Kiwi Dairies' strategy defended

By PHILIPPA STEVENSON

Dairy industry leadership has brought new Kiwi Dairies chairman Greg Gent full circle - the former banker left the city for farming but 20 years on his latest role has brought him back.

Today marks the 12th day the now weekend farmer from Ruawai in Northland has headed a dairy company, which as the country's second-largest has 6000 shareholders producing 36 per cent of New Zealand's milk, 4000 staff and turnover of $2.5 billion.

Kiwi's traditional base is Taranaki and all its former heads have hailed from there. But a merger with the Northland company last December prompted its headquarters to be moved from Hawera to central Auckland.

From a Queen St office, Mr Gent, who chaired the Northland company for four years, reflected on a round of meetings designed to introduce him to Taranaki shareholders.

"I think the jury is out. I've got to deliver before I get acceptance [in Taranaki] totally but I don't think where I happen to farm is an issue to them. I wondered if it would be. [Former chairman] John Young assured me it wouldn't be and I think he is right."

The collapse in March of the merger between Kiwi and the bigger New Zealand Dairy Group - pivotal to the proposed mega cooperative integrating the manufacturing companies and the exporting Dairy Board - means there are other, more pressing matters on the 44-year-old's mind.

Mr Gent, like his Dairy Group counterpart, Henry Van Der Heyden, blames the merger failure on the Commerce Commissions's requirement for farmers to be able to immediately exit the mega cooperative with the full value of their shares, so-called fair value exit. Other issues contributing to the merger collapse were doubt about the cooperative's ability to perform, and the pressure on the negotiations from Government-set deadlines and public scrutiny.

The commission's condition would have threatened the mega cooperative's financial base if a significant number of farmers had left, taking their milk and capital with them, say the chairmen.

To resolve the issues, and to chart a new course for New Zealand's biggest industry, the two companies have set up a six-member group made up of the two chairmen, their deputies and each company's chief executives.

Both leaders are wary of suggesting they favour a specific goal but it is clear that the differences which torpedoed their merger remain.

Conservative Dairy Group was wary of Kiwi's aggressive approach to finance which has given it a higher debt level.

Mr Gent is committed to the strategy.

"Looking at a balance sheet gives you a snapshot of a company. I think you should look at a basket of measures," he said.

Kiwi's investment programme had given it "a lot of new stainless steel," it had inherited more by taking over Northland and one more large spend was anticipated at its Hawera site in the next 10 years.

"Kiwi has got a high debt level compared to Dairy Group but it has also got some very good assets on the ground. It's the ability of a company's assets to generate revenue that it should be judged on. I think Kiwi is unfairly treated in that regard," Mr Gent said.

Cultural differences extend beyond finance. In industry shorthand, Kiwi is more cooperative, Dairy Group more corporate.

Mr Gent said the different outlooks was "one of the reasons I was happy to pull the plug on MergeCo.

"The cultures are different and they are an incredibly important thing. There is heaps of learning that suggests 75 per cent of mergers never obtain the benefits that are set out, and if you don't get them in the first 90 days, you never will.

"Certainly, the environment we had between the two companies at that time [meant] we would have failed because of the different culture."

The companies also remain apart on share structure. Dairy Group favours optional shareholding for farmers in the high-risk consumer marketing arm of the business.

Kiwi believes that ownership and milk supply should be linked.

Mr Gent said he was happy with "a level of bundling of returns."

"I don't think our industry has to be economically pure.

"You can develop a strategy that may be good for business [but] you have to be very sure the strategy is also good for the farmers, the beneficial owners. I think if you move to any form of tradability [of shares] that you will end up with a fully traded share."

Farmers could choose to have tradable shares "but to get to that in a piecemeal way destroys value. It certainly is not my personal choice."

Mr Gent has been groomed for industry leadership, including earlier this year undertaking an advanced management programme with one of the world's big business schools, the European Institute of Business Administration, in France.

However, whether he got the industry's top job would depend on the contenders at the time, he said.

acioI've only gone for the jobs if I thought I was the best for it.adio

nteHowever, he had only gone for the jobs "if I thought I was the best for it."

He believes, though, that the industry is suffering from a leadership vacuum and farmers have not been sufficiently informed on issues.

"The industry has not had a clear leader for a period of time. The 1996 amendment to the Dairy Board Act made the board a subsidiary of the companies and with the two companies becoming dominant there is no natural leader.

"We currently have three - the chairman of the Dairy Board and the two companies - and during MergeCo we had four with the chairman of the establishment board.

"It's difficult to give a united message out of that.

"Historically, when there were many small companies, the Dairy Board was the benevolent dictator in the middle, and the chairman of the board was the natural leader of the industry. That is much less clear now."

Mr Gent said there was no answer to the problem until the industry's structure was resolved. In the meantime, he and Mr Van Der Heyden had a responsibility to deliver a consistent message to farmers.

"I certainly have a view of where I would like to see this industry in five to 10 years' time in a structural sense, but the reality is unless New Zealand Dairy Group share that same vision it won't occur."

He hoped by working through the issues in a more conducive environment the companies would leap the hurdles they fell at in March.