It will be farmers who determine the future ownership of Alliance Group, the co-operative’s new chairman Mark Wynne says.
Remaining a 100% farmer-owned co-operative was a choice and if farmers wanted it to remain a fully owned co-operative — which was the board’s desire — then the company needed their livestock, Mr Wynne said. That was the clearest way of showing their support.
Last month, Alliance announced a capital raise from farmer shareholders, who would contribute to share capital by deductions from livestock proceeds, a move which, not surprisingly, had attracted some "very vocal" feedback, Mr Wynne said.
Essentially, there were three structural options that Alliance shareholders — as owners of the co-operative — could decide on: remaining 100% farmer-owned co-operative, a joint venture or hybrid-type structure such as the Silver Fern Farms model, or a 100% sell-out to another party.
None of those options should be seen as scary, and farmers would ultimately make the choice, largely driven by stock flow. It was the board’s desire for it to remain a co-operative and, for that to happen, "we need their stock", he said.
Mr Wynne, an experienced agribusiness leader, most latterly chief executive of Ballance Agri-Nutrients, has been in the hot seat for a month, replacing Cust farmer Murray Taggart who retired.
Speaking from the company’s Christchurch office, Mr Wynne, of Tauranga, was both candid and upfront about the task at hand — restoring the fortunes of a business which inexplicably went from a record $116.3 million profit in 2022 to a $97.9m pre-tax loss last year.
"I want to say, I’m not doing this for a good time or a long time. This is damn hard work. We’ve got an enormous amount to do to turn this big super-tanker around," he said.
Alliance has previously said it believes funding in the range of $100m to $150m — indicative only — might be required over the next five years. However, that would not be provided solely by the equity from farmer shareholders.
This week, Mr Wynne said the company was "pulling all levers" to minimise the capital requirement from shareholders. Alongside that, it might also look at a preference share to bring capital into Alliance without disrupting the co-operative structure.
Again, he acknowledged the timing of the capital raise, saying it was "really not great", although there would probably never be a good time for such a move.
"Farmers are doing it really tough on farm, no question about that. So too are most of the wider agribusiness community," he said.
And whether it was the likes of Alliance, or dairy company Synlait, there were other players in the industry which had also not had great results, and there was pressure throughout the agribusiness sector.
Just a few weeks into the role — Mr Wynne was appointed as an independent director to Alliance’s board in 2021 — and it had been "very busy".
Both face-to-face woolshed meetings in both islands and virtual sessions had been held with farmers and he was pleased with the strong turnouts, he said.
"It’s their [the shareholders] company — I hope they are interested and concerned and questioning".
At those meetings, farmers were "fairly direct". They wanted to know initially "how the hell did we get here?" and how those responsible for running the company were going to make changes.
Asked whether the co-operative had lost any farmer shareholders since announcing the capital raise, he said he had heard anecdotally some were moving — "which you would expect".
"I’m sure we will lose some."
That was very hard to measure, particularly if farmers split their supply with other companies, although Alliance’s total shareholder base continued to grow, he said.
The beauty of a primary sector co-operative was the very direct feedback — "the good, the bad and the ugly" — rather than having faceless shareholders and that was "hugely valuable to anyone in a governance role". "You get to see the business is bigger than just lambs you’re processing and selling offshore," he said.
It was about multi-generational family businesses, communities, schools and rugby clubs — "everything is part of this".
"It’s much wider than you are just the buyer of the livestock."
The first had to do with simplicity of schedule and kill sheets; there was a call to "make it easier to do business with you".
The second was to behave like a co-operative and be more equitable; that came off the tiered-price approach and use of third parties. He did not believe the co-operative had that right and some adjustments had already been made, Mr Wynne said. Alliance could not be compared with Fonterra, which, while also a co-operative, had a fixed price and it was"comparing apples to oranges".
Third was more transparency in communications and "don’t sugarcoat it" — something he was a great believer in, Mr Wynne said.
The fourth was to fix the balance sheet.
The co-operative would address those things, Mr Wynne said.
When it came to the balance sheet and the rapid turnaround from profit to loss, that was due to multiple issues. Taking shareholder equity as a measure of balance sheet strength, it was about 70% in 2017 and 48% last year, which showed the balance sheet had not maintained its strength over time.
As to where funds had gone between 2017 and last year — "because a lot of that could have come into retained earnings, which strengthens your balance sheet" was a comment which had been made — Mr Wynne said there had been various big requirements on capital, including changes in machinery-guarding legislation, investment in automation, a computer system upgrade, the loss of a union case around donning and doffing and a forecast drought in 2022, which resulted in Alliance bringing in very expensive labour from offshore, which never eventuated.
Asked whether any plants were under threat of closure, Mr Wynne said Alliance had no plans to rationalise at present.
It continually looked at its manufacturing efficiency — at chain, plant and species level — which were reviewed constantly "since forever".
Alliance was a very lamb-centric business but, over the past five or six years, it had grown its beef processing considerably which offset some of the change in lamb supply.
The rural industry in general had an issue with land-use change. New Zealand had some favourable investment rules around planting trees and converting farmland but the "other discussion" — on the impact of that change on local communities — had not been held.
"We need to take a bit of a breather and look at what we really want as a country going forward."
He and Alliance chief executive Willie Wiese were travelling to China next week, where they would see first hand what was happening in Alliance’s biggest market where the economy has been under pressure, Mr Wynne said.
Asked why he took on the chairman’s role, Mr Wynne said he felt his skill set was "pretty well positioned" to assist the board in addressing some of the challenges it faced.
While he believed the co-operative should be led by a farmer-appointed director with the right skills, right now he believed his skills were right "for what we need in the chair’s role".
The primary industries, including the red meat sector, were critical to New Zealand’s future as a wealthy country and he had been involved in the primary industries for a long time, first with dairy and then fertiliser.
At Alliance, it was a challenge but there was a huge opportunity inside of Alliance looking at what could be done better to create better value for farmers. With the support of a great management team and board, the co-operative had to get the basic value drivers "absolutely nailed".
"If we get farmer support, we’re confident [in its future]", he said.
