Dynamic Business: Excellence in Governance (NZ Herald)

Sanford – Keeping it fresh

Sanford — a finalist for the category in last year’s awards — has taken the MinterEllisonRuddWatts Excellence in Governance award in 2018, in recognition of the company’s strong focus on being a good corporate citizen, with broader considerations beyond its commercial activity.

Sanford, New Zealand’s biggest and oldest seafood company, has been using the internationally recognised “Integrated Reporting” framework since 2014. This has been recognised by the market, for providing a balanced picture of their economic, environmental, and social performance, facilitating comparability, benchmarking and assessing performance; and addressing issues of concern to stakeholders.

The Deloitte Top 200 judges recognise the hard work that has gone into Sanford’s impressive integrative reporting, and say the effort being made to be a good corporate citizen stands out in terms of their overall governance.

The Sanford board chaired by independent director Paul Norling, includes Abby Foote, Bruce Goodfellow, Peter Goodfellow, Peter Kean and Rob McLeod.

Sanford embarked on a significant culture change a few years ago.

As part of this, Sanford has placed a strong emphasis on offering meaningful opportunities for continual learning and development, setting a goal to maximise the prospects of all its people.

In line with this, Sanford introduced its ‘Keeping it Fresh’ numeracy and literacy initiative three years ago, a programme that puts participants together into groups of around eight people for a 10-week course which takes them out of their regular roles for four hours a week. Participants are given a group project to work on, and many have produced a result that has helped them and the business.

Recent examples include work on reducing plastic in Sanford’s day to day operations, a project on how to respectfully demonstrate the company’s values across a multi-cultural work environment and one on how to impart technical knowledge to new staff through storytelling and mentoring.

In the last year, Sanford has run Keeping it Fresh across four sites and graduated 88 of its employees. The company says participation in the programme has extended beyond the workplace, with one of the standout changes being in people’s confidence to manage their money through numeracy skills training.

“We are delighted with the results we are seeing from our Keeping it Fresh programme, for us as a business and for the Sanford people who are taking part,” says Sanford’s chairman Paul Norling. “It has become clear that they are deriving real benefits in both their working lives and their personal lives, which is excellent.”

In Sanford’s sustainability policy, the company acknowledges that sustainability sits at the heart of its business: “It is fundamental to our connection with New Zealand and the growth of our business. We understand our environment, economic and social choices have an impact, now and in the future.”

Sanford recognises that climate change is a key risk for its business, with the potential to change the distribution and abundance of fish stocks, increase the number of biosecurity incursions, and increase the ocean’s acidity, affecting marine ecosystems and causing a loss of income to the industry.

“We believe that the right to fish our precious marine resources under New Zealand’s Quota Management System and the right to utilise New Zealand’s beautiful marine space for farming has to be fundamentally and continuously acknowledged through the commitment by Sanford to doing the right thing,” says Norling.

“This goes well beyond fishing and farming in a sustainable and environmentally responsible fashion and includes activities ranging from community involvement to reducing plastic waste. Our business sets high standards for itself in this regard and many of those are laid out in our annual report.”

The Deloitte Top 200 judges commended the leadership role Sanford has taken alongside other organisations to initiate climate change and carbon emission discussions, and actively engage in collaborative, multi-stakeholder initiatives to support climate change action.

In 2016, Sanford was a signatory on an open letter to the New Zealand Government, calling for ambitious targets to reduce emissions, a long-term plan to achieve them, the implementation of strong policies, and the necessary information to be provided to empower New Zealanders to make low carbon choices.

Sanford’s vision is to be the best seafood company in the world through the sustainable growth of its business, and is embracing the contribution it will make towards achieving the United Nations Sustainable Development Goals (UN SDGs).

“The Sanford board’s commitment to transforming the company towards rigorous management of environmental performance and sustainability across all areas of the business will help generate outcomes that will bring Sanford closer to its vision to become the best seafood company in the world,” the judges said.

