Otakanini Topu Year End 2017

Firstly I would like to thank, all of you who voted for me last year, given there were a few candidates

who stood, I was certainly surprised at the time to have made the cut.

For myself personally I would describe this year as a year of endurance. A year of disappointments’

and a year of failed expectations.

What has been very apparent to me whilst residing on your committee, is the lack of farming

knowledge and the lack of interest shown in our main core farming business as it appears we discuss

everything else but and leave the farming operations solely in the hands of the manager.

Jeffrey Bradley, Manager of Whenuanui Farm is standing for the committee today of whom I fully

support. I believe we are in desperate need of farming intelligence, and experience in farming

excellence to sit at your table. The long term benefits to you the shareholders is acquiring local

expertise on the board which in return I would expect to save on unnecessary expenses and ensure

further spending is directed into the right areas’, and will help in the endeavour to promote good

farming practices and help to boost your profits.

The 2017 Annual Report reflects a positive outlook and in my opinion is in stark contrast to reality.

As a new member to this Committee , and as a novice to Committee Management and Governance I

expected the role to expand my horizons with the assistance and guidance from long standing ,

experienced members. In turn I hoped to offer any knowledge I could provide that would be

beneficial and of assistance in our farming operations. And of course as a farm girl myself I looked

forward to and was excited about becoming a part of the team.

From the outset the tone of how this Committee operates was set;

Never a welcome, never an induction and to date no information has been supplied to myself on our

policies, governing guidelines nor our sustainable farm plan from which we operate. All requests to

management and the chair to review current contracts from which the topu currently operate –

denied by simply not supplying this information.

It appears the running of this farm is kept within a tight bunch, and there appears to be a reluctance

to share information of which as committee members we are all entitled to view.

The Audit that was conducted last year by the MLC provided recommendations on our processes.

These recommendations throughout the year and to date have not been adhered too. Minutes, and

the distribution of correspondence and documentation pertaining to the running of this farm in a

timely and efficient manner –disgraceful - and a fine example of that is your 2016 AGM minutes.

I was asked the question by a shareholder early on this year as to “who oversee’s management

performance”.

This has been a question that has remained in my mind throughout the year as Management

performance appears to be the common denominator and at the heart of all disagreements with

current committee members, resigned committee members and recently moved on committee

members.

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I was informed by members of this current committee that we were to accept all advice from the

operations manager as expert advice.

My question, is what if the advice we receive from the operational manager is not accurate. What

policies do we the committee have in place to protect ourselves from poor decision making, who

independently advices us the committee on management performance? What safe procedures do

we have in place for the wider staff if they wished to independently and confidentially voice their

opinions or concerns? The answer is we have no structured policies in place that I have seen, and

we have no one who measures operational management performance. There is no incentive or

protective avenues in place for our staff to follow of which is independent or separate from

management.

Advisory consultants are employed, as you will see in the financial accounts this year $20 thousand

dollars’ worth , they are handpicked by management and support management throughout the year

and are also partially subsidised by the Federation of Maori Authorities of which we pay $5k a year

subscription to. On this advisory board sit vets, various seed and fertiliser advisors, a farm consultant

a bank manager and aside from the local vet not one is locally sourced. Why are there no local

farmers, actual experts in farming in this district sitting on this board, we have very good farmers in

our district with years of experience. Their advice on what works and doesn’t work in our area could

have been invaluable and saved on the expense of inexperienced trial and error programs ending in

the re-invention of the wheel and a loss of large amounts of money. Vets and advisors are not

farmers, and the same can be said for the remainder of the business advisory group.

We have an advisor who manages our forestry, we have an advisor in charge of the sheep, we have

another advisor to tell the staff how to manage the pasture, we have an advisor who tells us how to

look after our stock, we have advisors who tell us how to fertilise. In the 2009 AGM minutes the

chair states “they are employing a new manager of whom won’t require advisors”. My question, if

we already employ an expert operational manager , why the excessive use of advisors? I understand

qualified advice is useful but we should not be dependent upon them if we already employ a

fulltime expert. And although I do not agree with numerous advisors, I can clearly see that

management is reliant on their assistance for most decisions that are made.

