Share Investor Q & A: Warehouse Group CEO Ian Morrice

The Warehouse Group Ltd [WHS.NZX] has had a tough last few years. Profit has been flattish and sales have remained relatively stagnant.

The Warehouse is a company with a long established history in New Zealand as the bargain retailer and it has been a great investment for long term shareholders over the past 16 years.

Over the last 5 years though the company has stalled in growth and now faces more serious competition from its rivals.

It has been headed by canny Scot, Ian Morrice for the last nearly six years and he has done well to manage the company through the debacle of The Warehouse Australia and a clean exit from that market and a subsequent recession, especially felt in the retail sector.

Attempts at growing the business by moving into the supermarket sector failed and this move prompted Foodstuffs and Woolworths Ltd [WOW.ASX] to each take 10% stakes in the company with a possible view for a full takeover by either thwarted by the Commerce Commission and numerous legal appeals, so far, as senior as the Court of Appeal and a possible move in the Supreme Court.

What do we know of Ian's plans for the "Red Sheds" and how he intends to take the company into the future though?

With these things in mind and many other questions in my head I submitted questions from myself and Share Investor readers to Ian via email.




The Q & A

Share Investor - Your 2010 full year result of $83.2 million after adjustments for accounting, depreciation changes and company tax rate was flatish, compared to the 2009 full year result. What contributed to these profit levels and in comparison to last year how do you feel the company has performed considering the overall economy?

Ian Morrice - Overall the adjusted profit result was solid given the trading conditions. We held our share of the Department Store Sector for the year in The Warehouse, and Warehouse Stationery had an excellent recovery of both sales and profit.

SI - The Warehouse has had a series of flat results over the last few years on stagnant revenue. Do you see an end to this anytime soon and if you do what steps are you taking as CEO to grow sales and profit in the future?

IM - Key elements of our growth plans are: Investment in our existing stores, adding new space and developing New Zealand’s best retail multi-channel offer. We have set out our organic growth plans for The Warehouse and Warehouse Stationery in the results presentation (available on our website). Flat results over the last few years reflect the resilience of our business in very challenging market conditions.

SI - Looking towards 2011 do you think you will be able to beat the 2010 result and if not why not?

IM - We are not giving any guidance on this until after Christmas and Back to School – March 2011.

SI - You maintained margins at around 7.4%, how did you do that while selling so much stock just to quit it from inventories?

IM - We continually work hard to manage margins and costs, whilst remaining price competitive.

SI - Do you expect higher sales levels for 2011 and will that be at the expense of margins or not?

IM - We are targeting higher sales, any impact on margins will depend on the trading environment over the next 12 months.

SI - CD and DVD sales were down markedly and they are likely to continue to drop in the coming years due to digital formats sold or obtained free from the internet. What is the company doing to fill the gap left from these sales from other retail categories. Could we see the warehouse partner up to sell digital music and movies online?

IM - We have been expanding space given to growth categories for some time, to offset this shortfall. We will offer downloading on-line when it is commercially viable to do so.

SI - What made you travel as far as you can go on the planet to head up The Warehouse when there must have been more opportunity in Great Britain and Europe?

IM - The Warehouse is a unique company which stands for something and genuinely makes a difference to the people of NZ – the chance to run a business like this is a great opportunity. Also it represented an opportunity for the whole family too.

SI - What are some of your business and management principles and what strategic planning method do you adhere to?

IM - Consistency, fairness and integrity; discourage politics and encourage development of people. Structured approach to continual strategic thinking, encompassing all common elements on modern strategic planning, including board participation.

SI - What are your medium to long-term growth plans (5-10 years) in terms of company size and revenue growth.

IM - Within NZ, organic growth of existing businesses to $1.9bn to $2.0bn in five years. Acquisitions remain a feature of our strategic thinking, both within NZ and Australia; depending on meeting our investment criteria.

SI - How is The Warehouse performing against competitors like Briscoe Group Ltd [BGR.NZX] Kmart and Farmers, are you winning the battle?

