Forty-Four Rising From the Ashes 1988

CHAPTER FORTY-FOUR

Rising From the Ashes

‘The most volatile period the company had experienced in its 73-year history’, is how chairman Brian Train recalled the previous nine months in his address to 150 Farmers’ Co-op shareholders in the Hawera Community Centre, at the annual general meeting. Although slash-and-burn policies had been introduced, continuing huge losses were being sustained. The consideration of communities and other alliances were still part and parcel of the ‘steady as she goes’ policies implemented by the three Scheme managers and indeed the board who, although now not directly involved in day-today governance of the company, were influential in the divestment of properties and other areas of the operation. A staggering all-up loss of $4,815,000 for the year ended 1 August 1987 showed the continuing fragile financial state of the organisation. However, Mr Train told shareholders: if prompt and decisive action had not been taken, Taranaki Farmers would have been out of business. Fortunately, because of a small group of shareholders who were prepared to take on the responsibility, which they plainly underestimated, and with the expert guidance of our present professional advisers and above all the dedication and willingness of a considerable number of staff, we believe we can now look to a secure and rewarding future. It will certainly not be easy. It will need a lot of work yet and hard-headed business decisions but the structure is underway and the platform created in which we can grow a sound and profitable future. It was the switch from many months of loss to profit in each of the past two months that was the basis for such a positive report. Summarising the year throughout the various divisions Mr Train stated that the retail department had had a difficult year, with clients cutting spending and purchasing ‘only essential products’. Although turnover was disappointing, the company had retained customers. The livestock operation ‘could be described as satisfying considering the difficult economic situation facing the rural sector’. Farmers Co-op Wools Ltd had had another good year, the Real Estate business earnings were below budget, and FCOS Finance Company had reported an increase in profit for the year. He also paid tribute to the staff who had worked so hard for the survival of the company. Looking to the future, he said: … we continue to restructure and stabilise our financial position and continue as Taranaki’s leading rural servicing business. The future is an exciting prospect as we plan our way towards 1990, and seek better ways of utilising our resources of buildings, capital and people to provide sustainable wealth to our clients, shareholders and staff. There is a job of work still to be done, and we need your continued support. I reassure you that your efforts to assist Taranaki Farmers back to an even keel will not be wasted or misplaced.

Mr Roydon Day, general manager, also addressed the meeting and said: Goals had been set and were being achieved, the executive of the Company was strong and dedicated and there were many positive moves being made by the firm, including the opening of their New Plymouth centre and their rural service centre at Manaia.

Messrs Simpson and Hazard, Scheme managers, also attended the meeting, with Mr Hazard full of praise for results attained following the introduction of the Scheme of Arrangement. He could see a bright future for farming in this country despite the present downturn in the industry and spoke of the many changes that had taken place over the past 12 months. Considering the almost insurmountable problems associated with any rescue mission undertaken, the board of directors and shareholders could be well pleased with the end result and in particular the performance of the three Scheme managers Messrs Simpson, Hazard and Train. The company was clearly out of survival mode and now functioning within budgeted constraints, with all current creditors being paid on due date. A key phrase used by Brian Train was ‘cash is king’, and it became firmly etched into the minds of all associated with the recovery of the company whether clients, shareholders, staff or directors. All the directors were re-elected, with Mr Brian Train returned as chairman and Mr Paul Harris again his deputy.

For a company that had throughout its entire history provided credit facilities as a matter of course, it was now quite the reverse, with particular emphasis placed on getting cash payment for goods and services. The dramatic outcome of this change in the mode of operation soon showed significant improvements, enabling a report dated 17 February 1988, to be forwarded to all creditors and members on the progress being achieved by the Scheme managers: Negotiated and re-arranged secured liabilities: Was Current Status ANZ Bank $4,636,000 Repaid Westpac - Overdraft 2,500,000 Limit - Term Loan 8,355,000 5,000,000 by April 12,991,000 7,500,000 maximum Substantial reduction to staff numbers with all redundancy costs met. Some departmental retail operations at branches closed down. Some branches revitalised and reorganised. New but modest Farm Centre established at New Plymouth. Small new operation established at Manaia. Vehicle fleet replaced under a lease arrangement. Livestock Division rejuvenated. Real Estate agents remuneration now related to results. Appointment of Roydon Day, General Manager. Financial and accounting systems revamped to provide preliminary Profit Reports in the first week of the month.

