Tatua's secrets of success

ADDING VALUE: Tatua's success was a combination of factors that enabled it to take advantage of opportunities and manage risk,  chief executive Paul McGilvary says.
ADDING VALUE: Tatua's success was a combination of factors that enabled it to take advantage of opportunities and manage risk, chief executive Paul McGilvary says.

There is no silver bullet for Tatua's success and longevity.

It was a combination of factors that allowed opportunities to be grasped and risks to be managed over a long time, the Waikato dairy co-operative's chief executive Paul McGilvary said.

McGilvary was a guest speaker at Federated Farmers dairy executive's annual meeting at the farmer group's annual conference in Palmerston North.

Tatua's name derived from the Maori word for a woven flax belt, which was used to carry weapons and tools.

"The tatua is a powerful symbol of why we exist," he said.

"From our name we derive our reason for being.

"To sustain and better the lives of our stakeholders and to protect our environment over time."

The power of the company's strategy came from its simplicity, which was to grow Tatua's earnings premium over the New Zealand milk price, make its business more sustainable, have a team that had a common purpose, vision and values and attract, develop and retain great people.

"Everything we do at Tatua is directed towards implementing these four themes," McGilvary said.

The company had developed constitutional arrangements that supported its drive into more specialised added value products.

In addition to holding a nominal $2.50 share a kilogram of milksolids supplied, each Tatua supplier must also hold, in addition, a milk supply entitlement for each kilogram of milksolids supplied.

To supply Tatua, a supplier needs to hold the necessary number of shares and MSEs, he said.

"MSEs are like a fishing quota. They are issued free of charge to suppliers based on shareholding, but once issued can be sold and leased among the supplier base."

MSEs were issued up to the processing capacity of Tatua's factory just out of Morrinsville. That ensured it only received the amount of milk that could be processed at the existing plant and meant it was not forced to build new plants to produce the same products from an ever growing milk supply.

The focus could then be on its investments on new plants and processes, which increased the value derived from the existing milk.

"The fact that we don't have a continuously increasing milk supply means management is forced to focus on adding value to our existing milk," he said. "Further reinforcing this are targets and performance incentives related to achieving this."

The co-operative had long ago realised it was never going to be able to compete on a per unit cost of production.

"We don't have the scale of the bigger processors to do this. We are, however, very effective at competing on margin through targeting niche products. Despite not having overall scale, we focus hard on being a big player in the niches we operate in and that's important."

Its size meant it had to maintain strong balance sheets.

The company has a relatively modest gearing of about 30 per cent.

"A strong balance sheet means we can deal with shocks more easily. Things like food safety scares, gas outages or market closure are all more easily handled with a strong balance sheet."

The company, which celebrated 100 years since its incorporation as a co- operative last week, has just invested in the biggest added value project in its history and its gearing will rise to accommodate this, he said.

"It will also fall quite quickly once the plant is operating. In this way we can progressively spend to grow our earnings while keeping our balance sheet strong."

Its strong balance sheet allowed it to be a strong seller.

"We have the financial capacity to time the sale of our products better than more highly geared companies and this is worth money to us year on year."

McGilvary said that Tatua's only weakness as a co-operative compared with a limited liability company was its limited ability to raise capital, which had to firstly come from the shareholders via retentions.

As long as the co-operative was competitive with its payments to its members, then retentions and borrowing on the basis of those retentions could provide a stable and reliable platform for growth.

Co-operatives were about co-operation between customers, staff, shareholders, vendors, and other industry participants.

"We work very hard on retaining positive and constructive working relationships everywhere. We are known to be easy to work with and that is a key strategic advantage.

"To our mind, the secret - if it is a secret - to co-operation is regular and full, even obsessive communication. We focus a lot on communication at Tatua."

McGilvary said Tatua could not have survived 100 years without being innovative.

"It's an approach which allows failure as long as we learn from that failure. In our 100 year book there are many stories about Tatua innovations."

Innovations, such as Tatua's dairy whip product did not happen quickly and there were many failures along the way. There needed to be a willingness to take calculated risks, which often could not work the first time.

"Our history is a bit like that. We have tended to persevere with things for quite long periods of time to make them a success."

Tatua has also needed luck to have survived and prospered for a century.

Key to that survival was its people and galvanising all their energy and talents to achieve then better Tatua's targets.

Waikato Times