IM - The competitors mentioned we believe are in the department store sector of NZ Statisics and therefore we are more than holding our own in the last 12 months, based on our share of that sector.

SI - Brisoce Group, a direct competitor to The Warehouse in a number of retail sectors, has managed to grow same store sales over the last year, while the Warehouse has dropped its same store numbers. Why do you think that is the case?

IM - Some specialists have recovered sales lost over 2008 and 2009 when the drop in consumption hit them hard. The Warehouse has navigated the difficult conditions with resilience. BGR results are not unique and typical of specialists in the last 12 months, eg Warehouse Stationery.

SI - How are the all important margins tracking and how much emphasis are you placing on them given that Hallenstein Glasson Holdings Ltd [HLG.NZX] look to be doing better this year after a focus on margins rather than sales at any cost?

IM - Margins are always a vital component of the retail model, we always place emphasis on margins, relative to price/volume trade-off and inventory turns.

SI - What kind of profit margins are you achieving and can the company do better?

IM - Our operating margins compare favourably with either domestic or overseas retail groups.

Reader Question - Conventional wisdom suggests that the Warehouse grows sales/market share during harder economic times. However that does not appear to have occurred during the present recession, the worst in living memory. This has been reflected in a share price that has been flat for the last two years apart from one short-term spike. Does your analysis support this contention and if so, is the company confident that appropriate measures are in place to improve prospects in the medium term?

IM - This recession was not like the last one. Consumers stopped consumption to a significant degree in this recession, rather than the trade-down evident in the last one. This comment relates particularly to non-food items which are discretionary. Our sales and profits have been very resilient through this period compared to other retail groups. This has enabled us to fulfill our promise of increased returns to shareholders through this time.

SI - Ryman Healthcare Ltd [RYM.NZX] has recently announced a move into the Australian market while Telecom NZ [TEL.NZX] is selling up their Australian assets. Do you you see the possibility of The Warehouse going back to that market given the right opportunity and a more appropriate execution of an expansion there?

IM - We would consider it but not through taking the Red Sheds model to Australia.

SI - What mistakes were made when the company entered the Australian market in 2000 and how would you do things differently if you entered that market?

IM - Any future move into Australia would fully consider the competitive environment and the availability of the appropriate footprint in the right locations.

SI -Your decision to enter the grocery sector to compete with supermarkets that in a spin-off led to Woolworths and Foodstuffs both taking 10% stakes in the company. Did you give that enough time to succeed?

IM - We trialed our move into the grocery sector in a contained way and fully tested the economic model of a supercentre format. We believe that we had all the information needed to make our decision.

SI - Do you see either company making a full takeover offer anytime soon ?

IM - That’s really a question for those parties you mention.

SI - There are currently 87 "red sheds" in New Zealand. How much more retail space do you think the company could open in terms of stores or square metres of space?

IM - Around 30,000 square metres over the next five years.

SI - The "Metro" stores that you have thus far opened. How are they doing so far?

IM - We now have three small stores opened; Mosgiel, St Lukes and Rolleston. We are pleased with how they are performing overall.

SI - Is the push into online sales for the Warehouse going to plan and when will it start to make a profit?

IM - Yes – it is bang on plan for Year 1. We anticipate breakeven at Year 4 but cashflow positive already given it drives on-line shoppers into stores.

SI - Like most people, I like to buy brands. Why don't you carry a wide range of brands seen in your competitors stores; Nike, Sony LCD & Plasma TVs, Levis, Speedo, Bendon, etc, etc and wouldn't that get more people through the shop door?

IM - Whilst we don’t stock the brands you mention, we do stock a very wide range (and a large number) of brands. We are introducing new brands each year where our growth objectives are complementary with the brand owner. Examples very recently are: Arcosteel, Mayfair & Jackson, Bisley, Diamondback, Phillips, TomTom, Everlast, Dunlop, Mambo and Havianas …..