Sanford has also formed relationships with community organisations including Paralympics New Zealand and the Graeme Dingle Foundation. Sanford’s staff across New Zealand have been able to partner with these groups to work on community projects such as beach clean ups, and produce and give presentations for schools on sustainable fishing and caring for the marine environment.

Says Norling: “Sanford management have been focused on weaving those relationships into the fabric of what we do. For example, this year we worked with Paralympics New Zealand to produce a Sanford health and safety video, presented by Paralympian Cameron Leslie. This was a daring and eye-catching way to share the message that we want our people to think safe, be safe and get home safe.

“We have shared this video around the company and it has had a profound impact on our staff, stirring real emotion and provoking some serious thought about how we can all do more to ensure we have a safety-focused workplace.”

Finalist: Trade Me

Trade Me continued to grow over the past year, with net operating profit up 39 per cent on last year to $96.6 million, and revenue up 6.6 per cent to a record $250.4m. Trade Me’s Classified businesses continued to grow strongly, with all three verticals — Trade Me Property, Trade Me Motors, and Trade Me Jobs — delivering double-digit revenue growth in the 2018 financial year.

But it was the responsible approach in how Trade Me works with the community to build trust in its platform that the Deloitte Top 200 judges were particularly impressed with when selecting Trade Me as a finalist for the Excellence in Governance category.

“Maintaining trust is critical to the success of Trade Me — without it no one is going to use the platform,” says judge Jonathan Mason.

“They have to be transparent, and to do that, they must show excellence in governance.”

Trade Me’s board is led by independent chairman David Kirk, alongside directors Joanna Perry, Paul McCarney, Katrina Johnson, and Simon West.

The popular buy-and-sell platform releases a transparency report each year, which details how and why New Zealanders data has been shared.

The transparency report notes that “we want to make sure our customers’ personal information is only released to government agencies and the New Zealand Police when it’s legally requested of us and we’re satisfied it’s appropriate”.

This year’s report shows data was requested by police and other Government agencies 1795 times in the past year — for reasons that include stolen goods, drugs, non-delivery of goods, and even homicide or missing persons.

Trade Me chairman David Kirk says: “We think Kiwis have a right to know when, how often and for what reasons government agencies are requesting their information from companies like Trade Me. The Trust & Safety team’s keenness to be open to members inspired the production of the inaugural Trade Me Transparency Report in 2013, and the board has wholeheartedly supported the initiative ever since.

“Telling our members how their data is used helps them feel confident that we do the right thing by them, and that we take our responsibility for protecting their data very seriously. In New Zealand, regular transparency reporting by public companies is still unique to Trade Me, despite calls from the Privacy Commissioner and Internet NZ for others to report the same way.”

Trade Me was one of two inaugural recipients of the Privacy Trust Mark this year, a new initiative released by the Office of the Privacy Commissioner to recognise excellence in privacy-friendly products or services, and in this instance acknowledged the work of the company in its transparency reporting.

Trade Me was named the eighth most influential brand in NZ by Ipsos in July 2017, and the sixth most trusted NZ brand by Colmar Brunton in September 2017.

The judges say it is a testament to the actions of the board and the company’s focus on trust that have helped cement Trade Me as a strong, trusted, well-known and much-loved brand.

Finalist: Ports of Auckland

Ports of Auckland received high praise from the Top 200 judges for its shift towards transparency, and the subsequent improvement in its public profile — acknowledging the challenges that come with the management of such a publicly visible council-owned entity.

The Ports of Auckland board is led by Liz Coutts, who became the first woman to chair Ports of Auckland in 2015, and oversaw a strong result over the past year with revenue and profit both up.

Coutts is joined on the board by Rodger Fisher (deputy chair), Andrew Bonner, Patrick Snedden, Sarah Haydon, Karl Smith, Bill Osborne and Jonathan Mayson.

Last year, Ports released a 30-year master plan, in response to community concerns about ongoing port expansion into the Waitematā Harbour.

