Thursday, October 8, 2009

Kathmandu No.1 but IPO should get the Bullet

It pains me to say this but the Kathmandu IPO (initial public offering) Juggernaut seems to have gained a massive head of steam since the media took the bait from the present owners of the company, Goldman Sachs JB Were's Hauraki Equity No 2 Fund and Australia's Quadrant Private Equity, who wish to rid themselves of it.

It reminds me of the frenzy of activity by owners of Burger Fuel Worldwide [BFW.NZ] in 2007 as they tried to push their IPO onto anyone that would listen to them and failed as the surface gloss of the brand vanished when people realised the numbers behind the IPO didn't stack up.

Many trees have died since in the writing of a number of Kathmandu IPO stories.

Here is another one.

The biggest Google search at present to hit the Share Investor Blog is for the term "Kathmandu IPO". Most of the traffic is coming from Australia, then New Zealand and then individuals in the United States.

The company makes and sells great outdoor gear but the health of the company is not good at present - lower sales, profit and very high debt levels. This is certainly not a recipe for long term investment success and is bound to end in tears for those blinded by the publicity machine rolled out by brokers and the usual suspects.

My biggest fear is that the owners media assault will manage to extract good money from those only too willing or ignorant enough to own a part of a recognised brand no matter how dubious the quality of the investment.

If you are interested, please think again and if you really do want to get a piece of the action buy Kathmandu shares on market when they have been given a chance to reach their true value based on fundamentals rather than on glossy IPO documents, and media/management spin.

And hey, lets be careful out there!


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Wednesday, October 7, 2009

Baby Sophia Stranded in Bangkok

3 News Video On Demand


Parents of surrogate born daughter battle to bring her home - Video

Little Sophia Anne is back home and well. Thank you to all those that supported us, you will always be in our thoughts.

After much stress and strain over the last 4 weeks Sophia is allowed to come home. Thank you to all those who commented, gave moral and practical help. We will be forever in your debt.

These buggers left it to the very last moment this Friday to make a decision which meant I had to rush across Auckland and Komla across Bangkok to put the finishing touches to it.

It was cruel, vile, petty, political, public and had Monty pythonesque moments when I thought we would continue with the same monotonous, dangerous, bureaucratic treadmill forever.

We pay these people to work for us but they work against us instead.

Not even a whisper of the word sorry was uttered.

Our country is truly in a mess when its citizens can be punished in this way.

I have really lost faith in our leaders over this and the other nonsense they are up to.


I haven't been able to write much lately about the usual financial topics because of my travels to Thailand and what I was doing there.

My wife and I are proud parents of a 2 and a half week old girl Sophia. Our first child. She was born using a surrogate.

The only problem is that my wife and child may be stuck in Bangkok because of bureaucracy at New Zealand Immigration and a couple of other government agencies.

What is supposed to be a time of joy has been turned into one of despair, loneliness anxiety and doubt as we have had to cope with dealing with New Zealand Immigration.

Instead of bonding with our girl we have been arguing with the state.

Sophia has a Thai passport and got it in less than 3 days. She is allowed to leave that country but NZ immigration will not give her a Visa to enter New Zealand.

I have done my best considering all the ambiguous, wrong information we have been given and have gone as far as the Immigration Minister, Jonathon Coleman but they have refused her entry.

We have done everything by the book but to no avail, we are stuck in a bureaucratic black hole where no law applies to our case and the minister will not rectify things by either using commonsense and setting a precedent for such cases by letting her in, or changing the law under urgency.

Our last port of call was the media, so if you want to see the detail of our case have a look at the Campbell Live video above, originally screened at 7.00pm Friday 28 to see my interview.

I would be grateful for any support with comments below, it just might help us.