SI - I am often disappointed by the levels of service offered to myself, my friends and associates and think sometimes it is so low because New Zealand consumers have low expectations and don't complain. How well do you think your staff represent the company in terms of service levels to customers so customers remain loyal and keep coming back for more over the long term?

IM - Our service does vary across the country and at different times of the week – consistency is the challenge although many of our stores are very good and really know their local customers. We measure customer service in every store, every two weeks, and act on the results.

SI - Does the company have a mystery shopper program and if it does what has it revealed about service levels to the customer?

IM - See previous answer.

SI - I have seen you a few times in a couple of Warehouse stores. Are these types of visits a regular thing for you and what do you learn in this way that you can’t from looking at regular sales figures and stats when sitting in your office?


IM - I can’t believe you are asking me that question Darren!! (I thought it was a fair question)

SI - The Warehouse used to been recognised as the place to go first to get the best price for just about anything. How has your competition been able to now meet or beat your price offerings?


IM - We are still the clear price leader overall in non-food. Scale competitors from Australia have low cost sourcing that enables them to be more competitive, however our footprint and operating costs remain the lowest relative cost in the New Zealand market.

SI - Is the overall retail sector saturated in terms of retail offerings or is the recession the main reason for the large number of retail failures and the slowdown over the last 2 or 3 years?

IM – Recession tends to flush out inefficient businesses in all sectors.


SI - On your higher dividends last year, you paid a special cash dividend of $0.15 on top of the full year payout of about $0.30 this year. Can investors expect a higher dividend come the September full year announcement if you can't really find any opportunities to use your cashflow for any other use currently?

IM - We have paid two special dividends this year and moved from 75% to 90% payout ratio. This is all consistent with us delivering on our promise to our shareholders over the last few years; superior yield.

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 good shareholder representation in the boardroom?

IM - Diverse and appropriate talent in the boardroom should always be the primary objective. Listed company directors have an obligation to act in the best interest of shareholders.

SI - What company or companies do you admire the most (apart from WHS) that you don't have a financial interest in and why?

IM - I admire Air New Zealand – good product, service innovations, and very good performance in a difficult sector globally.

SI - I have read Benjamin Graham's Security Analysis and find it crucial to long-term investing not just in the stockmarket but for investing in general. Have you read it and if you have what have you taken from it as its main points?

IM - I have made a note to get a copy and take a look!

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

IM - I have been fortunate to work alongside some great leaders and business people over the past 30 years. I have tried to learn something from each of them.

SI - What was your first job ?

IM - I was a trainee chef (for about three months prior to starting on the retail shop floor).

SI - What excites you about retailing in general and the Warehouse specifically?


IM - The fast-moving pace of change, immediacy of results and the career opportunities for young people entering our industry. I am excited about The Warehouse because we continue to make a real difference to the people and the economy in New Zealand through what we do.

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

IM - I regard my strengths as integrity, approachability, passion and determination. Also being across the detail can be both a great strength and a weakness in retail.

SI - What has been your main achievement or achievements at The Warehouse over the last six years as CEO ?

IM - In financial terms: NPAT growth + 40%, debt reduced from over $300m to under $100m whilst returning over $500m to shareholders. I am also pleased to have enhanced our strong brand reputation - 90% of the population still shop with us every year. I am proud of the many leaders who have developed their careers in the business over this time - our talent retention levels are over 90%. We have improved and modernised every aspect of the business over the past six years from source to shelf and transformed our supply chain internationally and domestically enabling significant cost reduction.

We have built significant sourcing scale in China and put in place a comprehensive ethical sourcing programme. We continue to significantly reduce our impact on the environment and support our communities, raising over $2m annually.

We have established credibility in apparel and soft goods categories against significant new competition and I also believe that we have withstood the onslaught of new competitive retail space pretty well, given our very high market share position.

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

IM - Re-starting organic growth through new stores and multi-channel is exciting and will pave the way for continued strong returns. Significant investment in our business will ensure that we remain New Zealand’s leading retail group in our sector in both market share and profitability.