This was the first time Ports developed such a detailed plan, including all projects that will be needed in the next 30 years in order to keep up with Auckland’s growing freight demand. The master plan was endorsed by Auckland Council earlier this year, and Ports of Auckland has now begun to implement it with a mandate for the next three decades.

Coutts says providing this high level of detail to the public is in line with a commitment to be more open and transparent.

Coutts recognises in her most recent chair’s statement that “businesses — even lifeline utilities like ports — can’t take their positions in the community for granted. We have to earn our place in the city, something we haven’t always done well in the past.”

The judges credit the board for its progress in moving toward the International Integrated Reporting Framework. This extends beyond financial reporting to include social and environmental performance, and reflects Ports’ integrated thinking culture and goal to become a zero-emission port by 2040.

The board say this ambitious goal for emissions has helped to spark conversations with manufacturers, and is acting as a catalyst for innovation and new thinking for the industry.

Ports of Auckland is progressing towards becoming New Zealand’s first automated container terminal, due to go live in the second half of the 2019 calendar year. While this automation will provide a significant capacity and productivity boost — and help them work towards sustainability goals — it will also mean the loss of around 50 straddle-driving roles.

To mitigate against these losses, the board has helped put in place a comprehensive “Future of Work” programme of education and retraining, helping people through changes, and preparing them for the radically different world of the future, which impressed the judges.

Dynamic Business: Chairperson of the Year (NZ Herald)

Chairperson of the Year: Peter McBride of Zespri

Peter McBride, Chair of the national kiwifruit export marketer Zespri, has presided over what is expected to be New Zealand’s fastest-growing primary export sector in the year ahead, according to Government forecasts.

“Unlike other countries, co-operatives in New Zealand are more influential in the economy,” says Deloitte Top 200 judge Dame Alison Paterson. “The primary sector — of which co-operatives are so influential — is a huge driver of the economy.”

McBride has been a director of the grower-owned company since 2002, and chairman since 2013. In his time as chair, he has presided over a CEO change, addressed compliance issues, seen the Serious Fraud Office investigation conclude satisfactorily and pushed through greater transparency in the way Zespri allocates fruit.

The Top 200 judges say the management of these matters has generated significant value for Zespri and its owners, and helped contribute to a steady share price rise over the past five years, record grower returns for 2018 and 2019, and significant wealth created for the grower families that depend on Zespri for their income. It is for all these reasons they chose to name McBride New Zealand Herald Chairperson of the Year.

McBride says the empathy he has with stakeholders has formed a defining aspect of his governance style.

“We make massive decisions that impact on ordinary New Zealand farming families, and that is a profound responsibility and something quite different to normal corporate governance,” he says.

McBride is described by judges as being a consultative chair, running a highly cohesive, functional board.

“He lets the board fully participate in decisions to an extent that a lot of other chairs do not,” says Dame Alison.

McBride puts that down to his governance style, where he aims to empower people and trust them. “I trust my directors deeply — you have to bring out the best in people,” he says.

Over the past three years, Zespri has undertaken a change in its capital structure and an affirmation of its single desk status that has gained the support of over 90 per cent of its growers.

Part of this capital structure included a share issue and buyback, which required constitutional changes and for some shareholders to vote in favour of changes that they may not have benefited them individually, but were considered by the board to be in the best interests of Zespri long-term. These include a cap on shareholding and the dividends of dry shareholders to cease after a period.

The judges believe these changes that McBride shepherded through will provide long-term sustainability for Zespri, and are a testament to how strong the co-operative is.

At the time of McBride’s announcement as chairman-elect in 2012, the kiwifruit industry was in the middle of the Psa crisis.

“While the industry has had a very tough time from Psa, and its impacts will continue to be felt for a number of years yet, I believe we will overcome the disease,” said McBride at the time.

“As Zespri chairman, I will be committed to doing all I can to navigate the industry through these current tough times and returning it to its long-term growth path.”

Psa had the potential to gut the New Zealand kiwifruit industry, wiping out the high value Hort16A gold variety in the Bay of Plenty and eroding grower returns.

