Forty-Eight Incredible Journey 2000

CHAPTER FORTY-EIGHT

Incredible Journey

The driving force of this provincial rural enterprise had been an enduring desire for local ownership and control of a dedicated trading organisation, tailored to meet every possible need of the farming community. In recent years ‘cash was king’ and profitability was at the forefront of directors’ minds when new opportunities came along. Although parochialism was the glue of Allied Farmers, there was also determination to move beyond provincial boundaries in the quest to increase economies of scale. An opportunity arose in August 2000 when the price of Wrightson’s shares fell to ‘the 30 cent plus mark’, a price, it was felt by some Allied Farmers directors, could buy 51 per cent and ‘fund it comfortably’. The wheels were set in motion for an investment banker to make a detailed assessment of ‘A Proposed Acquisition of Wrightson Limited’ and bank backing was put in place should it be required. In a merger scenario there were several areas of overlap through which rationalisation could provide cost savings. In Taranaki, the King Country and Waikato there were a number of synergies between the two companies that made this an exciting proposition.

Wrightson Rural Supplies operated a network of 76 stores throughout New Zealand, including 30 in the South Island, offering a full range of agricultural products in addition to the livestock, wool, insurance, seeds, real estate, forestry and research divisions. Wrightson online services also offered a comprehensive supplier facility. Chairman Brian Train was extremely keen to proceed with the initiative, however not everyone on the board and management was convinced that Allied Farmers had the internal infrastructure to manage what was an extremely large and diversified national rural enterprise. Three months elapsed before consensus was reached and by then the share price had doubled and the opportunity was lost. Brian Train described it as: ‘A case of key personnel not willing to grasp the nettle. It would have been David and Goliath, with large market implications.’

Heart and soul had been the ingredient within the board and management of the company that had distinguished it from others throughout its long and challenging history. This was not just a business operation with the sole purpose of producing a profit but rather a fraternity and brotherhood of likeminded people who had united for the common good of the rural community. Despite a sea change in the dynamics of the incumbent directorate from the board prior to 1987, the parochialism and provincial control that still characterised the operation at times were an impediment to attracting investment and at times suitably qualified directors and staff in what was becoming a highly technical and sophisticated commercial environment. The company, however, could boast a multifarious combination of seasoned directors and management with a wide range of experience and skills. In this final year of the 20th century, chairman Brian A. Train and Peter L. Cook, his deputy, continued in the roles they accepted in 1987 to guide the company into bountiful

and calmer waters. Other incumbent directors included Michael J. Cashin, chairman of Mooring Systems Ltd, and At Work Insurance Ltd and a director of Ryman Healthcare Ltd and CentrePort Ltd. He had also held positions and directorships in several other large companies and government agencies, including chairman of Housing New Zealand Limited and Housing Corporation of New Zealand. Rick G. Bettle joined the board, bringing 20 years experience in the primary sector. He had moved from the dairy industry in 1986 to the position of managing director of Wrightson’s and then chief executive officer of Alliance Group. Along with directorships in a number of other enterprises, including the Pork Industry Board, he was also chairman of the TAB. Ross J. C. Dunlop was an experienced sheep, beef and dairy farmer with strong family connections with South Taranaki and the community as a District Councillor. G. Andrew McDouall, from Wellington, was a member of the stock exchange and managing director of McDouall Stuart Securities Ltd who had offices in the Hawke’s Bay and Australia and a number of other private companies. The executive management team included Paul A. Macfie, general manager, Trevor Harrop company secretary and Colin Morrison deputy general manager.

Basking in a year of successes, Allied Farmers was well positioned to step into the next millennium with confidence. The balance sheet highlighted the Year Under Review with a 110 per cent increase in pre-tax profit for the group, repayment of the South Port 35.21 per cent shareholding, a bonus issue of one new share for every three shares held, successful entry into the bobby-calf procurement, processing and marketing arrangement, and the key divisions of merchandise and livestock contributing record profit results. Redevelopment of the Stratford branch included a garden centre and offices for the real estate team, the new purpose-built merchandise store at Opunake included development of fuel retailing. Other trading changes included rebranding FCOS Finance as Allied Farmers Finance Limited.