Q & A End.


About Ian Morrice - Supplied by The Warehouse

Group Chief Executive and Managing Director - The Warehouse Group Limited

Appointed on 1 October 2004.

Previous roles were Managing Director Commercial and Managing Director B&Q Warehouse, for United Kingdom based B&Q Plc, the number one DIY retailer in Europe.

Ian was with Kingfisher plc for nine years and prior to that with Dixons Group, Europe’s largest electrical retailer, for 15 years.

Originally from Scotland, Ian has been in retailing since age 17. He has an MBA from the respected Cranfield University School of Management in the UK.

About The Warehouse Group - Supplied by The Warehouse Group

From small beginnings in Wairau Road in 1982, Sir Stephen Tindall’s amazing entrepreneurial ability combined with his team’s commitment to “give anything a go” shows you indeed that “nothing is impossible”.

In 1982 New Zealand was quite a different country; imports of many products were restricted so consumers didn’t have much choice and the products that were available were often expensive. The government had imposed a wage and price freeze and getting a housing loan required a savings record for 3 years before you were able to borrow at 18% interest and more! Shopping in New Zealand meant going to stores like George Courts and Haywrights; big established stores in towns and cities. Stephen and his team took a different approach; The Warehouse was located in the suburbs, with basic sheds, bins and racks and concrete floors. The Warehouse sold things never seen before in NZ such as banana loungers, rattan blinds and soccer ball radios, in fact the first Warehouse stores were filled with things that other companies couldn’t sell! When sales took off Stephen and his team went looking for suppliers and goods from around the world that could provide real bargains for Kiwi shoppers. With a relentless focus on keeping costs down and reinvesting profits to ensure prices were low the company culture began to develop in a unique (and successful) manner.

The other way in which The Warehouse was different to its competitors related to the people who worked for it – from the very beginning they mattered. There were Friday night barbeques, monthly team meetings and a chance to socialize afterwards, the famous red t-shirts worn by all staff including managers made it clear that everyone was working together as one team. Even today the legendary Birthday Day Off and annual company Conference with partners are important cornerstones of The Warehouse’s approach to its people.

An appetite for growth and a desire to see every New Zealander offered the opportunity to “enjoy a bargain” has seen The Warehouse grown from just 2 stores at the end of 1982 to 85 stores today. At no stage has the company sat on its laurels and so today it continues to strive for achievement; most recently shown by the entry into grocery, fresh food and pharmacy through The Warehouse Extra.

Timeline:

1982: First store opened in Takapuna, Auckland.
1990: First nationally distributed advertising mailer.
1991: Sales exceed $100 million.
1991: First Warehouse Stationery store opened
1992: Opening of first store of 25,000 square feet (2,322m2)
1992: Public float and listing on the New Zealand Stock Exchange
1992: Launching of The Warehouse card
1992: Opening of first store of 50,000 square feet (4,645m2)
1995: The Warehouse added to NZSE40 Index
1995: Introduction of green gardening department
1996: Opening of North Island Distribution Centre
1996: Introduction of the major AEG brand
1997: Introduction of the first store of 75,000 square feet (6,967m2)
1998: Introduction of apparel as a major department
1998: First shipment of parallel imported goods
2000: The Warehouse added to the NZSE10 index
2000: Sales exceed $1 billion
2000: Opening of the first store of 100,000 square feet (9,290m2)
2001: The Warehouse Financial Services launched
2001: First Triple Bottom Line Report produced
2002: The Warehouse celebrates its 20^th Birthday
2007: Opening of The Warehouse Extra
2007: The Warehouse celebrates 25 years and still going strong

Disclosure: I own WHS shares in the Share Investor Portfolio

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Discuss WHS @ Share Investor Forum - Register free
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Share Investor Q & A: Put Questions to Briscoe Group CEO Rod Duke

I have just submitted a lengthy Share Investor Q & A to The Warehouse Group Ltd [WHS.NZX] CEO Ian Morrice and it should be published in a few weeks. (please note the WHS Q & A will be embargoed until the 2010 full year profit announcement on around 10 -15 Sept)

The thing that was missing unfortunately were some questions from my readers. Only two were submitted. It cant be for lack of readers because this blog is heading for record numbers for August.