Dame Alison says at the time of the crisis, McBride had to front up as a leading grower director.

“The whole industry was shut down, and innovative growers were hit the hardest,” she says. “Families lost their whole income, and when a company is in crisis, it falls on the chair.”

Now, eight years on from when the bacterial disease first appeared in orchards and six years under McBride’s leadership, the industry has rebounded after developing new varieties resistant to Pseudomonas syringae pv actinadiae — better known as Psa — and export volumes are thriving.

McBride recently announced his intention to step down as Zespri chair in February 2019, but the judges say he leaves the co-operative — and the industry — in great shape.

“Under McBride’s chairmanship, Zespri has demonstrated its ability to innovate, produce gold, sell it with massive returns and do wonders for its various stakeholders into the future.”

Finalist: Liz Coutts

Seasoned director and chairperson, Liz Coutts has an impressive resume. She is currently chair of Ports of Auckland, Oceania Healthcare, and Skellerup Holdings — as well as holding a number of directorships. Last year, she also became the Institute of Directors’ first female president.

Coutts says each of the diverse companies she chairs are rewarding in their own way, as they are all growing, and all making progress.

“That doesn’t mean to say that we don’t have road bumps along the way — but they are all making progress. Keeping them in that calm, steady state — and quietly getting on — I find that very satisfying.”

The Deloitte Top 200 judges credit Coutts’ ability to empower companies to perform for their successful results and wise strategic directions.

Coutts, who was made an Officer of the New Zealand Order of Merit in 2016 for her services to governance, became the first chairwoman of Ports of Auckland in 2015, and has presided over a shift towards a more open and transparent, sustainable, and innovative port.

As chair of Oceania Healthcare, Coutts saw the residential aged care provider through its initial public offering in 2017. Just a year since its dual-listing on the Australian and New Zealand stock markets it has delivered a strong net profit after tax result, increasing 71.5 per cent to $77m and exceeding IPO forecasts.

The aged care industry is set for a bright future, as the baby boomer generation approaches an age where they are turning their minds to residential care. Coutts says delivering on this need is one of the most rewarding aspects in her position at Oceania.

“People want to know there will be places for them to live and people to care for them. We are a care company, for which there is very much a need in society,” she says.

“It’s very rewarding to be involved in providing for that need.”

Skellerup has seen similar positive results, with the rubber-goods maker delivering a record profit this year — rising 23 per cent to $27.3 million and revenue up 14 per cent to $240.4m — driven by strong sales growth both in New Zealand and internationally.

In her nearly 20 years as a full-time director, Coutts’ has seen a remarkable change in women in leadership — but she says we have more progress to make.

As President of the Institute of Directors, Coutts hopes to create awareness of the benefits of diversity:

“To be successful, it’s a matter of people wanting to do it.

“We need to have the discussion, create awareness, and demonstrate that diverse views and being inclusive helps you to reach long-term, sustainable goals.”

Finalist: David Pilkington

David Pilkington is described by the Top 200 judges as a high-quality independent director who has been influential in a series of successful companies.

But Pilkington says if he had it his way, he wouldn’t be a finalist for this category: “I don’t really like these things. I like to just fly along under the radar.”

He describes his style of governance as helping people get the best out of themselves.

“For me, it has been about really understanding what is the critical competitive advantage of a business, and how to enhance that — while ensuring we have a team at management and the governance level that can provide the ultimate support to deliver and continue to deliver year after year.”

Pilkington is the chair of Port of Tauranga, Douglas Pharmaceuticals, and Rangatira.

Under his chairmanship, Port of Tauranga has exceeded market expectations, achieving a profit increase this year of 13 per cent to $94.3 million and record annual earnings.

Pilkington attributes the success of the Port of Tauranga to having a clear strategy around its $350 million capital investment programme, which has been very closely linked to its ability to grow the business.

“We completed our capacity expansion programme in 2016 and the effects were almost immediate,” he says.