The Makarau Lease block with the lease signed up for 10 years was very poorly set up and advised

upon from the outset, with a set up cost in 2014 of approximately $327K. To Rear 1400 calves per

year was the initial game plan set up by management and his advisors. Who in their right mind with

very poor infrastructure, very poor land and pasture quality and with absolutely NO experience in

rearing calves would fly into this blind. Perhaps a good idea would have been to start small and work

your way up to increased numbers as your experience increased. As a result hundreds and

hundreds of calves have lost their lives, and thousands of dollars have washed down the creek

tarnishing Otakaninis’ respected reputation along the way . I have taken the time to speak on the

phone with Dr Bas Shouten who was the initial advising vet, he was happy to be able to

communicate with a member of this committee. Due to poor management and the high fatality rate

he did not want his name further associated with the Makarau Unit. His reports grim reading to say

the least. On the sale of the milking cows he informed me the cows were of a body score of 2,

emaciated. I spoke with Mark Anderson the current advising vet in December 2016, he advised me

he believed it should be closed down. However, Mark still continues today to support the Makarau

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Unit and 4 months into this 2018 financial year the managers $8k vet budget has already been spent

with another 200 calves yet to be reared. Vets North sit on our advisory board and also write

Otakaninis’ animal health plan. It is to be noted that the Animal Health bill for both farms combined,

is largely Vets North Helensville, and although it was good to see a $40K dollar reduction in animal

health expenses this year largely at the Otakanini home farm , I continue to believe Makarau vet

attendance is excessive. None of us need to be experts to know that very young animals need a

warm sheltered environment, I was gobsmacked to read a vet report which stated on a visit to the

unit where there were many sick calves, that he, the vet had to advise, to put up extra shelter.

And although you might be told there are very low calf deaths in the current season, that is largely

debateable as the stock reconciliation numbers are always at odds with the monthly accounts.

In February 2017 Mei Hill and myself attended the Business Advisory Group meeting where Don

MacColl(Advisor) , James Anderson(Advisor) and Ray Monk(management) all stated they had

recommended the closure of Makarau Calf Rearing. It was very disappointing on receiving the

minutes from the Advisory Group meeting , where the minutes failed to include these statements

after Mei and I had specifically asked several times for the discussion regarding Makarau Closure be

recorded in the minutes.

Three separate consultant reports the most recent in May of this year, of which we have paid large

fees for, advise Makarau is not feasible, although the calf rearing has been improved and much

smaller numbers are reared, financially it still does not stack up and the quality of weaners sold to

Otakanini certainly have a lot of room for improvement. You will note in this years farm reports they

state that Makarau is the sole provider of replacement stock to Otakanini and that Makarau provides

whanau employment. It is important to note currently, sole employment lies within management.

As for the replacement stock although the quality has improved, I have been told harrowing stories

of Makarau stock on their arrival at the Otakanini Farm, of their poor condition, of them been so

poorly they were unable to walk from the yards to the paddock and a further 24 deaths attributed to

the home farm where weak Makarau stock died in the mud in the harbourside. Stock Otakanini Topu

paid for when no other buyers in their right mind would have. And yet, here we are, still in

operation, voted by this committee for it to continue, although the vote was not unanimous. In the

year end 2017 financials on page 10 and 11 you will see Makarau has made a $42 thousand dollar

loss and a further 49 head of cattle are dead. This years’ budget for 2018 I can say with confidence

does not reflect accurate expense figures and is again designed to appear as though Makarau is

making a profit. The Makarau lease in my opinion needs a thorough review and the calf rearing to

cease.

