RURAL: EMPIRE: STRIKES: BACK: with big banking deals: with big banking deals

Friday 19th January 2001

There's a genteel way to approach world domination, CHRIS HUTCHING discovers, inside cosy but ruthless Pyne Gould Corporation

SAM MALING: Financing is the glue that holds the Pyne together

The Canterbury way of doing business: frightfully blue-blooded, understated and never so vulgar to boast about that dirty folding stuff. The Canterbury uniform, the equivalent of the Sloane Ranger's green gumboots: collars turned up with a string of pearls for the ladies, and men show they are just a step away from working the land by wearing rugged R M Williams boots - even in the boardroom.

That conservative South Island style is part of the first-four-boats culture of the region but it also means some ruthless business strategies like the renaissance of the local "farmer's friend" company Pyne Gould Corporation are kept pretty quiet compared to flash Harry plays of Auckland companies. There is no Eric Watson-style hype around Pyne Gould's deals, even if it has pulled off a transaction that looks remarkably like one the high-profile Auckland entrepreneur had his own eye on.

For a long time the Pyne name was mostly associated with its South Island stock and station business, Pyne Gould Guinness. But in recent times it has been building its presence in the corporate trustee business and in financial services in the Auckland market.

Just before Christmas Pyne announced what was probably one of the biggest recent deals for a southern company, buying Auckland finance company Marac for $41 million, and also Dunedin-based Frontline Finance from John Gilks for $20 million (Frontline Holdings will retain Frontline Asset Management and Frontline Broking). Pyne's simultaneous bid for the remaining 49% of listed cashbox South Eastern Utilities will free up money and facilitate the deal.

These moves follow the merger last year of two other Pyne finance companies, Allied Finance and Finance & Discounts, and the enlargement of the Auckland operations of those companies with the appointment of former ANZ Bank general manager corporate and institutional banking, Brian Jolliffe.

Pyne's finance company assets will stand at about $660 million or roughly three-quarters of the group's earnings and asset base, with the balance from traditional rural servicing in Pyne Gould Guinness, according to Pyne managing director Richard Elworthy.

Pyne Gould Corporation's other interests include 44% of listed rural servicing company Reid Farmers, which this week reported it was closely watching a boost in farm values of up to a third in Otago and Southland, arising from the general boost in rural fortunes and specifically from news that Kiwi Cooperative Dairies has accepted 55 new milk suppliers at its Stirling factory.

But while the news for commodity and rural land prices is good now, financiers also view the effect of a longer-term rise in the New Zealand currency and cyclical changes with caution.

To guard against the vicissitudes of the commodity cycles, Pyne has diversified its financing activities. In this regard the approach of Pyne's directors contrasts starkly with listed rival Wrightson, which jettisoned its financing activities under a scorched earth restructuring that threatens to leave it vulnerable when the economic tide turns.

Pyne chairman Sam Maling, a Christchurch barrister with family links to Pyne, said financing was the glue that held the Pyne rural servicing empire together.

"I don't think there's anything too startling about the way we do business. In fact we've stuck pretty much to the traditional role of a Canterbury stock and station agent in the way we've done things without trying to change the mould too much

"We've picked up some market share from Wrightson on the stock and station front and we have been careful to ensure in that business that financing for farmers is kept at the forefront. That's an important part of the glue in those businesses and we're continuing to put effort and resources into that.

"We've been very conscious of being prone to the vicissitudes of commodity trading so it's been important to develop other legs but there are some key things that run through all those businesses and finance is one of them, whether its rural service financing, trust business or commercial financing through Allied or Marac. So we've diversified but there's still a mainstream through all those enterprises," Mr Maling said.

Pyne's history challenges orthodox wisdom that declares third-generation family members dissipate wealth. In its evolution from stock and station agent to leading finance group, the same half dozen founding family names like Goulds and Elworthys have dominated the share register of about 1000 shareholders who seldom trade. But according to Mr Maling, the family shareholdings have become more disparate over time and there is a steady trickle of new shareholders. There are no plans to list on the Stock Exchange.

According to the annual report for the year ending June 2000, the rural servicing activities of Pyne Gould Corporation's subsidiaries enjoyed a 50% increase in trading profitability, contributing to an overall 20% profit boost for the group.

Subsidiaries Pyne Gould Guinness and 44%-owned listed Reid Farmers saw most of the benefit from stronger prices for lamb, beef, venison, velvet and dairy products, a lower currency and favourable climatic conditions.

The after-tax profit excluding one-off items was $12.2 million on turnover of $210 million compared with $10 million the previous year. Shareholders received a total dividend for the year of 16c a share.

Mr Elworthy said the latest season weather-wise for primary produce had been good following an exceptional year last year. Many rural servicing and trading companies were feeling more benefit this year because of the low dollar. And while the drought in Marlborough would be a personal tragedy for some farmers it would have little impact on Pyne's activities.

There was also increasing evidence that the rural upturn was flowing through to a long-awaited upturn in city centres as evidenced by stronger demand in the finance sector.

Comments from our readers

No comments yet