John Loughlin’s Quest to Re-package Richmond

When it comes to creating “value” for shareholders and suppliers, Richmond chief executive John Loughlin says he has not yet accomplished his mission. And, by inference, he sees that as top priority for any CEO worth his salt.
The Loughlin-led transformation of Richmond into the nation’s largest meat company has been extraordinary, when compared with the poor performances which traditionally characterised the sector. Recent market conditions have certainly helped but that doesn’t take anything away from what the former investment banker has achieved since he took over as CEO.
Even more remarkable has been Loughlin’s virtuoso performance while accompanied by loud off-stage noises, as southern rival PPCS battled over three years for control of Richmond.
In five years at the top, Loughlin has more than doubled turnover, funded large acquisition with bank borrowing, followed up with sizable merger, listed the company, raised $50 million by way of capital notes and transformed the ethos and imaging of Richmond to that of an international “food” company, not just one which “disassembles animals”.
He has been invited on to the board and commands almost universal respect throughout tough and very competitive industry.
But when asked if the food company transformation has been his greatest achievement to date, Loughlin demurs, saying that if anything must be credited it should be the trebling of share value (to $2.60) at time when farmers are receiving record earnings for livestock.
But, he hastens to add, Richmond has not arrived.
The 2001 after-tax profit of $20.7 million is wafer-thin profitability on $1.425 billion turnover, being less than one and half cents in the sales dollar.
Loughlin is on record as saying he wants three to four times that level, when perhaps share value above $4 could be justified with 50c-60c in dividends to follow, as against last year’s 10c.
The two large South Island cooperatives, PPCS and Alliance, perform better than Richmond on smaller turnovers and command greater farmer-supplier loyalty.
With what would be $50 million-plus investment in Richmond when its options to buy are fully actioned, PPCS is hardly going to be satisfied with $2 million annual dividend. It paid up to $3.65 for about 34 percent (currently) of Richmond shares after stock exchange listing last February, so is evidently targeting Loughlin’s magic $4.
In little over year PPCS can exercise the right to acquire the remainder of the Active Equities stake in Richmond and lift its ownership to 52.54 percent, so the southern company has great deal riding on Loughlin’s back during the current financial year (to September 30).
The uncompromising PPCS chief executive Stewart Barnett has now joined the Richmond board, along with proven corporate performers like Paul Collins and Bruce Hancox (ex-BIL), Jim McRae (Air New Zealand) and Warren Larsen (Dairy Board).
Chairman Sam Robinson and Waitotara founder Rod Pearce remain the only two farmer-directors in what was, until 1997, wholly farmer-owned, unlisted, under-valued and history-bound Hawke’s Bay regional meat company.
The heavyweight board will want to extract maximum value out of buoyant international meat trading situation, hoping that Loughlin and his team can shave the cents and make lucrative trading decisions while the sun shines.
Future growth will not come from procurement share increases, which may have driven growth in recent years. It will come from continuous improvements in operational efficiency and marketplace performance.
Loughlin says the future belongs to processors that can find new meat cuts and presentations to take them to new levels of profitability, for the customers, suppliers and shareholders. These must be branded and differentiated food products, he says, rather than commodity sales.
The Brian Richards-inspired re-imaging of Richmond is essential in the quest for added value for Richmond, says Loughlin.
It has been about unifying the fragmented and often adversarial supply chain and changing the thinking in the company’s business-to-business relationships.
“Essentially, employees and suppliers have to see themselves putting attractive meal propositions in front of someone on the other side of the world.”

Recent history
To measure just how far Richmond has come it is necessary to look back over the 1990s.
Richmond pottered along profitably for that decade following one of the big industry rationalisations that were feature of the 1980s. Richmond purchased Dawn Meat and Pacific Freezing and participated in the closure of Whakatu and the purchase of Takapau from Hawke’s Bay Farmers Meat Co, all during an eventful 1986.
Faced with two pivotal decisions in the early 1990s, Richmond declined to get involved with the divestment of Waitaki to Affco and Alliance and possible purchase of cash-strapped Weddel.
Loughlin says Richmond was wise “because it would have been buying the wrong set of assets and be headed for disaster”. These decisions were before his time at Richmond, which began in 1993 as finance manager for the company, after earlier periods as an investment banker and chartered accountant.
However, given the acquisitive nature of the times, those decisions could have condemned Richmond to regional backwater of the rapidly coagulating meat industry or, worse still, takeover target.
Richmond’s big chance came in an offer to sell out of beef and lamb processing by Hawke’s Bay neighbour Graeme Lowe, of Lowe Walker, also strongly positioned in Northland and Taranaki, where Richmond did not operate.
The $27-million purchase, completed in March 1998, quadrupled beef processing and focused Loughlin’s new Richmond team on making success of the large takeover, after opportunities for due diligence had been limited.
A subsequent rationalisation of beef facilities closed Lowe Walker Hastings, converted Te Kauwhata to deer and then closed Otaki early in 1999.
“It took out 17 percent of our beef fixed costs while maintaining throughput at Dargaville, Te Aroha, Hawera and Hastings,” says Loughlin.
“Our investment adviser said he had never seen such complementary fit of facilities, which gave Richmond the benefits of great synergies.”
A second round of lamb-processing facility rationalisation affected three plants in and around Napier/Hastings and one at Hawera while consolidating further processing in the $14-million new FoodTech plant on the Takapau site.
“Again, this took out 15 percent of lamb-processing costs for small slaughter capacity reduction coupled with large further-processing improvement,” says Loughlin.
Next up was the Waitotara Farmers Meat Company merger (in October 1999) which swapped money and shares for the lamb plants at Waitotara (northwest of Wanganui) and Tirau, southern Waikato.
It added million lambs year throughput, which Loughlin says is disappointing considering the size of Waitotara before the merger, but the focus of this move was to strengthen its geographical position and “bank the synergies”.
In paper called “Pursuing Food Company Vision through M&A” presented to the Institute of Directors seminar in Wellington on November 3, 2000, Loughlin commented that Waitotara brought $2 million in EBIT and $8 million in synergies.
Candidly, Richmond was exhausted by the time of the Waitotara assimilation and missed some opportunities and disaffected Waitotara farmer-suppliers decamped to other meat companies.
Likewise Richmond has not made all it could have from the purchase in July 1998 and subsequent development of the Gourmet Direct upmarket local supply business, now the flagship for Richmond in food service.
“We have built first-rate business more slowly than I would like,” he admits.
Expansion-fatigue may also be indicated in his assessment of Richmond’s size presently as adequate for all that the company needs to do.
Neither Loughlin nor, he believes, any members of the board set out deliberately to become the biggest meat

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