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Thirty-Four Insatiable Spirit for Growth 1984
CHAPTER THIRTY-FOUR
Insatiable Spirit for Growth
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An insatiable spirit for growth and courageous enterprise had been the hallmark of the Farmers’ Co-op almost from the very beginning. Guided by a number of exceptionally gifted entrepreneurial co-operative champions in its formative years, the Society retained a legacy of confidence from the people it served. With so much success and almost without any outside influence, many early ideological practices were still entrenched in the day-to-day operations and management decisions. Many management, executive and indeed directors had such a history with the company that nepotism was widely accepted as a means of ensuring continuity and reliability. During the first 70 years of trading, business practices changed little and almost every commercial decision as well as future planning was based on past experience, which the Society had plenty of. Although times were changing and the amalgamation of farms was beginning to impact negatively on the rural population, retail trading was gathering momentum, with a host of new commodities, better communication and transport all having significant consequences for the average person’s daily life. In addition, retail outlets were becoming more specialised and the corner shop and general stores were suffering with the introduction of large one-stop shops and new technologies. There was growing realisation that a new style of commercial principle and practice was here to stay.
Taranaki’s relative geographical isolation, off the main trunk line and North Island arterial routes, meant that most local provincially owned and operated enterprises had been sheltered from the diversification and competition that was occuring in the more heavily populated areas of New Zealand. Taranaki was only just beginning to feel the pressures and the magnitude of these changes. Parochialism, although firmly denied by most, was still the glue that held this rural social and commercial community together. To depart from a formula that had been put to the test so often and over such a long period of time was seemingly out of the question. All who thought to do so were quickly reined in. The quickening pace of commercial reality was challenging the experience and intellect of the decision makers; their exceptional farming prowess and local business acumen seemed inadequate in a complex global context. Meetings were now embracing a variety of wideranging topics and resolutions, from repairs to a top rail in a saleyard to rubber stamping a $5 million overseas loan, with all the future ramifications and responsibilities that such a decision would impose on the company.
Despite acknowledging the existence of liquidity problems that the bankers had warned of five years ago, the company’s expansion programme continued. Farmers’ Co-op was already operating in Wanganui and Manawatu and it became keenly focused on the opportunity to gain access to the Fordell and Feilding saleyards jointly owned by Wrightson NMA (one third) and Dalgety Crown (two thirds), one third having recently been purchased from FCDC. It had been
intimated that entry to the yards would be granted on the basis of the valuation by Farmers’ Co-op, with the anticipated new ownership being spread equally across the three parties. In the consideration of this proposal the managing director, Mr Molesworth, stated: It is evident and we have to accept the fact that there will need to be a trade-off with Taranaki facilities, but that, to my mind, must be a secondary issue. Enthusiasm to clinch the deal was spurred on by Messrs Anderson and Holland, new FCOS appointees, previously of Dalgety Crown. These two men had brought with them such a strong personal following that they were having difficulty servicing the existing Farmers’ Co-op clients. There was much support for Farmers’ Co-op’s access to the saleyards and the fear expressed that if advantage was not taken of the current situation, that support would dissipate. At the same time the Feilding and Fordell saleyards were being considered, Mr Molesworth had taken the opportunity to meet with Messrs Avery (chairman), Collis and Wheeler (secretary) of the Feilding Trading Society about a possible merger between the organisations. There was, however, no real enthusiasm forthcoming from the executive of the Feilding Trading Society and although agreement was made to continue discussions, it was the chairman’s personal opinion that ‘whilst their current chairman is at the helm there will be little or no progress towards any merger of operations with FCOS.’
Valuations and estimated charges for both Feilding and Fordell were received:
Feilding – 1/3 Share Valuation:
Land and Improvements $325,000
Goodwill $150,000
$475,000
Fordell – 1/3 Share Valuation: Land and Improvements $200,000 Goodwill $50,000
$250,000 $725,000
1985 Budget Levies: Feilding – 1/3 share $148,000 Fordell – 1/3 share $92,000
$240,000
The financial position of the company was now becoming precarious, although caution in spending had been mandated:
The full board of directors of FCOS should make any decision about spending large amounts and they should make such a decision taking into account the overall financial position of the company and its future commitments for capital spending.