“We are seeing larger container vessels as well as larger bulk cargo and passenger ships.”

It is this foresight that the Deloitte Top 200 judges say has seen the companies Pilkington is involved in do incredibly well.

Pilkington was commended by the judges for being influential in his work with Douglas Pharmaceuticals.

He has also been a director of diversified investment firm Rangatira since 2006, and chair since 2013.

Rangatira — whose investments include Hellers, Polynesian Spa, Rainbow’s End Theme Park, and Mrs Higgins — operates a flexible investment management strategy that allows it to work alongside owners to maintain what it is that has made the company successful.

He sits on the remuneration committee and is chair of portfolio company Hellers — another success story that he puts down to “the flexibility and willingness to shape what we do around the needs of a very successful business owner”.

Dynamic Business: Moving the line upwards

New Zealand’s Top 200 companies have seen increases in revenue, profits, and total assets this year writes Tim McCready.

The high-level view of the 2018 Deloitte Top 200 Index shows total revenues for Top 200 companies increasing from $177.4b in 2017 to $191.1b in 2018 — a jump of 7.7 per cent, and up from the 4.3 per cent increase seen in the 2017 Index.

The increase in total revenues has also driven an increase in underlying earnings (EBITDA), from $24.4b in 2017 to $26.1b in 2018. This is an increase of 6.9 per cent, compared to a 2.9 per cent increase in the 2017 Index.

The EBITDA margin, an assessment of operating profitability as a percentage of total revenue (total EBITDA/total revenue), remained relatively constant between 2017 (13.8 per cent) and 2018 (13.7 per cent).

Total profits after tax have increased from $8.6b in 2017 to $9.3b in 2018. This is an 8.8 per cent increase year-on-year (compared to a 6.4 per cent decrease seen from 2016 to 2017 in last year’s Index).

Net profit margin (profit after tax/total revenue) stayed relatively constant between 2017 (4.8 per cent) and 2018 (4.7 per cent).

Fonterra, the top ranked entity on the Top 200 in 2018, has revenue of $20.4b compared to 2017 where it had revenue of $19.2b — a 6.3 per cent increase, due to continued growth in the China market.

The 200th ranked entity on the Top 200 Index in 2018 is now NZ Investment Holdings, with revenue of $191m. Last year’s 200th ranked company, Honda (now 196th) had revenue of $177m. This is a 12 per cent increase in revenue between 200th ranked companies year on year.

Total Assets have increased from $218.5b in 2017 to $231.1b in 2018, a 5.8 per cent increase.

Fonterra (1st) and Fletcher Building (2nd) have held the top two spots in the Deloitte Top 200 for the past three years. However, these companies come in ranked 198th and 197th respectively in terms of profit after tax – Fonterra made a loss this year of $196m and Fletcher Building made a loss of $179m.

Fonterra’s losses have largely been a result of a $439m write down on its investment in Chinese infant formula company Beingmate, and a payment made to Danone due to a legal claim. Fletcher’s losses are driven by the deteriorating performance of its buildings and interiors business within Fletcher’s construction division.

The gap between these two companies in terms of revenue has also widened, as Fonterra has increased revenue by 6.3 per cent while Fletcher Building has only increased revenue by 0.8 per cent.

Foodstuffs NI has moved to 4th place overall, trading places with Woolworths (now 5th) since the 2017 rankings. In 2018 these companies reported revenue of $6.6b and $6.4b respectively.

The top 10 has remained fairly consistent, with BP the only new entrant who has now claimed the 10th spot, replacing The Warehouse Group (which has moved to 12th). BP has reported revenue of $3.2b in the current year while The Warehouse Group has reported revenue of $3.0b. The rise in BP’s revenue is primarily from increase in global oil prices.

The overall increase in revenue this year has been reflected in the Government’s tax take from the companies that comprise the Top 200.

Tax paid jumped 9.8 per cent on last year’s figure, from $3.3b to $3.6b — contributing to the Coalition Government’s strong surplus.

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