Te Awahohonu Forest Trust
Background
Te Awahohonu Forest Trust is an Ahu Whenua Trust governed under Te Ture Whenua Māori Act 1993. The Trust was established in 1971 for forestry development. The remaining developed farm land was vested back into the Trust in 1987. When the Trust was first established there were 650 owners, at present there are approximately 850 owners.
The Trust is based in Napier but the land block is located on the Napier-Taupo road. The core businesses of the Trust are sheep and beef cattle farming and forestry. Other business interests are in tourism (hunting and fishing). The total landholding is 20,961 ha, of which 9,909 ha are undeveloped lands. This area is covered in native trees. The tourism activities are undertaken on this part of the land block.
The Trust has five trustees which excludes the secretary. The Trust established a farm committee 15 years ago, and other subcommittees were established five years ago. The subcommittees are forestry, farming, social (education), waahi tapu, and ahi manawa (undeveloped lands).
The Trust has a 50% interest in a forestry joint venture partnership called Toropapa. This joint venture employs a harvesting and marketing manager who employs the harvesting contractors. Overall the Trust employs 22 people directly through this joint venture. A forest manager is employed to replant the land that has been harvested. The Trust also employs a farm consultant as well as five farm employees.
Governance Decision Making Processes
The Trust developed its first strategy plan three years ago with the assistance of a facilitator. From this workshop the trust developed a framework and the trustees filled in the details themselves. The plan is still in draft form and is to be reviewed shortly. Once the plan has been formalised, the trustees will seek the approval of the owners.
The Trust's financial year operates from July to June. This coincides with the annual planning. The annual planning process involves the managers developing their own business plans. These are taken to the respective subcommittees for approval. The farm annual plan then goes straight to the Trust for final approval and sign off.
The forestry annual plan then goes to the joint venture Board, of which the Trust has 50% representation due to their 50% shareholding in the venture. Once the plan has been approved by the joint venture Board it then goes to the Trust for the trustees to 'sign off'.
The Trust is not a significant off-land investor yet as it is constrained by the large mortgage it has as a result of buying back the pinus radiata forest from the Crown. However, the Trust adopts a transparent process for making investment decisions.
An investment opportunity is first scrutinised at Board level. The opportunity must comply with the strategic plan and must have a minimum rate of return of 10%. Once the investment has passed the scrutiny of the Board, the Trust finds an appropriate consultant to undertake a due diligence process.
Under the Trust Order the Trust is not allowed to engage in activities off the land or activities that are not farm or forest based activities unless the owners approve the investment. The Trust can undertake tourism activities on the undeveloped land as it is an activity on their land. Owners are always consulted for substantial new land use investments. In this instance the Trust undertakes a due diligence process before going to the owners for approval.
The Trust's due diligence policy is not formalised but the policy is to seek information about the industry and 'head hunt' someone to provide expert advice.
The Trust has experienced the benefit of undertaking a due diligence process. A few years ago it was approached to invest in a timber mill company. The preliminary analysis showed that it was a good investment opportunity, but a due diligence process revealed otherwise. Consequently the Trust did not invest in the mill.
The Trust has comprehensive risk management policies for its businesses. The forestry joint venture has an extensive reporting system. A report is sent to the BNZ bank every three months and the joint venture produces a health and safety report. The forestry assets are valued annually. There are mechanisms in the forest manager's and marketing and harvesting manager's contracts to remove them from their positions if they are underperforming. Another risk management strategy saw the Trust lobby the Rural Fire District Authority to have a fire engine on the forestry site. The Trust also has access to eight helicopters in the event of a fire.
The farm and the forestry joint venture must also comply with OSH requirements. The forestry joint venture holds safety meetings every month.
The farm has houses placed strategically on the farm to mitigate risks and every contractor is extensively briefed about health and safety regulations. The farm does not use the same livestock company every year, making stock firms compete against each other. The farm also has back-up if farm workers 'walk off'. The Trust operates a stringent permit system for their farm, forest and ahi manawa block. The permits are issued through a security system. Controlling the land access is a large part of mitigating risks on its land.
Trustees must declare all conflicts of interest. If there is a conflict of interest the Trust Order states that the trustee must leave the room and have no vote on the decision. Conflicts of interests among trustees are usually managed through a consensus decision making process.
The major change in governance for the Trust has been a change in the representation make-up of the Board. Representation in the past was more whānau-based; it is now more skills-based, electing the best person for the job.
The major governance milestones for the Trust have been:
- Change to Trust Order – voting procedure
- Establishment of committees
- Rotation of trustees from 2004
Operational Practice
There are various things the Trust has done to maintain best practices. On the farming side, the Trust joined a farm group with other similar farms where they visited farms and had candid discussions about these operations. This year the Trust entered into the Māori farmer of the year award and won the Eastern Region. The Trust encourages employees to continually up-skill. The Trust also believes in using technology as part of farming operations. The Trust's philosophy is that the best practice is to employ the best person for the job. The Trust also employs a consultant as well as a farm manager.
In terms of forestry, the Trust undertakes various practices. The Trust did not want to operate the forest as it did not have the required expertise: hence the reason for putting the harvesting and marketing manager's position out for tender.