The sun rose on 2001 with significant achievements in all but two divisions, namely Te Kuiti Meat Processors Ltd and Allied Farmers Finance Ltd, although the overall company result recorded an operating surplus of $4.308 million compared with $3.168 million the previous year, representing an increase of 36 per cent. The total operating revenue of $138 million was a huge $30.5 million, or 28 per cent, over above the previous year. A dividend of 20.5c tax paid per share rewarded shareholders who had showed faith in the company through good and bad times. The merchandise division, under the guidance and management of Craig Sole, was steaming ahead with a 46 per cent increase over the previous year. The livestock division was also making a significant contribution to overall performance in a year when farmers were receiving record prices for all classes of livestock under the keen and experienced eye of division manager Colin Morrison and livestock regional managers Stephen Sutton, Taranaki, Alan Hiscox, King Country and Bill Sweeney in the Waikato. Farmers Wools Ltd had achieved good results, although the success was somewhat dampened when Police investigations revealed that the manager and office manager had, over a lengthy period, been misappropriating large sums of money. Both left the company and were charged. In the end, this had no impact on the financial outcome of the division in that year. Allied Farmers Finance Ltd was also going through difficult times in terms of growth, with trading banks becoming more active in rural lending. Consideration of strategies to strengthen the division resulted in the AFF Head Office being relocated to Auckland in 2003 for better exposure to a larger market. Some commentators believed that the company was at the top of what was without doubt a cyclical industry generally influenced by the returns to farmers, others felt that the optimism and enthusiasm in the rural sector showed that the economic position would continue at least for the immediate future. Staff continued to have a considerable stakeholding in the group and were recognised for their contribution to the year’s success.

Times were again changing, with a major decision taken by directors during 2002 to list Allied Farmers on the Main Board of the New Zealand Stock Exchange. For some time they had been conscious of the lack of liquidity in the trading of company shares while listed on the Secondary

Board and the resultant Price Earning Ratio reflected in the discounted share price. Subsequent to the announcement of the NZSX listing the share value substantially increased and Allied Farmers’ exposure to a larger and more affluent audience generated considerable activity.

Expansion plans in the south resulted in the acquisition, on 1 April 2002, of Manawatu Livestock Limited based at the small rural township of Rongotea, formerly known as Campbelltown, 25 kilometres southwest of Palmerston North. In keeping with company policy, trading continued under the name of Manawatu Farmers. With a highly experienced and motivated team under the management of Andy Wood, clients were serviced from Wellington and south Wairarapa in the south, and as far north as central Hawke’s Bay, Taihape and Waverley. The original company Manawatu Livestock Ltd had been the brainchild of Barrie Gibson and Peter Forrest who in 1991 with Messrs A. Wood, B. Holland and M. Pearson established what became a highly successful operation in the heart of dairying country. Saleyards were originally established in the town in 1892 and continued in use throughout the past century with a plethora of stock and station companies operating from them. Another addition to the livestock stable of Manawatu Farmers was the southern Hawke’s Bay firm of Webb Livestock. This husband and wife team, Phillip and Jill Webb, joined Allied Farmers in August 2006 and this created an opportunity to gain a foothold in the dairy livestock business on both sides of the Tararua and Ruahine Ranges, continuing the calf sales Webb Livestock ran at Dannevirke Showgounds and the store and dairy cattle sales at the Matamau yards, north of Dannevirke. These two well established operations were an excellent addition to the Allied Farmers Livestock division.

Saleyards situated in or adjacent to almost every town throughout the country had in the past been the mecca where farmers met, talked, walked and traded, caught up with current affairs and news both local and from abroad and pressed the flesh with auctioneers, agents, drovers and neighbouring farmers. It was a meeting place and sanctuary where all things agricultural were discussed at length, with the exchanges often continuing afterwards at the local tavern. Sale day, either weekly or fortnightly, was when villages and towns came alive and farmers and families came to sell cattle and shop. Bankers, doctors, professionals and other traders often chose sale day to be in the town to take advantage of the influx in population. Gradually over the years, due to better

Hawera saleyards at Glover Road.

means of transporting stock, communications and diminishing sheep numbers, the number of sales held at saleyards in the smaller centres declined, and then one by one they discontinued, with many yards falling into disrepair. South Taranaki was no exception and finally, 113 years after Arthur A. Fantham established them in 1889, the ‘Union yards’, on four acres of leased land owned originally by Mr John Brown on the south side of Glover Road, Hawera, were closed and sold to Mitre 10, currently the best known network of home improvement stores in New Zealand. The rationalisation of smaller saleyards saw the Otorohanga and Pio Pio yards also close and in 2003 the Opunake and Waverley yards were demolished and the land sold.