The financial reports showed:
April May Outstanding Cheques (in million dollars) $3.0 $3.9m Commercial Bills 4.6 4.6
Total Short-term Liability (excluding Creditors) $7.6m $8.5m
Liquidity was now proving to be an almost insurmountable problem, which was being exacerbated by New Zealand’s worsening constitutional crisis. The woes of the company had been brought to a head with the contentious issue between management and the board of the purchase a new computer as well as the board’s preoccupation with the expansion programme in Manawatu and
in particular obtaining access to Fordell and Feilding saleyards. A special meeting of the board was convened by chairman Reeve Williams on 27 July 1984 seeking a consensus of opinion. The executive committee had already met but were not unanimous on proceeding with the purchase of computer equipment and it was imperative that a decision be now made as imminent devaluation caused by a major currency crisis would significantly increase the price if the ‘pencilled-in order was not confirmed by the end of the fiscal quarter’. The board received the ‘majority’ recommendation of the executive committee:
That this Committee recommend to the board of directors of The Farmers’ Co-operative Organisation Society of New Zealand Limited that the purchase be made of a system as detailed on the quote from Data General (New Zealand) Ltd. dated 24 May 1984.
Mr Williams gave a verbal report on aspects of the company’s financial performance in prior periods. In particular he expressed concern at the reducing level of net profit and declining return on capital. His further concern was that ‘in not keeping up with inflation the company was not generating sufficient profits to allow adequate retention and to provide for future company funding’.
Mr Blyde spoke on the implementation of controls and budgeting systems contained in the Arthur Young Report, and the effect that the ‘Argenti Corporate Planning System’ was having in bringing forth areas of concern amongst company executives for future prospects and information required to compete in today’s market. He also stated that: Directors had challenged management to bring forward proposals to improve and increase the company’s profitability and it was only right that Directors should support these proposals after having asked for them. In the past we had made some errors in competing but generally had risen above these. With rising inflation there will be an even greater need to control the financial resources of the company. It was moved by the chairman that the board confirm the pencilled-in order for the new computer system that was to be run in conjunction with the present system. Mr Rider, in seconding the motion, stated his support of what Mr Blyde had said and added that the company had a loyal following and that could be bolstered by doing something positive and reducing the possibility of being taken over. A number of other directors spoke in favour of the motion, including Messrs Betts, Death, Jamieson and Norman. Mr Bremer asked for the views of Mr Trevor Harrop, the financial controller, with regard the cost of the proposed system. Mr Harrop noted: everybody agreed that the profit has been down and the company needed to generate more profits. It was his opinion that a management information system was probably the only way we could get control of our sales information in sufficient detail to provide buyers with adequate information on the profitability of their purchases. There were many instances of other companies making substantial profits on lines similar to ours. We would have to make a decision to upgrade our computer equipment merely to stand still and maintain our present accounting system within the next year and by delaying there could be up to an additional $154,000 expenditure due to the devaluation. At present we are getting the bare essentials from our system although asking it to provide more information than was originally envisaged by the company at the time of its implementation. There was an urgent need for the accounts payable system to be incorporated in the reporting of the company, and that only by having sufficient information could we look at the return on capital being used by those branches to weed out the non-performing ones. As to the Young Report, the company had implemented all of the suggestions made by that report other than that to do with product information and profitability, and in his opinion the proposal was the only solution to the requirement for such information.
Mr Halton, also supporting the motion, believed that if staff were expected to improve the profit they must be given the tools to do the work, and should the company expand into the Feilding area it must have the capacity to handle the additional business. Some discussion followed regarding the
reinvestment level of profits in the company, with Mr Bremer and Mr Williams both making points that this was an area that should be looked at.
