John Brakenridge | December 08, 2020 from GlobalHQ on Vimeo.
NZM shareholders adopted a new constitution at its annual meeting last month, removing the restrictions around share ownership to growers and employees.
Before the constitution change, the company was 11% management owned and 89% grower owned.
Formed in 1996, when merino growers established a brand and markets for their fibre as the Merino NZ industry-good organisation, NZM became a fully commercial company in 2001 when it was 65% owned by growers and 35% by PGG Wrightson, which sold its stake to growers in 2011.
The time had come to branch out, outgoing chair Ruth Richardson said in her annual report.
The company business model was constrained and its constitution was no longer fit for purpose.
There was no real liquidity in its shares and challenges loomed.
“We are determined to sustain our appetite for innovation, our reputation for ethical production and supply, and the commercial attraction for our contract systems,” Richardson said.
“Those ambitions rely on the company moving to a new level.”
Being fit for the future required the company shaping up to set its performance against three measures: people, profit, and the planet.
There was an equal challenge for shareholders to reshape the constitution so that its business purpose, its shareholding base and governance regime all combined to ensure the company could sustain its promise into the future, better capitalised with a wider shareholding base and proper liquidity.
The company listed on the Unlisted Securities Exchange (USX) last month and on November 18 opened a share equity and buyback offer.
NZM aims to raise $12.6m at $3.80 a share through a one-for-one non-renounceable Rights offer to existing shareholders, and an offer to new investors for shares not taken up in the Rights issue.
The Rights issue and shortfall offers close on December 2 with the strategic investment offer closing on December 17.
Unsold rights after the shortfall offer will, at the board’s discretion, be offered to new investors.
Of the $12.6m, $9.6m will go towards working capital and debt, funding growth initiatives and strengthening the balance sheet, so the company is better able to react to the market risks created by covid-19.
The remaining $3m will fund the share buyback offer to existing shareholders and cover offer costs.
NZM chief executive John Brakenridge says the positives in the capital raise are exciting.
When the capital raise was first mooted, covid-19 had just started to bite.
Management wanted to shore up the balance sheet, then saw an opportunity to expand the company with new shareholders and a new direction.
“It was an opportunity to align our shareholder base with our suppliers, to bring in fresh perspectives and provide renewed vigour,” Brakenridge said.
“We are very excited about some of the opportunities out there with the awareness of the environment lending to opportunities for natural fibre.
“As a business, we need to be in a position to pick up the opportunities and bring value back for our suppliers.
“With 80% of our fine wool in contracts, we see this as significant to keep momentum going, and an opportunity to grow further given the foundations we’ve built over many years of hard work.”
Close to 400 merino growers supply NZM, which has about 70% of NZ’s fine wool market share.
In 2016 NZM dipped into the strong wool market with its Wool Unleashed (W3) seven-year Primary Growth Partnership (PGP) partnership.
Five years into the $22m programme, jointly funded 50:50 with industry and the Government, it is yet to realise a tangible result in achieving the programme’s aim of delivering premiums for NZ’s strong wool sector from a steady 25-year decline, that has now hit rock bottom.
The PGP programme aims to deliver cumulative economic benefits for the NZ economy of up to $335m by 2025.
Brakenridge says it’s about connecting growers with consumers, developing new uses for strong wool, ensuring on-farm production practices align with consumer expectations and developing fit-for-market wool.
He is confident of success.
“It’s pretty energising at the moment in terms of what’s happening as we put more wind in the sails of 100% wool, build on the environment and regenerative platform and work alongside other food and fibre companies,” he said.
“We have got to get the narrative right in how we connect with conscious consumers and help shift volume in new innovative areas.”
The work of the new Strong Wool Action Group (SWAG) is expected to complement the W3 programme.
“We see SWAG as highly complementary in what it is doing in new and traditional markets,” he said.
“We are highly supportive of SWAG and will inform and provide confidence to SWAG’s recommendations.
“Somebody has to be out there getting industry wiring together, and we are doing that.”