So come on you lazy lot, you have a chance to redeem yourselves by submitting your questions to me for an upcoming Share Investor Q & A with the CEO of Briscoe Group Ltd [BGR.NZX] Rod Duke.

Briscoe Group hasn't been immune from the current recession and its impact on the overall retail sector but it has fared better than most. With no debt and healthy cash reserves in the bank, the company, while not setting the stockmarket on fire since its listing earlier this decade, has been around for decades and Duke has managed it well since he founded it.

Intensely private, he tends to let his company results talk for him, I approached the company and asked he would be interested in participating in a Q & A.

He kindly said yes.

Find more out about the man, his company, his opinions on business and retailing and where specifically Briscoe Group might be heading.

To submit a question either email me here or leave your question at the bottom of this post here.


Disc I own BGR shares in the Share Investor Portfolio



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Share Investor Q & A: Ecoya's Geoff Ross

Ecoya Ltd [ECO.NZ] was listed on the NZX on May 3 of this year after an IPO and prospectus that kicked off in November 2009.

Its 2010 full year results, a loss of NZ$2.35 million, is on track according to management and sales are going according to plan.

The company has stated that it doesn't expect profit for at least the next 3 years.

Ecoya will be heavy on marketing and image and expect these two elements to help them establish a strong brand and hopefully sales and profit will eventuate.

I am naturally skeptical of a company that isn't making money from the get go and wanted to know more.

I didn't have to go looking for a contact as a mistake that I made with some figures from the 2010 result analysis got Ecoya's PR person onto me and I hooked up this Q & A with Geoff as a result.

The Q & A was conducted via email while Geoff was in North America on a sales trip for ECO and I want to thank him for taking the time to do this while he was busy with his business.



The Q & A

Share Investor - What was the primary reason you decided to buy into Ecoya and why list on the NZX when the money raised was only comparatively small and could have been found privately?

Geoff Ross - We choose to invest in Ecoya for many reasons. We saw a growth category, an ability to scale up relatively easily, a global opportunity, high margin, and a business that fitted with our skill set in high end consumer brands. Also the CEO of the business was a person we had worked with before and we rated highly. He had created a good product and got the business off to a good start.

We chose to list on the NZX because even though a small raise as it provided a good structure for our capital requirements – a fair valuation and the warrants to raise further capital as our business grows. Being a listed company also gives a credibility when operating in international markets. You are taken with a degree of seriousness when dealing with large clients such as department stores and also your key suppliers.

SI - You seem to be satisfied by the 2010 full year profit out earlier this month, is it fair to make any comparisons, good or bad, with previous years given the youth of the company and the rapid growth of Ecoya from a very small base?

GR - I think it is very important to make comparisons with previous years, even when young. Our goal is to double the size of the business each year. That is the trajectory we want to show in a high growth business such as this and that is what we want to report to our shareholders.

S I - How well did you think the Ecoya IPO was received by investors and the market in general?

GR - I would say OK. Previous shareholders of 42 Below had a good experience with us and were positive toward Ecoya because of our prior relationship. Investors outside this group are still pretty cautious at present. I would say that we got a better response from Institutions than I thought. And a weaker response from retail than I thought we would get. I would say this year is a very tough one for IPO’s. We got ours away, but I would suspect that further IPO’s, if any, will be slim on the ground this year.

SI - How was the value of the company arrived at, at just under $45 million it seems high given the company has yet to turn a profit and has sales of just over NZ$ 4 million?