The company that won the contract was willing to invest in the forestry joint venture. This indicated its commitment. The Trust also engaged in the joint venture company to have partners that offer a wide range of experience and expertise in the forestry sector internationally and nationally. This is particularly important as the forestry sector is sensitive to many commercial factors.
The Trust has interest fixing contracts and currency hedging options in place for its forestry operations. There are also quarterly checks and balance processes between the forest manager and the harvesting and marketing manager. The trustees also make a point of visiting the forests regularly.
Accountability to Shareholders
The Trust produces an extensive annual report at its AGM. The Trust is also subject to a Māori Land Court review every 10 years. Additionally, the trustees communicate with the owners informally and hold special purpose meetings with the owners when the need arises. The Trust video tapes parts of the farm itself in order to show the owners at the AGM. The AGMs are also video taped.
Performance Reporting
The Trust uses the standard financial reporting methods to measure economic performance. Initiatives that the Trust report against for social and cultural performance are:
- Education grants
- Donations to schools
- Tangi grants
- Recording of waahi tapu sites on a map
- Encouraging the collection of customary materials
There are also various environmental initiatives that the Trust undertakes. The Trust employs a 'work with nature' philosophy. The various initiatives are:
- Undertaking a scoping report of undeveloped land to determine the health of the forest
- Undertaking initiatives to restore, enhance and protect the conservation values of the land
- The use of traps that are compatible with the environment to exterminate predators
- Protection of native timber on the block
Board Performance Review
The financial performance is one mechanism that is used to measure the Board's performance. The Māori Land Court reviews the trustee's performance every 10 years, the most recent being in 2003. The trustees received an excellent review in 2003.
Engaging with Shareholders and Stakeholders
The chairperson is responsible for engaging with the owners on behalf of the trustees. One of the trustees is a member of the Hawke's Bay Regional Council Māori advisory committee and so by default is the person responsible for engaging with local government stakeholders.
Elections
The election system the Trust adopts is a five year rotational system. One trustee comes up for election every year. The Trust adopted a 'show of hands' procedure for casting votes. However, the Trust has recently changed the Trust Order so that voting can also be done by post. The Trust will send out a voting form before the AGM so that the owners can vote on all resolutions to be put forward at the AGM and for election of the next trustee. The Trust also requires a candidate for a trustee's position to provide his or her curriculum vitae.
Operational Processes
The Trust recognises the difference between governance and management. This is evidenced through the fact that it employs a farm manager, a forestry manager and a professional secretariat. The Trust has a policy to employ the best person for the job.
All major capital expenditure must ultimately be approved by the Board. The farm manager informs the consultant who then goes to the Board. The farm manager and forestry manager have authority to spend money within the bounds of their budgets.
The Trust operates a very transparent system which has meant that the Trust rarely has conflicts between management and governance. If governors did interfere with management issues, the matter would be dealt with by taking a direct approach where the particular trustee(s) would be told not to interfere. The Trust maintains that its system is very robust and such interferences would be 'shut down'.
The Trust has had an example of resolving an employment issue. In this situation the Trust employed a consultant to undertake the negotiations to resolve the issue. The trustees were not involved in the negotiations but were briefed accordingly and gave strict terms of reference for the negotiations.
Forestry management is reviewed quarterly and farm management is reviewed monthly. The Trust has always undertaken this practice. Operational policies for forestry are reviewed quarterly because of the contracts. Due to the nature of the present businesses all operational policies are considered living documents and changed as necessary. All operational policies are documented in hard copy form and distributed to trustees in a package for documenting in the Board minutes.
People
The chairperson and secretary regard the number of trustees on the Board as optimal. If there were more trustees they consider that the Trust would become more 'top heavy'.
The Trust is looking at developing a training policy. Although it has experienced trustees, the Board has encouraged them to attend the FoMA conference, other industry conferences and Māori land seminars. The Trust also organises discussions with banks and other organisations on topics such as currency and other economic issues.
Financial Analysis - Te Awahohonu Forest Trust
| Actual 1999 | Actual 2003 | |
|---|---|---|
| Revenue | 34,759,072 | 11,385,429 |
| Operating surplus before tax | -566,339 | 1,156,949 |
| Net Surplus (NPAT) | -566,339 | 897,231 |
| Average Total Assets | 29,244,620 | 40,112,662 |
| Average Shareholders’ funds | 19,832,161 | 27,099,895 |
| Actual 1999 | Actual 2003 | |
|---|---|---|
| Operating Surplus (%) | -1.63% | 10.16% |
| Return on average equity after tax (%) | -2.86% | 3.31% |
| Return on assets (EBIT)/average total assets) (%) | -1.94% | 2.88% |
| Actual 1999 | Actual 2003 | |
|---|---|---|
| Current Ratio | 5.94 | 2.78 |
| Quick Ratio (equity ratio) | 2.36 | 2.06 |
| Actual 1999 | Actual 2003 | |
|---|---|---|
| Debt to average equity (%) | 1.47% | 6.36% |
| Gearing (%) | 36.82% | 30.92% |
| Proprietorship (%) | 63.18% | 69.08% |
Page last updated: Mon, 04 Dec 2006