Published 2 April 2006
One of the best surprises for a visitor to Mainzeal’s headquarters up the top of Queen St was, after getting through some of the basement carpark without crashing into something, to find a turning space. With a bit of luck you were allowed to park there too.
And then, when you got up the lift, there was the chance of a recognisable reception area instead of the screens that normally made spotting the company’s corporate activities a haphazard exercise.
A decade later, not only had this mainstay of the New Zealand commercial construction industry hung in to continue building (but less of the design, fortunately) and cementing a place in doing commercial interiors, but despite a surprise loss for the year it was promised a future in the international Richina Pacific Ltd.
In the meantime, most of Richina Pacific’s business shifted to China, and the leather industry which Mainzeal had entered into in New Zealand through its investment in Mair Astley (and from which it worked to extricate itself in New Zealand) was expanded in China. Then the group head office shifted to Singapore while its corporate registration shifted to Bermuda. Now it wants to shift the head office to Kuala Lumpur, supposedly because it’s a cheaper place to run such an operation.
Efficiency?
Nowhere in the Richina Pacific annual report, out this weekend, or restructuring announcement last Thursday from New York-resident chairman John Walker, does efficiency make a serious dent in the hyperbole. The only reason I can think of for the head office ever to have been in Singapore, and ever to move to Kuala Lumpur, is the passing whim of a member of the US-based 40%-ownership syndicate which controls – and 3 years ago probably saved – Richina Pacific.
At the end of 2001 I wrote that a letter to shareholders from Richina Pacific’s chairman at the time, Alastair MacCormick, “bears all the markings of a company which finds cause to struggle in good years & bad. It’s now firmly a leather company, focused on the performance of Shanghai Richina Leather, with a Beijing aquarium which maintains positive operating cashflow but isn’t profitable, and one remaining New Zealand operating company, Mainzeal, which will report a small loss this year but expects to make a profit next year.”
4 years on, done it again.
Restructure points, and comment
Richina Pacific Ltd lost money last year on its Mainzeal construction business in New Zealand and its Shanghai leather business (net $US7.3 million for Mainzeal, $US3.6 million for Shanghai Richina Leather), more than covered the losses through its finance operation and now wants to carry out a major across-the-world restructure which will:
certainly shift sensible board observation of Mainzeal’s business further away
place the managing director & chief executive, Richard Yan, back in Auckland when he can probably be more profitably occupied handling real estate transactions in Shanghai
create a whole new upper management structure entirely unnecessary for the Mainzeal operation in New Zealand
get Mainzeal into construction & development roles in China to which it hasn’t been suited since it completed the Blue Zoo in Beijing 9 years ago, and
leave the group in the hands of a board whose members may have great value in many facets of business but who don’t seem particularly disposed to running construction, leather and, now, Shanghai brownfields profit-maximising. Especially if they don’t live anywhere near Shanghai.
Apart from sending head office to Kuala Lumpur – home territory for Blue Zoo chief executive for the past 8 years, Tun Cheng Chiam, who will become chief operating officer – the big feature of the restructure is to submerge Mainzeal Property & Construction in an international Richina Land.
More support promised for Mainzeal
“The Mainzeal operations within New Zealand will be supported even more strongly by the larger organisation, and it is also expected that Mainzeal’s capabilities & experience will be increasingly utilised in the ongoing development of Richina Pacific’s large land & property interests in Shanghai. It is also Richina Pacific’s intention that Mainzeal will apply for a construction license in China, thereby leveraging opportunities that may be presented through the current negotiations between China & New Zealand on a free trade agreement,” group chairman John Walker said in the restructure announcement.
“During this implementation phase of merging & integrating Mainzeal into Richina Land, Richard Yan will assume the position of chief executive of Richina Land, reporting to a dedicated Richina Land board that will incorporate directors from the current Mainzeal board and will be chaired by (former NZ prime minister) Jenny Shipley.”Reporting to Mr Yan will be the newly created positions of Richina Land’s chief operating officer for construction and Richina Land’s chief operating officer for development, as well as Richina Land’s head of finance.”Following full consideration of the restructuring proposals and the associated consultations, it has been decided that the Richina Land chief operating officer for construction will reside in New Zealand, with the area managers of Mainzeal reporting directly to that position.