Major saleyard upgrades were being undertaken at Te Kuiti, and at Esk Road in Stratford where a significant investment culminated in the opening of the Taranaki Livestock Centre. This was a major move for Taranaki. In the past, when huge numbers of sheep and cattle were traded between farmers, stock firms had operated from some 23 dedicated saleyards throughout the province. Allied Farmers now owned a 50 per cent stake in the Livestock Centre, which was considered to be the most modern in the North Island and had an 80 per cent share of the market. During the year Ravensdown elected to deal direct with its clientele and provide animal health and weed control products in competition to the traditional stock and station industry, but Allied Farmers was able to negotiate a ten-year arrangement that provided commission to Ravensdown on all fertilizer sold to existing clients and a restraint of trade relating to weed and animal health products in Taranaki, King Country and the Waikato. Throughout the past four years the company had endeavoured to increase the quality of service to the rural community by upgrading the 14 merchandise stores situated in the King Country and Taranaki and this culminated in new premises at Bell Road, Taumaranui.

Fluctuating fortunes in the stock and station industry impacted negatively on the company during the 2002/03 year. A cold spring and slow grass growth followed by the worst drought for many years did not help productivity and, secondly, although the company still had an agreement to kill bobby calves, the divestment of Te Kuiti Meat Processors during the previous year sliced into revenue, which dropped to $70 million from $97 million. The net tax profit after tax of $2.15 million for the year to June 2003 showed a decrease of 37.2 per cent on the previous year. The appreciation of the New Zealand dollar, the drop in milk solids payments received by Fonterra suppliers and a softer US market also took a toll.

General manager Paul Macfie resigned following his acceptance of the position of chief executive officer for an opposition Hawke’s Bay stock and station company Williams and Kettle, and this created a vacuum at a time when consistency and experience was vital to maintain the company’s position in the industry. Paul Macfie had been a considerable asset during his five years at the top. Although initially a replacement from outside was considered, Brian Train assumed the role of executive chairman from 1 August 2003 until a suitable candidate could be found. Senior director Rick Bettle decided not to seek re-election and retired, having made a significant contribution to the group during the previous six years. His position on the board was filled during 2004 by John J. Loughlin who came from a background of financial services, a former chief executive officer of Richmond Ltd, Hawke’s Bay, and also held a number of directorships on a variety of high-profile boards, together with an extensive background in the wine industry.

Now in receivership, Wanganui timber company NDG Pine was seen by the board as in an industry closely affiliated with the rural sector and Allied Farmers decided to purchase the company in October 2003. They were under ‘no illusions’ about the short-term profitability of timber milling, but the industry was ‘attractive in the medium term for profitable, efficient and well-run operations’. While it was a departure from the traditional stock and station business, the acquisition was consistent with the strategy of diversification through investment in other landbased industries and within the geographic area which the company serviced. The former American mill owner John Crane had brought the $12 million timber mill to New Zealand some years earlier

but had been caught by the rapidly rising New Zealand dollar and falling prices in the United States. It was intended to negotiate a log supply agreement with Wanganui District Council. Wanganui Mayor Chas Poynter said that, ‘he and the council breathed a sigh of relief after the announcement’.

Allied Farmers Ltd had thrown a lifeline to the languishing timber mill staff, their families and Wanganui with the prospect of the reopening in the very near future. However, press reports issued a warning from Allied Farmers that profits for the first half of the year would be down on the same time last year and the drop could likely be pinned to the new acquisition – the renamed Allied Pine. The core business continued to trade in line with the company’s budget. A prediction of good profits for the mill was made with the appointment of former Fletcher Forests marketing expert Mike Strang as general manager, who also received a five per cent holding in the timber mill. Chairman Brian Train said that the mill could be providing 20–30 per cent of group revenue within three to four years. Although it was intended to reopen the mill immediately, operations did not get under way until early 2004 and start-up costs in the new division caused a drop in the company’s half-year profit as the new venture struggled to get onto a sound footing. There was still every confidence that improvement would be seen in the coming year.

Other innovations were being explored to diversify the trading arm of the company, with Waikato Farmers livestock manager Bill Sweeney brokering a new livestock deal with representatives from the northern China province of Fuxin county who were in New Zealand to purchase top dairy stock to take back to China for town milk supply and milk product for the manufacture of yoghurt. The deal would be in the region of $10 million. By March 2004 a shipment of 3,000 in-calf heifers had been exported to China where they would be distributed to farmers. Interest continued from overseas and the company assisted with a shipment to Mexico, but the fluctuating New Zealand dollar dampened enthusiasm for a few years.