The managing director stated that, all were concerned, management particularly, as in most cases they were also shareholders, and it would be agreed by most that the profit in the previous years had been a disappointment. Turnover was good but costs were too high. He quoted further from the Young Report on the computer installation and suggested that the company had fulfilled the requirements and that should justify a management information system. The matter revolved on two questions: first, if the technology was needed, and second the payment for that technology.
Following Mr Molesworth’s points, Mr Blyde commented that from the discussion it was apparent that most directors agreed that we would need to do it sometime, and that there was a substantial dollar advantage in doing it now.
The chairman then put the motion and it was resolved unanimously: That this Board confirm the pencilled-in order made by the Executive Committee to purchase a new computer system to run in conjunction with our present system, the type and make to be that recommended by management.
Access to Fordell and Feilding saleyards was still firmly in the sights and minds of at least some of the executive management and directors and negotiations with Dalgety Crown and Wrightson NMA were continuing. There was, however, considerable discussion between Farmers’ Co-op district managers in Taranaki and other senior staff, with many expressing concern about the loss of commission in the area should the company be forced to give access to the Taranaki yards as a trade-off for entry into the Fordell and Feilding yards. The managing director was though, authorised by the board to continue investigations. In keeping with the company’s philosophy of maintaining good relations with staff, a request was made by the managing director that district managers be entitled to approach the board with written submissions on their views of the ‘effects of the movement into these yards’, and to appear in person before the board should they wish.
District managers Messrs K. P. Newland, E. W. Clifford and P. A. Western were all vehemently opposed to the board granting Wrightson NMA access to Taranaki saleyards. The potential loss of commission was conservatively estimated to be $185,377 per annum, some 27 per cent of the total commission earnings, and would give away the main advantage they had over any multinational companies operating in the province. They also claimed that in addition to the loss of commission there would be a reduction in staff and service, and an additional loss of business in wool and merchandise retailing and these substantial losses would not be compensated for by the additional income from the Feilding/Fordell operation.
Mr Harrop, financial controller, also advised the executive management committee that, using the anticipated turnover and livestock figures provided by Wanganui, neither yards would have a sufficient return on investment to warrant the company putting further capital into the area and that on this aspect alone, apart from any other considerations, the project was not viable. This, however, did not dissuade the board from continuing to show an interest in a Fordell/ Feilding connection. At the same time the district manager at Wanganui, Mr O’Shanassy, who was responsible for the Feilding area, was making strong representations to improve the cramped trading circumstances in which they were currently situated. The managing director was authorised by the board to investigate the possibility of leasing or purchasing a building owned by Dominion Breweries in Feilding almost directly opposite the saleyards.
A meeting of directors on 4 September 1984 was presented with a five-page in-depth report from the managing director, Tom Molesworth, setting out all matters for and against the proposal
of purchasing a one-third share of the Fordell and Feilding saleyard facilities which involved a trade-off for the Taranaki saleyards with Wrightson NMA. The report was accompanied by a number of written submissions from district managers and other supporting sales staff on their views of the likely outcome if entry to the Taranaki yards was granted. Discussion had also taken place with other management personnel. Following a motion by Mr Rider, seconded by Mr Halton, the board accepted the recommendation by the executive management ‘that the company does not proceed with the purchase into Fordell and Feilding under the terms and conditions on offer’. The motion was put to the meeting and on a show of hands was carried – 9 for and 4 against.
The executive committee of the board met on Tuesday 27 November 1984 to discuss the approach the board should take in relation to the replacement of Mr Tom F. Molesworth, long-time employee and valued managing director who had announced his intention to retire from Farmers’ Co-op in 1985. He had been with the company for 33 years and would be difficult to replace at this challenging time in the company’s history. It was agreed to place the vacancy in the hands of Mr R. A. Borland of Management Services Ltd, Wellington. Mr Borland, Mr Molesworth, Mr Williams and Mr Blyde toured the district to appraise the features and scope of the company and advertisements were placed in suitable newspapers throughout New Zealand.