Accounts for the fiscal year ended 1 August 1987, ‘with all the cupboards cleaned out as it were’, were not nearly as good as originally reported. The net loss of $4.8 million, including approximately $1.2 million of bad and doubtful debt and $0.6 million redundancy payouts, made the basic trading loss for the year approximately $3 million. With much of the reconstruction programme in place by August 1987 the company, for the first time in many years, and to the delight of all concerned began to show an operating profit: August Loss 91,000 September Loss 160,000 October Loss 37,000 November Profit 5,000 December Profit 64,000

This was a welcome and significant achievement in a relatively short period of time and although the company’s monthly fortunes would doubtless vary considerably, it was hoped that within 1988 the first distribution to creditors could be made. It was accepted that the Scheme managers stewardship

would not end on 31 July 1988, with an expectation they would seek consent to continue the reconstruction programme for at least a further 12 months. The most satisfactory outcome was that the company ‘was now making money’ and evidently on the road to recovery. Staff numbers, that stood at 395 as at December 1986, were now down to 250. The Scheme managers described the first nine months as ‘pretty rough – rough on everybody and particularly on our very much reduced staff who really worked hard’. Much, however, had been achieved:

ASSET REALISATION SCHEDULE New Plymouth Property New Plymouth Business $6,000,000 $1,106,303

Waitara Property Ohura Property and Business 250,000 48,072

Stratford Property Sundry Other Property

84,000 97,500 Vehicles 227,283 Overall General Stock Reduction 1,177,000

$8,990,155

SCHEDULE OF DEBT REPAYMENT SINCE COMMENCEMENT OF SCHEME 1. SECURED DEBT ANZ Banking Group** $3,695,000 Westpac Merchant Finance* 3,355,000 FCOS Finance Ltd 100,000 Mortgage – FCOS Superannuation Fund 240,000

$7,390,000

*The balance of $5 million has been converted to Redeemable Preference Shares. **Partially refinanced with overdraft from Westpac Banking Group. 2. UNSECURED DEBT (a) Unsecured creditors with balances owing of less than $300 (262 firms) $34,523 (b) Unsecured creditors with balances owing

Greater than $300 (482 firms) 10c in $1 496,065 530,588 TOTAL DEBT REPAYMENT TO DATE $7,920,588

The outcome was impressive, and creditors and shareholders could be well pleased with the bottom-line achievements and improved productivity, with trading loses virtually eliminated. Mr Hazard stated that the company had been brought up to a break-even/profit situation but two areas needed to be looked at to improve performance, one being greater profitability by expansion of the business geographically, albeit on a contained basis, as well as looking at other areas for profit improvement. He stated that the resulting profit improvement would not be sufficient to repay the remaining frozen debt within the next 12 months and an alternative would therefore be required. This would effectively move the company into stage two of the restructuring operation when they would be looking for an equity partner to fill the gap. With the Scheme of Arrangement ending on 31 July 1988, consent of the creditors was required for a continuance of the Scheme and the drive was on the encourage as good a representation as possible. If creditors decided not to approve an extension of the 205 Scheme, there was every possibility that Westpac Bank would immediately appoint a receiver and after all ‘the hard slog’ that would be disastrous. The creditors’ meeting scheduled for 14 July 1988 was an outstanding success, with a resolution seeking an extension to

the Scheme of Arrangement for a further 12 months receiving 100 per cent approval by all classes of creditors, except for one individual who used a disputed claim against the company for voting purposes. This was disallowed by the High Court.

