Wrightson MD, Allan Freeth

Friday 27th July 2001

Following is a ShareChat Investor Interview with Wrightson (NZSE: WRI) Managing Director, Dr Allan Freeth. This interview was conducted during July 2001 and posted on ShareChat on July 27th, 2001.

SC Investor: I have read criticism of Wrightson in terms of whether it is giving farmers the kind of support they need, and that you have lost a lot of your loyal customer base, particularly in the South Island, to companies like Pyne Gould Guinness and rural co-ops. I also noticed that you yourself have said the company needs to "rebuild client relationships, to rebuild client confidence, and to rebuild trust". What is your response to this kind of criticism, and do you have any figures on what market share you lost in the past, and what you are winning back?
Allan Freeth: We estimate that we lost in the order of 15-20% market share between 1996-98. Our data shows there was very limited loss of clients, rather, it was business lost. We have since recovered this, and remain focused on maintaining client relationships.
SC Investor: How much do you think former CEO Greg Kay and David Rutherford cost the company?
Allan Freeth: I am not prepared to comment on the performance of any previous managers or employees.
SC Investor: The rise in farm returns over the last two years has seen a more positive agriculture sector and Wrightson has benefited well from it. For how much longer do you believe this upsurge will last?
Allan Freeth: One to two years.
SC Investor: The dairy industry is doing pretty well at the moment with the low dollar and upsurge in world prices. Can you please tell me how much of Wrightson's turnover or profit comes from this industry and if this is an area where your company would like to expand its services?
Allan Freeth: It is difficult to estimate exactly how much of our turnover currently comes from the dairy sector - maybe 20%. We definitely want to grow our business in the sector, and see potential in working with our new cornerstone shareholder, RD1.COM, in this regard.
SC Investor: What is the role Wrightson will play in the new venture with Merino New Zealand, and what will the benefits for Wrightson be?
Allan Freeth: Wrightson has taken a 35% share in the joint venture company formed with Merino New Zealand,. As a result, we have transferred our entire fine wool business to the new company. Wrightson has the contract to provide logistics to the company.
We believe this venture, which combines our skills and experience as brokers, with Merino New Zealand's marketing expertise, will deliver significant benefits to Merino wool growers, and in the medium term, to Wrightson shareholders.
SC Investor: In relation to your current evaluation of the anticipated prospects for Wrightson over the next twelve months, do you consider that the current share price is appropriate? If not, is it unduly pessimistic, or unduly optimistic?
Allan Freeth: It is heartening that people are again seeing value in the Company and its strategies, and this is being reflected in our much improved share price. You would need to ask an analyst about how much more upside they think it has.
SC Investor: Lowering greenhouse gases seems to be in the news lately, and I read that you said that special grass seed that helps cut down methane in animals and sells for up to three times as much as regular grass seed has been partly responsible for your improved share price. Is this true? What other reasons are responsible for your improving share price?
Allan Freeth: I believe that indirectly, the success of Wrightson's Animal Friendly(TM) grasses is reflected in the share price. What has been successful, is the recognition of our strategy of becoming a Solutions company, as well as strategies we are pursuing in other areas such as biotechnology.
SC Investor: Is Wrightson looking to team up with companies like Rubicon to do joint ventures in the future?
Allan Freeth: Possibly - although there is nothing concrete on the drawing board at the moment.
SC Investor: What kind of return are you getting from your online venture, and when will Wrightson start leveraging its dot.com Agri-business in countries around the world?
Allan Freeth: We are still learning about on-line business and reviewing Wrightson On Line to ensure it meets the Company's retailing objectives as well as our client's needs. Until we are certain that we fully understand the risks and opportunities involved in online ventures, we won't be leveraging our online business around the world. We look forward to learning from the experience of our new cornerstone shareholder, RD1.COM.
SC Investor: I am thinking about buying some shares in the rural industry. Why should I buy shares in Wrightson instead of in another rural company?
Allan Freeth: Because Wrightson has a future beyond regional rural downturns and commodity cycles. Our Solutions strategy will produce greater sustainable earnings and reduce our dependence on commodity cycles.
SC Investor: I wish to ask about the 'Wrightson Retirement Plan', which, strangely, I cannot find a specific reference to in the Wrightson Annual Report 2000. As at January 2000, papers filed by Wrightson in accordance with the Financial Reporting Standard 32 'Financial Reporting by Superannuation Schemes' show that in March 1996 this scheme had assets of $47m to pay out accrued benefits of $67m. I understand that FRS32 does not require annual updating, but nevertheless these figures are now over 3 years old. Can you please supply us with updated figures on the funding deficit for the 'Wrightson Retirement Plan'. Furthermore if the funding deficit is still of the order of $20m or more what, if anything, does Wrightson's intend to do to close this gap?
Allan Freeth: The fund no longer has a deficit in relation to "past service". A surplus has been achieved through improved investment returns.
SC Investor: Do you see the Wrightson business as a good fit with Australian rural merchandiser IAMA? Given that GPG hold substantial stakes in both companies are they in a position to be able to engineer a merger?
Allan Freeth: GPG sold the majority of its stake in Wrightson to RD1.COM last week.
SC Investor: Can you briefly tell me about your investments in Uruguay and how much money you are making or losing over there?
Allan Freeth: In 1999, Wrightson acquired a 51% stake in an established Uruguayan seed marketing company, now known as Wrightson PAS. This is a strategically important investment for the Company, as it provides a basis for leveraging our proprietary seed brands into the developing agriculture sectors in Uruguay, Brazil and Argentina - countries which have similar temperate climates to New Zealand. As advised to the market in June when we announced our 9 month result, this business is facing difficulties due to the recent severe drought in Uruguay, followed by a widespread outbreak of Foot and Mouth Disease.
SC Investor: The just announced merger between Reid Farmers and Pyne Corporation, has shown it is possible for a rural servicing company to have more than one arm in the finance sector (Allied Finance, Frontline Finance and Marac, as well as the finance division of Pyne Gould Guinness). Do your current arrangements with Rabobank allow you to re-enter the farming finance sector at a complimentary level under the 'Wrightson' brand?
Allan Freeth: Yes, under the terms of our alliance with Rabobank, we can provide seasonal finance to clients.
SC Investor: Wrightson's earnings per share went from 5.6 cents for the full year to June 2000 to just 0.7 cents per share for the six months to the end of December 2000. Why such a fall when I though everything is going well?
Allan Freeth: The majority of Wrightson's earnings are in the second six months. The announcement of significantly improved EBIT for the nine months to 31 March 2001 highlights that performance in the current year is above last year.
SC Investor: As the demand for gas in restaurants and houses increases, wouldn't it be logical for Wrightson to have a foot in companies like Natural Gas or Sydney Gas while their prices are low at the moment?
Allan Freeth: I'm not sure what relevance this question has to an agri-business such as Wrightson. Our commitment is to agriculture.
SC Investor: Have you ever thought of officially changing your name from Wrightson to Wrightsons? Everyone I know calls your company that anyway.
Allan Freeth: Although some people do refer to us as Wrightsons, we are committed to retaining the Wrightson name. It reflects the names of our founders, John Wright and John Stephenson.

ShareChat thanks Dr Allan Freeth for taking part in this Investor Interview.

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