There is something even more practical you can do to help us though. Email or phone your MP and ask them nicely to see sense. Tell your friends as well. You can find your local MP and their contact details here

All our love back at you all,

Darren & Komla


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Tuesday, October 6, 2009

Stock of the Week: NZ Refining Ltd

Chart forNew Zealand Refining Co Ltd (NZR.NZ)

The New Zealand Refining Ltd [NZR.NZ] company has had a tough-ish year -PDF docs available via download. Refining margins and oil prices have been down and there is some uncertainty over where prices are headed in the future but long term the company remains a good investment.

With a share price rolling between 52 week low of NZ$4.51 and high of $7.65 and a closing price of $4.86 today, there is a good opportunity for investors with some cash to get in on the cheap.

The company share price took a big hit back in August when it announced at its 2009 HY profit result it wasn't paying a dividend and its share price dropped over $2 in a week or so. It also halted production in September and announced that a loss was going to be a strong possibility in the second half of the year.

The dividend yield has previously been an outstanding one with well over 10% gross returns and one could expect a resumption to those once the second half is completed.

The bad news isn't going to last and I will be putting on my watchlist to see any further share price weakness.

Good Luck!


NZR @ Share Investor


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Monday, October 5, 2009

Share Investor Interview: Mainfreight's MD Don Braid

Mainfreight Ltd [MFT.NZ] is a fledgling player in the global logistics business with an expanding footprint in the United States, Asia and an established presence in Australasia.

It has found the last year or so tough going 1, 2 , as other logistics companies also have, but has managed to keep a lid on their business costs by paring back on capital expenditure, freezing employee pay-packets and bonuses and paying very close attention to the day to day running of the business.

The company has a had a good history of expansion and profitability since it was founded with one truck by Bruce Plested in 1978 and as Don Braid has been on board since 1994 the company has grown considerably in revenue and profitability, has been listed publicly since 1996 and has found a foothold in Asia and the United States.

But what of the next 12 months and longer?

How will the business go under his leadership, will it continue its historically excellent financial results or will it flounder like so many other New Zealand companies have as it expands in the United States.

What new ideas does he have to take this company through the $1 billion revenue barrier and beyond and establish Mainfreight as a truly global logistics company

With this in mind I submitted some questions to Don via email and he kindly offered to answer them.

The Q & A


-->
Share Investor - Like other New Zealand companies 2008-2009 has been a tough year for Mainfreight. What have you learnt from the economic downturn in terms of the company’s strengths and weaknesses and has that made Mainfreight a stronger company?

Don Braid - We found an element of complacency and a lack of urgency, or even acknowledgment of a recession, amongst our people despite our disciplines and culture, which identified a need to encourage tougher, faster decision making and to seek out opportunities.

SI - What are your thoughts on the recession and recent (apparent) recovery - if you want to call it that - and what effect that will have on the company's overall strategy in all the markets that you operate?

DB - We continue to manage the business week to week focusing on margin and cost. Our sales campaigns are very active as we look to increase sales growth at every opportunity, attracting new customers with exceptional quality. We don’t wish to waste any of the opportunities provided by the recession.

SI - Have you responded to the recession in an appropriate way by cutting costs and easing back on business expansion when other companies have used this time as an opportunity to expand their businesses because of cheaper assets and lower credit costs?

DB - We identified our areas of weakness, tightened cost controls including freezing salaries and bonuses, and focused on the opportunities available. We have treated acquisition opportunities with caution; distressed businesses are not necessarily good investments.

SI - How is Mainfreight currently doing in its various markets of operation and how well are profit margins holding up?

DB - We can do better in each market, and are working hard to further improve returns.

SI - What are the biggest commercial threats to your businesses in terms of competition and is your reaction to this competition likely to be aggressive or reactive in nature?

DB - We have always operated in a competitive market and enjoy being on the front foot.

SI - Any business has inherent risks. How do you manage those risks in the normal business operating environment that changes due to economic cycles and other outside and inside influences?

DB - Mainfreight’s culture of weekly profit and loss reporting, branch management responsibility and flat management structure assists us in managing risk. We scrutinise performance at every turn and maintain a strong discipline of cash management.