The ability to continue to operate throughout the year in very difficult economic circumstances, coupled with significantly low livestock prices, reduced farming spending and general despondency within rural communities was to the company’s credit. Significant losses had been suffered by Elders Pastoral and the livestock industry in general. To improve the bottom line, merchandise staff had been reduced from 178 to 146, the motor vehicle fleet reduced by 13, livestock agents reduced by three, the Waitara stores closed, hardcore debt reduced and the authorised share capital increased by $5,000,000 preference shares of $1 each, making a total authorised share capital of $15,000,000. All this had a significantly positive impact on the company. It was a question of creating confidence and stealing a march on competitors to find something that was unique to FCOS. On a recent visit to Australia Brian Train had witnessed liveweight selling and saw it as a way to the future for the company. A team comprising Messrs Train and Morrison was sent to Australia from Taranaki Farmers to investigate and witness first hand liveweight selling. In consultation with the Scheme managers a decision was made to be the first in New Zealand in this growing trend and ‘computerised’ Liveweight Scales were placed at the Hawera saleyards. This ground-breaking innovation would take the guesswork out of selling stock and, although not wholly endorsed by traders, the farmers saw a significant advantage. Within three months throughput had increased by 300 per cent.

The year had been one of mixed fortunes and in the annual report the chairman and general manager stated that: The ‘rising from the ashes’ had occured and a great deal of progress has been made in establishing a solid base to work from. The Section 205 Scheme of Arrangement was stamped by the High Court on 31 July 1987, but it had not, however, prevented substantial losses being incurred in the first few months of the financial year. We have to report a net Group consolidated loss for the year of $1,568,000. Whilst this is a very substantial improvement over the net loss of $4,815,000 reported last year, we are disappointed at the final result, which is not as good as we had expected. Trading on a current basis has, as we previously advised, been turned around to the extent that we are currently making profits and that fact we are pleased about. However, the significant appreciation of the New Zealand dollar – particularly through the main selling period for our sheep and cattle farmers – had serious affects on our industry, adding to the stresses already created by the economic restructuring of the national economy. This impacted Taranaki Farmers in two ways. Firstly, the second half of the year did not produce the profits we had anticipated (it was close to break-even); secondly, the very difficult environment put a great deal of pressure on clients who were marginal. Last year we believed that we provided adequately for bad and doubtful debts but this has proved to be not so, and we have had to accept further substantial write-offs from the past.

Retail trading continued to hold and in some cases improve market share in what was a depressed and very competitive trading environment during 1988. The livestock division was also performing well, with a reduced but highly motivated team of representatives. Farmers’ Co-op Wools Ltd had also increased its contribution to the Group. Real Estate had suffered due to the lack of confidence in the rural community but the company had developed a strong selling force and, with a significantly reduced staff, the whole operation was now functioning well and moving forward with a sense of purpose. Debtors had increased by 10 per cent during the year, which reflected a similar increase in turnover. It was heartening to see that the increase was predominantly current, showing that the business was good business. The recent appointment of a Registered Farm Management Consultant and Registered Valuer would increase the level of expertise in a variety of areas. FCOS Finance Ltd had also made a valuable contribution to the Group throughout the year. Preference Capital to

ordinary shareholders raised $576,000 during the year and a further $5 million of Preference Shares issued to Westpac Banking Corporation on 31 March 1988 was providing a significant contribution in reducing debt servicing to a respectable level. Clients now responded to the confident, highly motivated sales force, recognising the benefits of dealing with a company that had strong history and was committed to serving the farming community of Taranaki. Farmers’ Co-op was again carefully expanding operations. To this end a small farm supplies store had been established at the woolstore in Wanganui. An alliance had also been formed with Grant & Gunn for the processing of wool through Farmers Co-op Wools Ltd. It was acknowledged that the Scheme managers had been too optimistic during the year in forecasting a turnaround from a loss of $4.8 million the previous year, but now with the foundations solidly in place, the company was looking toward a bright and successful future – and its 75th Anniversary.