Brian Train once again stepped down from his lofty caretaker position as executive chairman with the appointment of Philip Anstey, general manager of Allied Farmers Rural Services, with a commencement date of 10 May 2004. The appointment in part replaced Paul Macfie who had resigned the previous year. Mr Anstey had grown up on the family farm in South Canterbury and came to the company from the position of divisional manager of PGG Seeds in Christchurch. He was educated at Lincoln and Otago universities and initially worked for the International Wool Secretariat in London, returning to New Zealand to work in the fishing industry before joining wool export company John Marshall Limited. He had also held positions with Skellerup International and the meat industry. It was believed that his background in marketing and product research would be of great assistance to the group. Philip Anstey’ s appointment came at a time when the Allied Farmers was sailing into relatively calm waters. It was in good heart and most departments were ticking over nicely.

The company had completed its second full trading year since being listed on the Main Board of the New Zealand Stock Exchange. The combination of steady growth and returns was highlighted by the fact that shareholders who owned one share at January 2000 with a market value at that time of $1, and through a tax-free bonus now owned three shares for each share held. The market value as at 4 September 2004 was $1.90 and the share price was continuing to rise on the back of Fonterra’s announcement of an increased end-of-season dairy payout and the Wrightson’s merger with Williams Kettle and Pyne Gould Guiness, that made Allied Farmers a very attractive proposition. Challenges in Allied Pine were steadily being surmounted and the year had been very successful in most other departments despite serious flooding in the Manawatu and Waitotara.

Philip Anstey’s appointment was supported by an experienced and efficient head office staff: Trevor Harrop Company Secretary Bob Green Company Accountant Colin Morrison Livestock Manager James Livingston Group Merchandising Manager Geoff Gray Chief Clerk

Gill O’Dea Executive Secretary Vicki Bayly Corporate Services Manager Karen Bellve Chief Clerk Sue Garvey Cashier Mail Desk Colleen Close Payroll Beth Demanser Allied Farmers Finance Mike Shaw IT Manager Chris Bolton Merchandise Systems Manager Patsy Broughton Accounts Payable Rochelle Arbuckle Receptionist Lesley Chittenden Recharges/Inventory Lisa Williams Accounts Payable

Brian Train finally came to the end of his incredible journey as chairman of Allied Farmers Ltd, when he stepped down as director at the annual general meeting, at the Hawera Club, on Tuesday 25 October 2005, no doubt also with a feeling of satisfaction but with a tinge of reluctance in his heart. He was now 70 years of age, and his time at the top was second only to Alexander Hunter who chaired Farmers’ Co-op from 1915 to 1944. Brian’s tenure had been a rollercoaster ride controlled by single-minded and tireless determination. He had unequivocal distaste for anything associated with failure and pride was a visible personal attribute. When asked what he thought about the company’s achievements during his time as chairman, he succinctly expressed his view It’s had its down sides, but there are always those. Unless you have been sick, you don’t know what it feels like to be healthy. Salvaging the company from certain extinction had been a remarkable achievement. The turnaround had been hailed as a ‘financial Houdini act’ by confounded corporate commentators, who thought it inconceivable that anyone, least of all an unknown Waverley farmer with little commercial knowledge or experience of the stock and station industry, could revitalise such a seriously ailing enterprise. When asked why he thought he could make the company profitable when others had failed, he said Words with an apostrophe ‘t’ don’t exist in my language, can’t – don’t – won’t. I refuse to accept the word can’t. You have got to make the call.’ Failure was simply not an option, and he used every possible means to ensure that the company survived. Even his adversaries respected his fighting qualities when the chips were down, and his unpretentious approach and respect and appreciation for the people who surrounded him was a hallmark of his management style. It was this remarkable man’s ‘never give up’ tenacity that dragged the company out of the mire and that saw him guide it to prosperity once again over 18 years.

Brian and the newly elected 1987 directors were blessed with a certain amount of good fortune, particularly in relation to the appointment of David Simpson from Finance & Advisory Services Ltd and subsequently the introduction of Doug Hazard who both provided the financial wisdom and strategic plan that drove the technical aspect of the recovery throughout the six years of the Scheme of Arrangement. Essential, though, were the astute tactical fighting qualities that Brian brought to the board table. His determination to ensure his work would not be undone, as a succession of four general managers came and went, saw him assume the role of executive chairman and executive Scheme manager and caretaker general manager/chief executive with the enormous responsibility and workload that entailed. Tributes flowed as Brian Train now stepped down from the position, with five of the six other south and central Taranaki shareholders who initially offered themselves and became directors of the beleaguered company. They had completed what could validly be described as ‘a mission impossible’. Whatever the future holds, Brian Train’s name is engraved forever in the history of the stock and station industry of Taranaki as one of its champions.