GR - We did a huge amount of work on this. Our Investment Banking partners – Cameron and Partners were involved and we created various models. We have internal forecasts out 10 years. These were used in our valuations. We also looked at like valuations in this category – a useful one is a company called L’Occitane which just listed in Hong Kong. Typically valuations in this category are multiplies of Revenue. In our view we believe the value is fair for a growth proposition.

Growth Stories are relatively unusual in this market. A company such as Xero Ltd [XRO.NZ] listed with virtually no revenue. Rather the value is set on the combined prospect of the strategy, the opportunity and the ability of the the management to execute with the capital they now have. A growth company cannot be valued in the same way as say an old established Telco with limited growth prospects.

SI - Do you think the company has raised enough cash to allow it to pursue its stated aims and will it need more, apart from the exercising of the 2 warrant tranches, as the company develops?

GR - Yes.

SI - Why were pro-forma financial results used in the Ecoya Prospectus instead of the actual results, isn’t that misleading investors?

GR - By law you have to put in financial statements through to the end of the financial year you are in (Pro-forma statements) and then prospective numbers for a complete year following this. Which is what we did. We registered our prospectus a little before the end of our financial year – so that remaining period legally required prospective statements (which I understand you are calling pro-forma in this case)

SI - You built up 42 Below and sold it within a very short time-frame before any profits were realized. Is it going to be the same scenario with Ecoya and if not how will it be different?

GR - We will also grow Ecoya very quickly. We have a strategy which is about building the size of our revenue generating asset. In the years ahead we may simply ease off the growth pedal and allow the business to start generating a profit. At 42 Below we had several countries running profitably. However rather than easing off on the growth and allow the company to show a profit we continued with an aggressive growth plan and invest into new markets. If offers are presented, we will entertain them.

SI - The sector in which Ecoya operates is highly competitive, with quite a number of established players, what makes you confident that you can play them at their own game or, as you have stated in the Prospectus, that they would be interested in purchasing Ecoya sometime down the track?

GR - The challenge will not be play them at their own game – rather take a different approach. The battlefields really are brand and sales. We need to build a better looking brand, a better performing brand and a brand with a more compelling consumer story. And in sales we need to be better at it than the rest. We use our own people rather than reps or agencies. We think having your own people accountable to daily targets is a stronger way to build presence than leaving your sales in the hands of another group.

SI - What key elements will allow Ecoya to make inroads on its competition?

GR - Brand design is critical – we need to look great on the shelf and then in peoples living rooms and bathe rooms. Our environmental story is strong – using sustainable soy wax is also strong (most other candles are paraffin based – and lighting a paraffin candle in your living room is like starting a car in your living room) . We will also be doing a lot of the PR and marketing techniques that got 42 Below noticed.

SI - What are you doing to contain costs considering the current economic environment and the focus by other businesses on this important factor or is that not possible given the growth path factored into the company?

GR - It is absolutely important and is of course possible to contain costs. We run a very strong back office. We have an on line system that runs from a cellular hand held in our sales peoples hand through to head office, management accounting and then through to the orders of raw materials. This system allows us to look at any moment what is being sold, what the margin is and what our results are showing at that point. Everything is tracked by the minute.

SI - How has the introduction into the North American market been received and which retailers are selling your range?

GR - I have just come back from the US where I was selling up there. It is very early days, however I would have to say it has been received very well. It is a competitive market with out doubt – however the brand was received very well and the great thing about the US is that it is that much bigger. On my first call the Store (25 Park) agreed to take the brand on and we filled out the order form. The store owner then said – oh we have three more stores, can you replicate the same order for each store. The US has that much more scale to it.

SI - The global body and bath market is estimated in the ECO Prospectus at around US$22 billion. How much of a market share of that revenue do you expect to be selling within the next 5 years?

GR - We haven't released that to the market. I would say that we are not going for a share of the global market – rather a share of some specific markets. These being Australasia (where we aim to be have a significant share within the next 5 years), The US, and parts of Europe. Australia is currently our biggest market and will be for some time as we utilize the ‘home ground’ advantage.

SI - When is the company expected to turn a profit?