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The sale of 175 Breeding Cows in April of this year , your capital stock, for well under market value

has been a most contentious issue of which has not been addressed to date and there has been no

one held accountable. The potential loss of income is estimated at $100,000 dollars plus and this

has had a direct impact on your net income. It was also pointed out to me by a senior staff member

the actual overall loss or value of these cows if calculated not only on their dollar value would be a

lot more than the figure that I have stated. The breeding cows and their perceived poorer

profitability does not take into account the benefit and the relationship the beef cow has, with weed

control and pasture quality. And in fact the breeding cow is significantly more profitable as she eats

poor quality feed of which has little or no value to other stock classes. The advantages of the bull

system by comparison I understand more feed goes into production rather than maintenance

however that is only successful on good quality feed. Advice to management via The James

Anderson Consultancy Report dated 11 November 2016, 5b)3: Remaining Older Cows will be left

unmated and sold at weaning – UNLESS FEED AND MARKET CONDITIONS SUPPORT RETAINING

THEM LONGER.

My questions’

1 Why leave the cows unmated? They are always going to be worth more sold as vetted

in calf which would of at least have allowed us several marketing options. The cows

were of mixed age and in very good condition. I have video footage and photos’ of them

to support this.

2 In April 2017 Otakanini Grass Feed Supply was in abundance, nearly over the fences, I

know this because I visited in April and had a good drive around the farm.

3 Why was one stock buyer sought and not several? Why were the cows sold direct to the

meat works when Breeding Cows were in high demand by farmers’ as there was a

nationwide shortage.

4 The Wellsford Cow Sale on April 10th the same day your cows were sold , vetted in calf

Angus Breeding Cows fetched $1600 per head.

5 Unmated Breeding Cows were selling for $1350 - $1400 per head.

6 175 Otakanini breeding cows went to the Affco meat works and fetched a mere $1016

per head.

7 It is also worthy to note Angus vetted in calf cows fetched up to $2800 per head during

the same time period which again reflected a very strong beef market and a very poor

management decision.

With the forestry and back country of this farm it has always been renowned as a top beef breeding

farm, with your breeding cows been well sought after. The cows, I have no doubt could have been

managed to work within the sustainable farm plan. However, the sale of the breeding cows was a

decision that was made by management and his advisors, and recommended to a committee that

was none the wiser to what the breeding cows were worth to this farm and to the bigger picture.

The cows, our high end top quality beef producers and highly efficient calf rearers – gone, sold. A

herd of which took years to establish to a size of approximately 700 head, now down to 200. I note

this year we could have turned over weaned 8 month old breeding cow progeny for a handsome

$1000 per head. I requested a report on this particular cow sale from Management via committee

meetings and emails. I have received NO response to date.

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With the sale of all of your stock continually sold through one stock agent and what appears to be no

other prices sought, and with the yearend stock audit resulting in both sheep and cattle number

discrepancies which have been justified with thread bare reasonings, I have major concerns around

honesty and transparency. However, it is impossible to follow up and look into these concerns

when your access to the relevant papertrails’ are purposely withheld

2800 hectares of freehold land – no mortgages – a million bucks worth of new fencing, water

systems, weather stations, EID and FarmIQ technology, state of the art drafting facilities, advisors

and sold off capital stock to help pay for it – are you the shareholders happy with a $250k return?

Stock prices have almost doubled from 2009 onwards and I note your share return has sat around $1

to $1.50 pay out for the last 10 years. With your 250K return this year propped up with a $32

thousand dollar Auckland Council Grant a $58K one off large PAYE reimbursement, and a $222k

profit made from selling your capital stock – my question is where is the return on your

investments? Further questions on money spent on fencing are, are we piling in fences unnecessarily

to the detriment to the quality of the farm. Weeds appear to me to be out of control, the farm

certainly is not as clean and tidy as it once was, Tobacco Weed and Gorse is on the charge , taking

over pasture coverage and engulfing your new fences. Prior to 2009, approximately $45K per year

was spent on weed control, in comparison to the last 8 years around half that figure is spent at

around $20k per year, that tells me a story of which I already know from looking at your farm. It is

very important this farm is cared for with regular long term fertiliser and weed control programs

which can all be designed to work within our sustainable farm plan.

