The O'Brien Column: But should we put our trust in the new economy?

Friday 7th April 2000

The departures of crop protection and industrial chemicals producer Nufarm (formerly Fernz Corporation) and investment group Brierley Investments for new headquarters in Melbourne and Singapore respectively were two newsworthy business stories last year.

Both companies have reported their latest half-years and it was interesting to look at the statements and compare the groups' approach to their formalised but hardly new international roles, because they represented very different approaches to business.

In general terms, the Nufarm statement was a down-to-earth account of what happened in the eight months ended January and a brief discussion about the outlook for the rest of the year.

Brierley Investments' comment seemed to invoke the latest management jargon, particularly that related to investment in technology. There were few specifics behind the rhetoric. Chief executive Greg Terry's comments about BIL's new direction were examples of the difference between the investment company and the practical producer and seller.

BIL's interim report said Mr Terry noted: "We have had to quickly address [sic] the historical problems faced by BIL. Substantial restructuring has been completed and a new management team is in place with a clear vision, objectives and a strong focus on creating shareholder value."

"We are committed to growing BIL through investing in businesses where we can play an active role in managing and exploiting opportunities in growth sectors like technology. Our approach combines discipline and entrepreneurial flair, as well as the implementation of international best practices. In achieving the results sought by our shareholders, we are dealing promptly with assets which do not meet our new investment return criteria."

Another comment said BIL played an active role in the management of investee companies, in creating shareholder value, either at board level or directly through the management of a business.

"The company aims to develop a diversified investment portfolio comprising a mix of longer-term core investments and several smaller investments and to implement an investment strategy which maximises value opportunities inherent in the existing asset base.

"The company also plans to leverage existing competencies in pursuing new investments and to explore strategic investment alliances which leverage financial resources, key skills and experience."

All that can presumably be boiled down to the idea the company wants to make acceptable profits on its investments, profits notably absent in recent reporting periods, including the latest half-year.

Given BIL's recent history, Mr Terry and his colleagues would be better off holding back hyped-up assessments of the way forward until they have clear evidence of how far along that way they have moved, evidence expressed in profitability.

Nufarm had a solid profitability record before it shifted head office to Melbourne. The company built on it during the eight months ended January. Net profit was $11.5 million, an increase of 24% on the corresponding period of the previous year and 21% ahead of the company's internal forecast for the period.

Nufarm said the successful completion of the migration of its head office and incorporation from New Zealand to Australia was a major accomplishment in the half-year.

It involved a restructure of the New Zealand trading operations into a branch, a change in the corporate name from Fernz to Nufarm and achieving a primary listing for the shares on the Australian Stock Exchange.

Nufarm is in the business of making products and selling them. That has been a fundamental difference between companies of its type and those that could be described as closer to the BIL concept. The Nufarm type generates profits from a hands-on approach to businesses it has learned to run efficiently over a long time. It is doubtful whether the other type of company has any effective skills, apart from eyeing a bargain. Those companies say they can buy the specialised hands-on management, a doubtful concept in the case of BIL in recent years.

BIL's sudden infatuation with technology, including internet sites, seems another example of the differences between the makers and sellers and the investors, also now known as the "old" and "new" economies. Mr Terry's remarks about technology were examples of companies running the risk of being carried away with their own rhetoric: "These initial investments are focused on internet sites where BIL can leverage its relationships and expertise from existing and recent asset base to add value beyond the mere investment of money.

"The range and size of non-technology business in which BIL holds, or has held, strategic stakes gives tech@BIL [a new investment division for internet-related businesses] a competitive advantage as an internet investor. We intend to exploit this advantage fully in securing investments in first class e-commerce opportunities with synergies to our other businesses."

BIL will be judged on the basis of its future profit record, not visionary assessments of the new-age economy.

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