and government agencies. “There’s no panacea from taking product out of Australia and putting it in a different country. It just creates problems that need to be managed.”K Care – this year’s best mid-market business with revenue between $10 million and $50 million per annum – was part of listed giant Hills Holdings until private equity firm Anacacia Capital bought it at the start of this year. It was the first purchase in Anacacia’s second fund.

It was established in 1976 as KDB Engineering and acquired by Hills in 2002. Hills acquired other brands such as Air Comfort in 2005 and in 2009 five brands were brought together under Hills Healthcare Equipment.

Simpler management

Hills Holdings sold the lot to Anacacia at the start of this year to cut debt and focus on other areas of its business. It had become largely irrelevant to Hills, accounting for less than 5 per cent of the group’s earnings. Now a vastly simplified management team of equity holders is transforming the company into a nimble operator.

K Care’s revenue fell by 10 per cent in 2012-13 compared to the previous year to about $23.7 million. But the company now employs 93 full-time equivalents, compared to 85 in the 2012 financial year.

Lipman blames weak government budgets for the slowdown.

“State and federal governments have got budget issues. A lot of the market is to government, and there’s not a lot of money in the system to buy new equipment.”

He says profit has improved each month for the past six months, despite flat sales.

“We have done reasonably well. We ended the year 10 per cent off [in turnover] year on year. Because we have a very diverse product range, we have suffered a lot less than others in the industry.”

Despite cost-cutting, the company under Anacacia has hired new employees and remains committed to manufacturing locally. With two factories – one in Malaga in Western Australia and one in Revesby, NSW – K Care claims to be the largest Australian producer of healthcare equipment to nursing homes and hospitals.

Beating the importers

The company has a philosophy that any work which is outsourced from local manufacturing needs to be replaced by additional products.

Its biggest competitors are importers, and that’s a competitive advantage, says Lipman. With four industrial designers in the company’s R&D department, he can re-engineer or customise products to order.

“If someone says ‘I want that but a different colour’, or ‘you produce a chair that supports 120 kilograms, can you make one that supports 400 kilograms’, we can re-engineer anything we have built. That’s a massive advantage.”

When things are manufactured overseas, they are designed and produced by the engineers locally, and K Care owns the IP.

The new team has invested half a million dollars in the company, including a new ERP (enterprise resource planning) system and infrastructure. Efficiency has been a big focus. An investment of $155,000 for a new spray booth on the paint line, and another $16,000 on a new spray gun, will save $50,000 a year in paint, Lipman says. These savings would be immaterial to a billion-dollar company.

“[Hills Holdings] didn’t even have to report the sale because it was well under the 5 per cent rule,” Lipman says. “But in an industry context we’re the largest producer of this type of equipment in Australia. We’re out of the shadow of a billion-dollar corporation.”

K Care also annoyed some of its customers with a 17 per cent price hike across its imported product range. When the current management team bought into the company the Australian dollar was well over parity with the US dollar, and it has since fallen well below, eating into the company’s margins.

“It scared the crap out of a bunch of people, to be blunt,” Lipman says. “While we were first to market [with a price hike], other people are following us three weeks later.”

Quick decision-making

It’s decisions like this that capture the advantages a mid-market company can have over a big company. Management has been vastly simplified and decisions can be made quickly.

“The company in Hills was a very small division of a very large corporation,” Lipman says. “It had to fight for capital, for resources. There was a very long decision-making chain in the business, going through three or four or five levels. We just chopped that out. Decisions are now made by me and the senior management team. When there’s a good idea we sit down, thrash it out and do it.”

Three updated products have been brought to market in the past quarter. One focus has been on the Air Comfort day beds, which are synonymous with aged-care facilities. They’re a bed that can be wheeled around so bedridden patients can be brought outside into the sun. K Care is working to make them look a little less clinical.

“We’re taking them from an institutional look of chrome and stainless steel to powder-coated, with better fabrics.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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