Deloitte Growth Forum May 2005

1
Deloitte Growth ForumMay 2005

• An NDA Perspective on Planning

2
NDA History

• Established in 1894
• A co-operative owned by the dairy co-operatives
• Role to service the needs of the dairy industry
• Many guises
• Exporter
• General goods importer
• Veterinary products
• Cryogenics

3
NDA Today

• Engineering
• Factory design and project management
• Stainless steel mechanical design and
  fabrication
• Todays dimensions
• Revenue 55M
• Staff 320
• Hamilton, Hawera, Melbourne JVs in Blenheim and
  Timaru

Winner 2002 Waikato Business Excellence Awards
Overall Manufacturer of the Year Exporter of
the Year
4
A Change of Ownership After 103 Years

• Dairy owners decided not core business
• GM/DF negotiated and structured the deal over 18
  months
• Joined by 4 senior managers
• Put everything on the line
• NDA had not performed consistently for the
  previous 10 financial years
• Deliberate strategy to divide
• Ownership
• Governance
• 3 independent directors
• GM DF
• Management
• GM 4 Other senior management

5
Growth Since MBO

• Acquisition of Challenge Engineering Ltd in 1989
• Acquisition of ProFab Stainless in 2000
• Establishment of Dairy Technology Services Ltd
  (50) in 2001
• Acquisition of Pititto Engineering Ltd
  (Melbourne) in 2002
• Establishment of NDA Longveld Engineering Ltd
  (50) in 2003
• Establishment of Truform Stainless Ltd (33)
  2003
• Turnover 1998 30 M
• Turnover now 55 M

6
Planning Approach

• Philosophy of inclusiveness
• Board role not to just question management
• Key to get value and buy in from the Board
• Involvement of senior management group
  fundamental to successful implementation
• Environment of no secrets, the good and the bad

7
Planning Approach

• Three stages
• Primary
• Immature plans/process and/or relationship
  between CEO and organisation
• Pre review of Strategy, Structure and Staff
• Broad staff involvement, external facilitation
• CEO determines Strategy, Structure, Staff and
  sells to Board
• Secondary
• Once outcomes of Primary process have been
  implemented
• Board and Key management (GKM, DBF)
• Quick no brainers but where a leap of mindset
  required

8
Planning Approach

• Tertiary
• Maturity of process and board/management
  knowledge of the business
• No more no brainers
• Board and broader management group including
  group of trusted lieutenants

9
Planning Approach

• What do we do now?
• Offsite for two days
• Keep it simple
• Informality of Environment Scan
• CEO backgrounder
• SWOT
• Issues Analysis
• Case Studies

10
NDA Strategy Review

• Issue
• We have inadequate understanding of our
  competitor cost structures and dont do enough
  analysis of our potential competitors on a job by
  job basis with the result that we price cost
  plus rather than to the market.
• Objective
• To improve margins by pricing to the market
• Strategy
• To identify potential competitors by segment and
  estimate their costs of production
• Action 1
• Establish a project group including Ben, Craig,
  Rob, SA and DBF
• Action 2
• Do the work
• Driver DBF

11
The Value Matrix
Value
Low
6
2
10
8
1
4
7
3
5
9
High
Short term
Long term
Time
High level financial analysis
12
What to Achieve

• For each item (we use maximum of 10)
• Objectives
• Strategies
• Actions
• Use detailed financial model to ensure value
  captured

13
Case Studies

• Risk Management
• Came from MBO and all on the line
• NDAs tender and contract work
• large peaks and troughs of demand
• long lead times to make sales
• Value Crystallisation
• Realise value to shareholders
• Growth - Domestic
• Product driven
• Geographic and market segments focus
• Growth - International
• How to grow when NZ and Australia strategies
  complete
• Leverage off of core knowledge, skills and
  international reputation for work quality and
  trust

14
Risk Management

• Milk Powder
• Market position
• Incremental milk growth in NZ goes to powder
  production
• Three European technologists world-wide, two
  suppliers in NZ, all three in Australia
• NDA was fabricator for CPS, Niro had own
  fabrication shop
• Result
• Win Big / Lose Big

15
Risk Management

• Milk Powder
• Strategy
• Position NDA as Fabricator to the World
• Acquire Niros NZ and Australian shop
• Fabricate for all drier technologists
• Key Issues
• Trust and IP protection
• Price competitiveness
• Outcome
• Purchased Niro fabrication facilities
• Open book trading with all using the same rates
  and margins
• Have manufactured major plant for both in the
  last 5 years

16
Value Crystallisation

• DTS
• Market Position - On Farm Milk Cooling
• NDA manufactures vats and did on farm work for
  Kiwi
• APV did on farm work in South Island
• NZDG did own on farm work
• NZDG wanted to exit
• Strategy
• Form a JV to create only national coverage
  organisation and vertically integrate revenue
  streams
• Key issues
• Governance model with two previously competing
  partners
• Providing value to NZDG and Fonterra

17
Value Crystallisation

• DTS
• Outcome
• Formed Dairy Technology Services Ltd
• 1/2 NDA, 1/2 APV
• Equalised contribution with value created for NDA
• Governance
• 2 Directors each
• Full Board papers and meetings
• Contribution from all
• Purchased NZDG business
• Highly successful growth
• NDA now trusted APV partner world wide

18
Growth - Internationally

• Market Position
• No more growth available
• NDA active in all sectors
• Strategy
• China workshop
• Leverage off
• Reputation / Trust / Relationships
• NDA quality at local cost
• Protection of IP
• Outcome
• Preliminary work complete now focus is on
  implementation

19
Planning From a Board Perspective

• SME focus
• A Board is an investment
• NDA 105,000
• What should the return on this investment be
• Not just governance
• Not just to turn up
• Get hands dirty, time to understand the business
• Not to involve in the day to day and in the line,
  this is managements job
• Add real value
• Use the networks
• Entrepreneurial ideas
• Experience
• Inclusive participation by the Board alongside
  management in the planning process is important
  in achieving a return on the Board investment

20
Planning From a Management Perspective

• Planning process must fit the business, its
  maturity and your maturity with the business
• Must get Strategy, Structure and Staff aligned
• Dont get bogged down in analysis
• Strategy in only as good as its implementation