Reporting across the time zones
It is intended that the Richina Land chief operating officer for development will reside in Shanghai and will be supported by, and will have reporting to that position, the present general manager of development in New Zealand.”The Richina Land head of finance will also reside in New Zealand, and the financial teams of Richina Land located in China & New Zealand will report directly to that position.”These 3 senior positions outlined above will work as an integrated team to manage & develop our construction & development businesses for both China & New Zealand and they will report to Richard Yan. For the next 2-3 years, and with immediate effect, Richard Yan will be based in Auckland, where his family will relocate by mid-year 2006.”
Mr Walker added: “Even though Mainzeal is being incorporated into the Richina Land division, Mainzeal will remain a strong & valued brand and will be further developed, fully utilising the larger & stronger Richina Land operations. The experience & expertise of our Mainzeal people in construction, development, interiors & infrastructure within New Zealand will assist in the ongoing development & enhancement of Richina Pacific’s very large land & property holdings in Shanghai.”
The global outlook
Mr Walker & Mr Yan elaborated on the changes in the annual report. Said Mr Walker: “Your company is moving from being a company with a series of businesses in China & New Zealand to being a company with global interests operating on a co-ordinated & integrated basis. Richina Pacific’s businesses are focused on 3 sectors, Richina Financial, Richina Land & Richina Industries, and we are in the process of restructuring, reorganising & consolidating these businesses and of recruiting & building management teams with the needed business skills, talent & experience, together with language capabilities, that are required for a company with global interests. In the case of our operations in China, we are moving from an era in which our businesses were managed largely by expatriates to an era in which we increasingly rely on skilled & experienced local management.”
He expected Mainzeal would achieve a significant turnaround this year on the back of organisational & management changes, a strong forward workload and record results in 2005 from all other areas of Mainzeal (other than the couple of large project losses).
China real estate development plans
Mr Walker said he & Mr Yan discussed real estate development plans & the required funding with a large number of global financial institutions in 2005 and continued their dialogue: “Richard Yan, Roger Wang, senior vice-president Frank Shen & I continued to explore various financial services opportunities in China, and we remain of the view that a broad strategy for Richina Pacific that is centred on financial services & real estate development will provide the greatest returns for shareholders over the coming years. We intend to be very deliberate & opportunistic in our approach.
“We have stated to shareholders on numerous occasions that the quantum of Richina Pacific’s holdings of real estate interests in Shanghai, which were acquired in the Shanghai Leather Co & Shoe No 1 acquisitions, is truly substantial. This real estate is comprised of more than 40 parcels of land, with over 100 existing buildings comprising over 140,000m² gross floor area. This square footage can be increased dramatically over time. While these assets are accounted for under the company’s accounting policy at their historical cost until the time of their development, these are undoubtedly appreciating assets. We are focusing attention on several development projects in the Shanghai area over the next 2 years.”
Mr Yan made some interesting observations about the difficulties the new controlling shareholders encountered after they bought into Mainzeal in 1995. Their explicit goal had been to leverage New Zealand expertise to develop China-based businesses. “However, we considerably under-estimated the challenges we took on in assuming responsibility for the multitude of the historical Mainzeal & Mair Astley businesses. It would not be an exaggeration to say that we have consumed far more time & energy in sorting out the legacy issues in New Zealand than we have spent on building our China businesses.
“Still, today we are gratified by the results of our efforts in having completed the streamlining of over 100 subsidiaries of the 2 listed companies, Mainzeal & Mair Astley, that were owned at the time of Richina taking control. Furthermore, in 2005 the Richina Pacific board took the next step in finally breaking with the past by running our businesses as operating divisions rather than as stand-alone subsidiaries.”
Websites: Richina Pacific
2006 annual report
Earlier stories:
2 March 2006: Richina Pacific raises profit despite Mainzeal losses, but cans dividend
19 November 2005: Scene & Arena continue as lossmakers for Mainzeal
10 May 2005: Richina Pacific looks at leveraging off China properties
30 December 2001: Uncertain note in Richina Pacific letter
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Attribution: Company statement, annual report, story written by Bob Dey for this website.