At the time of the December 1984 annual general meeting the officers of the company were:
THE FARMERS’ CO-OPERATIVE ORGANISATION SOCIETY OF NZ LTD DIRECTORS MANAGEMENT – EXECUTIVES
A. G. R. Williams Ohangai (Chairman) MANAGING DIRECTOR: T. F. Molesworth P. M. Blyde Lepperton (V/Chairman) I. D. Adamson New Plymouth FINANCIAL CONTROLLER: T. J. Harrop C. H. Betts Inaha R. L. Bremer Waverley DISTRICT MANAGERS: P. E. Bulfin Hawera K. P. Newland Hawera R. A. Death Ararata E. W. Clifford Stratford J. A. Halton Kohuratahi P. A. Western New Plymouth T. J. Jamieson Stratford P. O’Shanassy Wanganui A .R. Kellick Mangamahu J. A. T. McEldowney Okato MARKETING: A.M. Moss J. P. V. Norman Manutahi D. E. Rider Kaponga MOTOR DIVISION: L. Watkins D. B. Sarten Opunake B. D. Veitch Hawera SECRETARY: T. J. F. Pope REGISTERED OFFICE: 66 Regent Street, Hawera. Address for Communications: P.O. Box 423, Hawera. Phone 85009 Hawera. SUBSIDIARY COMPANIES: West Coast Mortgage & Deposit Company Ltd Nolan’s Buildings Ltd Taranaki Farmers (Wholesale) Ltd Farmers Co-op Wools Ltd C. H. Campbell Ltd, Marton FCOS Finance Ltd
OTHER INTERESTS: Farmers’ Co-operative Federation N. Z. Ltd Farmers’ Stud Stock and Land Co. Ltd United Stores Society Ltd Afendoulis Posts (Hawera) Ltd Snowline Marketing (NZ) Ltd Bankers: Solicitors: Auditors: ANZ Banking Group Horner & Burns Arthur Young & Co. (New Zealand) Ltd Hawera New Plymouth
Christmas festivities at the end of 1984 did not dull the desire for a taste of trading stock in the Manawatu district. A motion to obtain valuations on the Taranaki, Fordell and Feilding saleyards and the Taranaki buildings owned by the company, ‘ostensibly for insurance purposes’, had been resolved by a majority vote in December, with at least one director firmly against the proposal. The recently leased Dominion Breweries premises at Feilding opened and the board approved the appointment of a stock agent at Taihape.
It was not surprising when Ron Trotter, son of former Farmers’ Co-op managing director the late Clem Trotter, appeared on the scene to promulgate both his own aspirations and those of Wrightson NMA on the matter of the Fordell and Feilding saleyards. Although he was now chairman of Fletcher Challenge Limited and no longer involved with detailed management of Wrightson NMA, his past association with Hawera and Farmers’ Co-op and his ‘special respect and affection for FCOS’, prompted him to meet with Reeve Williams to discuss the issues surrounding the saleyards development in Taranaki. They met informally in early February in Hawera and Ron Trotter followed up the discussion with a detailed written resumé of his views on the situation. The letter and a report was tabled at a board meeting on 5 February 1985.
In essence Ron Trotter considered that the present structure and organisation of the saleyards in Taranaki did not serve the best interests of farmers or any individual companies. He claimed that for many years in every other district in the country saleyards had been consolidated, with all firms selling together and on the same day to achieve the highest possible entries and the strongest buying competition. He also claimed that national firms had a special contribution to make because of stronger influence on buying power outside the district. The whole purpose of a saleyard was to create an efficient market and maximising competition in one market meant better prices for farmers, which in turn meant lower operating costs for stock firms and significantly less capital investment. He expressed the compelling view that: When all companies sell together the total number of livestock sold at auction increases and the sales improve. This is not only because the farmers perceive that auction has become a better market but also because there is less unproductive competition between firms to sell stock privately before it gets to auction. In general it is more economic for the firms to encourage auction rather than private sale. Mr Trotter said that they had not found denying a firm entry to any of their yards had given them any long-term competitive advantage but he did know that refusal increased costs and did not improve the return to clients. He gave an example: To build better volume through our two Taranaki saleyards we would need to spend capital on our facilities and put several more men on the road. The aim would be to increase our yardings and try to weaken yours by selling your key lines privately. You would no doubt respond with more men and both companies would be worse off without really improving the situation for the farmer. He summarised with a detailed analysis of the economics and viability of Farmers’ Co-op continuing to operate their own saleyards without integrating with other companies, and claimed that the case against this was unarguable. He also stated that if Farmers’ Co-op’s stock business was uneconomic,
Wrightson NMA would be prepared to buy it and integrate it into their own national network, ‘leaving your company free to focus on its very important and widespread trading activities.’
