Deloitte’s Equine Influenza (EI) Advisory Taskforce has warned that the current financial pain being experienced in the industry because of EI could extend for a number of seasons to come with a breeding shortfall having a serious knock on effect throughout the industry.

“The immediate financial crisis is clouding what needs to be done now to address the industry and likely economic impact in the longer term,” Deloitte EI Taskforce leader, Stephen Harvey said.

Mr Harvey is a Director of the Australian Racing Board and a Director of Thoroughbred Racing SA Limited [TRSA] and its predecessor, including the last six years as Chairman of TRSA.

He applauded the recent actions of the Racing Industry, the Federal Department of Agriculture, Fisheries and Forestry and the various State Government equivalents for acting quickly to minimise the spread of the disease.

“Those quick response to contain the disease, together with the appointment of retired High Court Judge, Justice Ian Callinan QC, to conduct an independent inquiry into the ‘entry and spread of equine influenza (EI) in Australia in August 2007’ are important steps to contain the EI disaster and understand its cause.

“However, the impact of EI on the Racing Industry will have significant medium and long term impacts.

"The future national economic prosperity and perhaps even survival of many major employer organisations in the industry would depend on how the industry, as well as the Federal and State governments, responded to the longer term issues,” Mr Harvey said.

Mr Harvey advised organisations, businesses and government need to focus more broadly on:

• assessing the medium and long term financial impact of various EI scenarios, including a spread of EI to Victoria and other states
• ensuring the funding impacts of these scenarios are understood
• ensuring management , Boards and Government are making decisions based on credible and up to date financial information
• co-ordinating communications plans to key financial stakeholders – shareholders, financiers, regulators, insurers and others.

“The Breeding, Training, Racing and Transport industries employ directly and indirectly in excess of 160,000 people, many of whom will find alternative employment difficult to find.

"This crisis will have flow-on effects which will constrict all these industries and the economy for several years to come.

“The full impact of this disaster will continue to be felt over the five years.

"It is probable that the 2007 foal crop will be impacted by EI in some of our major breeding areas and this will flow onto the yearling sales in 2009.

"This could have a consequential impact for the 2009/10 racing season onwards due to the reduced number of 2007 foals available to race.

“EI may also have an impact on stallion and mare fertility rates, but the extent is unknown.

"The question is what will happen to demand and price if there is lower number of stock available?

“There could be a spiralling effect, with the average race horse investor priced out of the market, resulting in lower public interest in racing, and therefore lower industry and government revenues.

“What is needed is a broader investigation into the longer term economic impact of the EI crisis and what can be done now to help the industry head off this potentially long-term ongoing disaster.

“Welfare assistance and allowances to help horse owners care for their stock is important in the short term, but is not a long term solution.” Mr Harvey said.

While battling through the immediate crisis, Corporate Reorganisation partner David McCarthy, an expert in assisting businesses facing immediate financial crisis, stressed that management needed to focus on actions necessary to maintain their organisation’s value during and after the crisis:

• maintaining critical client  and supplier relationships
• pre-empting actions of opportunistic competitors
• working with key stakeholders including clients, financiers, suppliers and regulators.

“As with any crisis assignments, such as product recalls, natural disaster, accidents and agricultural incidents, the EI crisis will similarly require a disciplined response and management,” Mr McCarthy said.

“During any operational crisis, the call on management time can be extreme. Stakeholders from all directions will be demanding management attention.”

Mr McCarthy said in the face of these demands, organisations must still focus upon and work through a number of key financial questions.

“They need to examine the short term cash flow outlook over the period of the current lock-down and understand how long can they operate under these circumstances,” he said.

“Organisations need to balance the need to minimise cash outflows, but also maintain the business ready for re-launch when the lockdown is lifted.

"They will need to assess the level of financial support required to remain solvent, and how they can work with their financiers, suppliers and other key financial stakeholders to do so.

“Then once the lock down is over, these organisations will need to ask how has the business changed? Will my funding requirements be different going forward?

“These are all fundamental issues, on which both boards and management have a duty to be informed right now.” Mr McCarthy said.