GR - Again this timing hasn’t been released to the market. We can say that the company will be investing in growth and that our current plans do take the company into profit. However this date is outside the years prospective financial statements and therefore has not been released.

SI - Marketing seems to be your area of expertise and you have used it to achieve some good results from companies that you have been previously involved with. How much will good marketing play in the growth of Ecoya and is it great word of mouth from current customers who will do most of the marketing for you?

GR - Marketing is vital. And word of mouth a big part of it. However our challenge is to make sure our customers want to talk about the brand to their friends – and their friends want to talk about it when they see it in peoples homes.

SI - Why are you lending shareholder money to directors to buy shares in Ecoya and isn’t there a more appropriate way to incentivize management to do better?

GR - We don’t have big director fees. In fact I would guess that we pay our directors less than any other listed company. In stead we want our directors interests aligned with shareholders – so that means shares. And we want to do this in a way that makes it attractive for very senior people to join our board. To get people of the calibre of Rob Fyfe from Air New Zealand Ltd [AIR.NZ], or Rich Frank, ex head of Disney, you simple can't offer them a small directors fee alone. We looked at ways of rewarding them with shares (rather than big directors fees) and the best solution seemed via a loan to them to purchase those shares. It is a meaningful way to reward directors and it does so with a currency that is the same as all shareholders.

SI - There is a considerable sum of money flowing from Ecoya to related parties for consultancy work and management fees on an ongoing basis. Is that practical given the relatively small capital base that was raised in the IPO?

GR - Yes there are two consultancy fees. One covers myself as Executive Chairman, Stephen Sinclair as CFO and Grant Bakers involvement. We are all on the board and we are all active in management. Currently Ecoya is 100 % of my time. This fee covers all our time and all our directors fees for all three of us. I consider this a nominal fee for three people who are both active in the business and on the board. The other consultancy fee covers our CEO – all of his time and his role on the board. Again it would make him one of the lowest paid CEO’s on a listed company. All of us are there to grow the value of the business and shareholdings, not by pulling big fees. So this is why there are consultancy fees – it covers senior management who aren't being paid by any other means.

SI - Is Ecoya capable of footing it with the big boys, especially as the company gains some sort of scale in terms of customer base and revenue size?

GR - Absolutely. We have paid a lot of attention to our systems and built a platform we can now grow from. You need this in place before embarking on a high growth strategy.

SI - What are your biggest challenges as the company expands?

GR - The challenges will be typical to those in any high growth business. When you double the size of your business each year you need to continually make sure you have the right organizational structure, you are re negotiating contracts to get the benefit of scale, you are watching stock control to make sure you don’t run out and you keep up with demand and you keep listening to your customers.

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

GR - This is a huge question and could take pages. In short - I think this is part of the role of our board. We have monthly meetings where our results are tracked. We are continually reviewing our FX policy, our financial position VS plan, our product offering VS key competitors, performance of sales people etc.

SI - How much, if at all, has the founding and growing of 42 Below influenced your approach to Ecoya, how it operates currently and how it will operate in the future?

GR - It has been a huge influence. There are a lot of similarities between high end spirits and high end home fragrance and bath products. We learnt a lot at 42 Below. We want to use all those learning's going forward.

SI - Do you still have any financial interest in 42 Below?

GR - No.

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

GR - I think Rob Fyfe at Air New Zealand has done a great job. You can feel and see the improvements in that company, to have done this in a company the size of Air New Zealand and done it so quickly is very impressive – they have now been named best Airline in the world. I think Richard Branson because the Virgin brand always feels fresh and young despite now having been round for a while and being a very large organization. I think John Key is doing a pretty good job (mostly) of running New Zealand as a company.

SI - What company or companies do you admire the most (apart from Ecoya)that you don't have a financial interest in and why?

GR - Wow – heaps. From Apple and Stationary company Smiggle for great use of design. To local success stories like Les Mills, Ice Breaker, and Eco Store.