It was clear that Ron Trotter was determined to negotiate a ‘package deal’ for the Fordell/ Feilding/Taranaki saleyards. He was eager ‘to see closer relations between the two companies’ but admitted that although the Wrightson NMA Taranaki operation was modest, it was profitable, and he unashamedly proclaimed ‘We are in Taranaki to stay’.
The board deliberated over Mr Trotter’s letter and a memorandum written for the board by Reeve Williams to clarify the discussion he had with Mr Trotter. It was thought there was still insufficient detail for a definitive decision and it was resolved to thank Mr Trotter for his communication and advise that the matter was under consideration. The major hurdle was the cost of funding the new saleyard arrangement and the radical change it would bring to the overall saleyard operations that had been in place in Taranaki throughout the century. There was some unease about the chance of success and Mr Pope, company secretary, advised that, ‘at this point there are insufficient funds available within the company to embark upon such a level of expansion.’
However, the board did not rule out the company’s involvement, and there would be an ongoing review of sources and application of funds. They considered that the present lack of capital required for such an expansion might be overcome by different funding methods. A valuation of the three Taranaki saleyards was undertaken. A detailed report on the overall costs resulted in a loss to Farmers’ Co-op of $325,500. The other parties had much to gain and little to lose, and ‘unless alternative methods of funding can be arranged involving less costs the situation as portrayed previously still remains the same’.
Dialogue continued in the coming months with bullish thrust and parry between the parties. This eventually culminated in Farmers’ Co-op accepting a buy-in cost into the Fordell and Feilding yards of $706,724. A meeting was held on 19 June 1985, at which all parties exchanged views on the basis of payment – Farmers’ Co-op wanting to pay by instalments. Although initially Dalgety Crown would only entertain payment in full before entry, ‘the best negotiation made was for half down and the balance held over for 12 months at 20% interest’. Managing director Tom Molesworth obtained agreement for this from the executive directors, who concurred that it was possibly the best deal that could be made. However, due to the company’s severe liquidity situation the deal could still not be made and payment had to be withheld. Stock agents in the area were poised to move into action as soon as approval was given, with the company being only too aware of the reaction if any further deferment of entry was made. Tom Molesworth concluded his report by saying: We are in a ‘Catch 22’ situation. Head Office Administration considers that we have an obligation to meet our current creditors before embarking on meeting new capital expenditure out of income and in view of these circumstances consider this must be a policy decision made by directors. The managing director’s report was discussed, but in the meantime the ANZ Banking Group had agreed to advance the company $400,000 on a commercial bill at a fixed rate to enable payment of the first half of the cost of entry in the Fordell and Feilding saleyards. It was finally resolved to accept the Dalgety Crown Ltd. and Wrightson NMA offer for a one-third share of the yards on the basis of half the cost as down-payment and the other half being paid on 1 July 1986 with interest at 20% per annum. It was also resolved to accept the offer of the ANZ Banking group of $400,000, with the intention of passing on the costs directly to the Wanganui Auction department.
Finally entry to the Fordell and Feilding yards was set for 6 and 9 August 1985 respectively. The questions of the wisdom of this exercise would occupy the minds of shareholders and other members of the stock and station industry for many years to come both in Taranaki and throughout the country. Many considered it to have been an imprudent step and possibly one of the most controversial in the history of the company. Despite opposition from their own financial managers, the managing director and board had determinedly prosecuted this controversial expansion.