SI - The subsidy of Toll Holdings trucking business by the New Zealand taxpayer has reared its ugly head again recently. Can you do anything about that in your position and if so what?

DB -We will compete as we always have. We will continue to bring pressure to bear on the Government to ensure KiwiRail deals with the issue commercially. We are also of the opinion that the Government should appoint a commercially capable board rather than the current culture of political appointees.

SI - What are your biggest challenges as the company expands and do you prefer organic expansion rather than the purchase of companies to pursue revenue and profit growth?

DB - Organic growth is always the preference; acquisitions when and only if they fit the profile and requirements of the Group. Great people remain our most valuable resource.

SI - The issue of capital raising by other companies this year has been in the business news headlines. Why have you been able to avoid this to date and do you see the issue of capital raising being an issue for Mainfreight at a later stage should the economic downturn last longer?

DB - There has been no need to raise capital. Our debt to equity ratio is satisfactory and our relationship with our banks remains important to managing our debt facilities. These facilities have just been renewed for a further three years with improved covenants.

SI - Mainfreight pays a relatively low dividend compared to other NZX listed companies. Is that a conscious decision to keep more capital in the business for its day to day operation or are there other reasons for this?

DB - On listing in 1996 we stated that a dividend payment ratio of 40% to 50% of net profit is prudent, and allowed for further capital reinvestment. While at times we have exceeded this ratio we do wish to continue to re-invest in our business. Growth remains a high priority.

SI - What is your opinion on bonuses paid with stock options and other incentive pay and how do you feel about executives of other NZX listed companies receiving incentives even though pre-determined targets have not been met?

DB - We are not in a position to comment on remuneration in other listed companies. Ours continues to be reviewed to ensure we remain competitive and fair.

SI - Given enough time and expansion in the United States, where will be your main hubs and will you continue to build and own them given the huge capital expense they must be?

DB - The US remains an important part of our growth strategy and we are excited about the potential evident in this market. Capital investment will be evaluated and tailored to the returns available.

SI - The US market has been brutal to a couple of NZX listed companies, with Pumpkin Patch and Michael Hill recently losing lot of shareholder money by expanding there. How has your company planned to ameliorate any possible losses there as you expand and do you have an exit strategy if business there doesn’t look good or are you confident that in the long term the Mainfreight’s business there will be a strong one?

DB - We remain confident that our US operations will become significant contributors and a beachhead for our ongoing global development.

SI - How do you retain the wonderful family friendly Mainfreight culture that has been fostered over the years and is so central to the success of the company as it has moved from a smaller company to the one that it is now and how will you hold on to it as you grow into a larger business and into different markets and cultures?

DB - Our culture and style of doing business remains very important to us. Every day we work hard to maintain and develop this culture. The actions of our leadership team are key. The elimination and rejection of bureaucracy and hierarchical attitudes and actions at every step are paramount. Our people’s freedom to take responsibility, ownership and to contribute no matter their role is pivotal to our success.

SI - Along the lines of the question above, how much input does every worker at Mainfreight have into the business, is it like the culture at Toyota, commonly known as the “Toyota Way” where if anyone has a good idea that will improve productivity or the business in some way then they are credited for that input and rewarded in some way?

DB - As above.

SI - Who came up with those quotes on the back of all your vehicles and why?

DB - Many people contribute to the quotations, however Bruce Plested initiated the original concept. We hope the quotations make people think about what’s important in life. They also allow our owner drivers to express themselves through their chosen quotations.

SI - You and Bruce Plested are both very strong leaders and characters, how do you balance those strong personalities when you make company decisions?

DB - We enjoy a great deal of debate, we have respect for each other and a passion for the business. What is right for the business is key – the individual’s agenda is not a consideration.

SI- Who are some of your business mentors/heroes and why?

DB - Mainfreight’s Board of Directors remain key mentors and confidants.

SI - Who is your favourite New Zealand business leader/s and why?