SI - Are there any particular books , periodicals or websites that you have read that you would recommend to Share Investor readers in terms of business and investing?

GR - I like Wired and Fast Company magazine out of the US. Both usually at the front end of new business and especially at the front end of technology. I also like magazines like Vanity Fair or fashion magazines like Nylon as you keep abreast of popular culture and get a sense for where the next consumer trends are coming from. I like reading stuff that keeps me in touch with what is happening in popular culture and what will therefore drive the next consumer trends.

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 good shareholder representation in the boardroom?

GR - I think companies are putting the wrong people on their boards. The two most important qualities in a board I believe are:

• Have people on them who have actually built and run companies. At 42 Below all our board members had built or run their own company. The same is true at Ecoya. Too many boards have people who have never run a company – they are lawyers, accountants or management consultants. These people may have great skill sets, but they should not dominate a board. When this happens then only a narrow set of skills are being deployed at the board. No one is on there who is hungry for growth – rather they are on the board simply as a watch captain, not a driver.
  

• Have board members who are comfortable challenging each other. A piece of advice I got from Mark Weldon was “Don’t build a board where everyone is the same and therefore likely to have the same opinion – you and the other board members need to be challenged” Too many boards I have seen have career board people and all cut from the same cloth. I can’t imagine there is a great deal of debate going on at their meetings.
  

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

GR - Strongest – I hope I am a good listener. Weakest – give people a bit much rope.

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

GR - Ecoya to be the most respected brand in Home Fragrance, Body and Bath. Globally.

SI - Thanks for your time.


Geoff Ross Bio - From various sources

Geoff Ross has an advertising background and started with Saatchi & Saatchi back in the early 1990s. He most famously developed and grew and listed vodka maker/distributor, 42 Below , and sold it to Bacardi in 2006 for NZ$ 138 million.

Along with his wife Justine Troy he tells the Story of 42 Below in the book out this year, Every Bastard Says No - The 42 Below Story.

Geoff bought into Ecoya in 2008 and is currently helping run The Bakery, a platform from which Geoff and others are helping fund high growth business start-ups.

The Bakery has helped underwrite the Ecoya business.


About Ecoya -From 2010 Prospectus

The business operated by Ecoya was established in April 2004. It has experienced strong growth since the 42 Below founders invested in February 2008. During this time a skilled management team has been assembled, along with a platform for continued growth.

Ecoya manufactures and sells a broad range of body & bath and home fragrance products.

Ecoya uses natural ingredients to create environmentally friendly products that perform for the consumer (e.g. soaps, hand & body lotions and hand wash) and their home (e.g. scented candles and diffusers).

Worldwide, many consumer groups are becoming more house proud, paying more attention to their home style and also entertaining more at home. The Ecoya brand, packaging and merchandising will utilise a strong sense of design and aesthetic, which is an important part of meeting the needs of this developing consumer characteristic.

The term that Ecoya uses for a brand with an environmental platform that contains strong design with luxury elements is “Eco Luxe”. Ecoya expects Eco Luxe will be a growing segment within its home fragrance and body & bath categories.

Ecoya is also proud of its origins in Australasia and the Board believes that this provenance adds to the brand story as Ecoya expands into the Northern Hemisphere, as Australasia is perceived as a fresh and ‘New World’ region for fragrances and body & bath care.

Ecoya plans to maximise its international market opportunity. It is already selling its products across Australia and New Zealand in selected gift stores, home stores and department stores (such as David Jones’ 37 stores in Australia and Ballantynes in New Zealand) and in Nuance Group Duty Free in Australia.

Sales are being made in Shanghai (China) and Ecoya currently expects to have its first sales in the USA in May 2010.


Ecoya Ltd @ Share Investor

Share Investor Q & A: Questions for Ecoya's Geoff Ross
Ecoya 2010 Full Year Profit: More of the same to come?
Ecoya IPO lights only one end of the candle
Ecoya IPO: A Closer Look
Ecoya Prospectus Requires free registration
Ecoya.co.nz

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