With 8 years of almost doubled meat prices, for example lamb was $3.50 now $6.50 per kilo, why is

it historically this farm appears to have made similar returns with very little technology, old fences

and what appears to be a lot less rainfall, times of when there were actual real South Head droughts,

and in some years October through to May droughts at their worst. This farm won an Ahuwhenua

Award in 2011 , with old fences, low meat prices and worn out boots, and despite the low returns,

this was a good indication that in the years leading up to this competition, money was spent well,

adding value to the quality of this farm, reflecting its excellent condition upon the arrival of new

management.

And an example of its good fertility is in the 2012 AGM minutes, management states he is selling 18

kg lambs, he is also selling 300 kg bulls at 20 month old, and all other local farmers are looking over

the fence to see how he is achieving this! Why is it now in 2017 that we can only produce an

average of 15-16kg lambs and our 300kg plus bulls are closer to 30 months of age? In this years’

financials page13 you will see lambs averaged $74 per head down on the $79 per head in 2016, in

the Kaipara area over the same period of time , lambs averaged $110.00 per head by comparison.

Managements’ advisors informed me it cost $69 per head to produce these lambs, so we are not

making much of a return on a $5 dollar per head margin. And again if we are supposedly

maintaining the farm with good fertiliser why does the last few years show a downward trend in

lamb prices fetched when the market has been consistently high.

Sheep and beef are our main source of income they are what pay the bills. We only get to sell our

animals once and we should be striving for the best possible weights and prices at ALL times. We

should not be reliant on forestry crops to save the day, when this farm is more than capable of

providing a good return, particularly when the lamb and beef prices for the last 8 years have been

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very strong. If we are striving for excellence we should be striving to achieve the best possible

return in all facets of our business and we should be able to take pride in the quality of the animals

we take care of and of the animals we produce. We should be able to make a decent profit whilst at

all times maintaining the quality of the farm. Reduced farm expenses of $341K this year in order to

reflect a profit is false economics.

In regards to your forestry, to sell your trees standing in the near future with approximately 10 years

left to grow in my opinion would be selling ourselves short for a quick buck. Those trees left quietly

to grow for a few more years is allowing them to realise their full potential, and is the future money

in the bank for the next generation. Ideas’ thrown about around a beef feedlot in your forestry

which I believe is currently under investigation , already, has many foreseeable flaws and no doubt

will require large capital investment. We already had our beef feedlot and they cost you next to

nothing – your 700 head of breeding cows. And if Makarau is any example to go by in regards to

poor management decision making , you the shareholders should be very wary. Lets’ focus on the

basics of improving what we are doing right now before going off on other ventures.

I do not enjoy standing here relaying what is seemingly a stream of negativity, there are certainly

many positives, a fantastic farm with some great people, both with tremendous capabilities. You

have an extensive sustainable farm plan of which I have heard rave reviews about from professionals

in the agricultural industry, and as a member of this committee I found it rather ironic that I had not

been given a copy of, nor seen nor read this plan so thank you to Malcolm Paterson for providing

this to me and thank you also, for your time, support and advice this year. The effort you must have

put into this sustainable farm plan simply outstanding.

I would like to say thank you to all of you who have supported me throughout this year, I have

certainly appreciated it. I am standing here today, asking you the owners for some direction as I am

uncertain as to how the future is going to look if no significant changes are made. For myself

personally, I struggle to see a future that I am comfortable with, under the current governance.

And, I suggest to you if you get the chance, to go and visit your farm and to take a good look around

with your eyes wide open.

That is my experience to date and I thank you for listening.

Michelle Hill

Committee of Management

Otakanini Topu

9 December 2017.

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