DB - We have a lot of respect for many New Zealand business leaders; more so those business leaders who are forthright in their opinions, and who are energetic in growing their businesses and their people. Those who reject mediocrity and bureaucracy, and who are prepared to get off their backsides and develop their businesses around the world.

SI - In relation to the two questions above are there any particular books or periodicals that you have read that you would recommend to Share Investor readers?

DB - “Good to Great: Why Some Companies Make the Leap … and Others Don’t” – Jim Collins

SI - In my investing experience I have found the level of business leadership in New Zealand wanting – with a few very notable exceptions - when it comes to making good long-term decisions based on sound business skills, the basic understanding of running a business and accountability when it comes to making mistakes and this is often reflected in businesses hiring from an overseas talent pool. What are your views on how we can get better shareholder representation in the boardroom?

DB - New Zealand business needs leaders around the board table who have a passion for the business, are energetic and prepared to get involved, are commercial in their thinking and are not just appointed as part of “the club”. Political appointments have no place in New Zealand’s business future.

SI - Is there enough long-term thinking and planning when it comes to making decisions in the boardroom that affect New Zealand companies?

DB - Infrastructure planning in this country is woeful. Three-year political appointments don’t help. Entities would be better served by boards who spend less time on plans and budgets, focusing instead on strategic and competitive advantage to drive businesses (and the country) forward.

SI - I have recently become a dad for the first time and am now aware of higher demands on my time. I am sure the life of managing director at Mainfreight is very busy. How have the demands of Mainfreight impacted on your family and what skills as a dad have you used in your business life and where and how do you find the balance between home and work? Is it just good time management?

DB - A passion for life helps to keep things in perspective. Always ask a busy person if you want to get things done!

SI - What do you see as the strongest and weakest quality of your leadership style?

DB - Am not qualified enough to answer.

SI - Where do you see yourself and the business you help run over the next five years?

DB - Mainfreight will be a bigger and better business than it is today. We have some lofty goals to achieve and we remain an ambitious bunch!

SI - Thanks for your time Don.


Don Braid's Bio - Supplied by Mainfreight

Don Braid, Group Managing Director of Mainfreight Limited, was educated at Timaru
Boys’ High School and has over 30 years’ experience in freight forwarding and logistics both New Zealand and internationally. He joined Daily Freightways in 1978, gaining a thorough grounding in all aspects of the business and eventually heading up that company.

In 1994 Mainfreight purchased the business, and Don went on to hold various senior management roles at Mainfreight prior to his appointment as Managing Director in 2000.

Don has led the Mainfreight team through a significant period of change and expansion to become the successful global supply chain logistics provider it is today, with businesses operating in over 160 branches throughout New Zealand, Australia, Asia and the United
States.

His efforts were recently recognised when he was selected as the 2008 Deloitte/Management magazine Executive of the Year. Don is a member of the Board of the Starship Foundation.


Mainfreight History- Supplied By Mainfreight

Mainfreight was founded by Bruce Plested, joined later by Neil Graham in 1978 with a 1969 Bedford JI Truck and $2,700 in paid up capital. Mainfreight entered a highly regulated market which required all freight travelling over 150km to be moved on rail, and which was dominated by a virtual cartel of giant transport companies.

When deregulation occurred in 1985 Mainfreight were hardened from this market environment, and was evolving a deep culture and a vision of what we could achieve. Having formed Mainfreight International in 1984, Mainfreight established a beachhead in Australia in 1989, with an operation in Sydney, followed the next years by depots in Melbourne and Brisbane.

Investment in Australia was driven by a vision to let our customers treat New Zealand and Australia as one market, with Mainfreight's spread of branches and services, along with the best technology and people providing a bridge across the water. Mainfreight was publicly listed in June 1996 on the NZ Stock exchange (code MFT) and now has interests in the USA and Asia.

Disclosure: I own MFT shares in the Share Investor Portfolio

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c Share Investor 2009