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  • Business Edge

    Spring 2017

Seeing the Wood for the Trees

According to the latest Infometrics Rotorua Quarterly Economic Monitor, the region is thriving. GDP showed growth in Rotorua’s economy of 3.0% over the June 2017 year, compared to 2.8% growth nationally. Rotorua District's dairy payout for the 2016/17 season is expected to be approximately $322m, $118m higher than last season, and activity in the forestry sector gained some traction in the first half of 2017, with production levels improving and earnings up. Forestry export prices have risen on the back of strong demand from China and timber processors are also enjoying increasing requirement from high levels of homebuilding activity across New Zealand.

However, as the saying goes, “Good things take time.”

Two Rotorua District families who are ‘Backed by BDO’ have built successful, sustainable businesses on the edge of the Kaingaroa Forest that are fit for future generations. The secret to their success? Tenacity, flexibility, a dash of Kiwi ingenuity, and a lot of hard work…

 

Donelley Sawmillers

(Morgan & Shirley Donelley with BDO Rotorua partner Stephen Graham)

Morgan Donelley started his working life at the age of 14 as a bushman, then went truck driving. After two bad accidents (neither of which was his fault) the decision was made to pursue a career with timber. These factors and a stern word from his father-in-law made them determined to succeed.  

The opportunity to buy a batten mill in the Waiotapu Forest came up in 1973, so, equipped with a $2,500 bank loan that seemed like a huge amount of money at the time, newlyweds Morgan and Shirley got to work cutting a modest amount of battens.

Morgan fondly recalls those early days when they were a two-person operation.

“We really enjoyed what we were doing and so work wasn’t work but we put a lot of hours in. Having a good partner in Shirley who could do most things including driving the truck and cutting timber was essential.”

Subsequent changes in the New Zealand forestry industry put a stop to people producing timber in the forest and the Donelleys had to move out. This initial setback proved to be a lucky break as it prompted them to buy a 30-acre piece of land directly adjacent to the Kaingaroa Forest (the largest plantation in the Southern Hemisphere). From there, they started their sawmilling business with a few bits and pieces picked up from an old sawmill belonging to Morgan’s uncle.

The position of the sawmill directly adjacent to the forest was a brilliant example of lean manufacturing before the practice was widely known. It meant that the Donelleys saved considerable time and resources on processing and carting, but they were not without their detractors. “At the time, the Forest Service couldn’t understand why we built our mill there,” Morgan recalls. “But within five years, they approached us to buy wood from them.”

But it was by no means plain sailing. After 12 months of buying logs from the Forest Service, their supply was rapidly cut off as the Service decided to export all of their logs and the Donelleys didn’t have a contract. Without a steady supply of logs to mill, they had to diversify, so they turned their attention to cutting oversize logs from farmers’ lots. “It was good wood but no none else wanted to mill it. We had to cut the big logs with a chainsaw at the mill as the logs were too big for the plant.”

This willingness to roll up their sleeves and do whatever was necessary saw them through this rocky patch, until they got a formal contract with the Forest Service, and the business grew from there. It’s an attitude that has held them in good stead ever since.

When their existing mill was no longer suitable for the requirements of the smaller diameter logs being produced by the forest in 2000, the Donelleys travelled to Sweden to source the right equipment. The only snag was that the equipment had to be dismantled, put into shipping containers and reassembled over a 12-month period back in New Zealand. However, it enabled them to diversify. Whilst large logs were no longer being processed at the time, they also kept their original mill so they could hedge their bets. Sure enough, big logs later came back into favour.

Morgan readily admits, “One of the biggest challenges in business is adapting to change with the times. You think you know it all and have got it all sorted but it changes very quickly.”

Never was this ability to change more tested than when the Donelleys’ son Aaron took over the business five years’ ago. Donelley’s prides itself on its enduring relationships (they have business partnerships going back over 20 years and two employees who have been with them for over 40 years) so it was a challenge.

A friend recommended BDO to the family and Stephen Graham and his team helped them through the transition process.

Shirley acknowledges, “It’s been the most difficult part of our lives. Because it was a family member taking over and the welfare of our family as a whole was at stake, everything had to be right, so when and how we did it was crucial. We had to learn to have faith in BDO, five years is short in the life of our business but thank goodness for Stephen and the team from BDO. The working relationship Stephen has with Aaron is honest and open and is about what is best for the business.”

Stephen adds, “It had to be a real transition rather than a transaction. We needed to move the business to a more corporate structure with a board. We also made significant cash savings by shifting some of the major relationships with the family’s banking and insurance providers. The transition to Xero will provide the business with readily available ‘real time’ information and reports.”

Morgan notes that the way son Aaron operates the business has changed things significantly. With automation, there is less emphasis on his being hands-on, less ‘sweat equity’. Aaron has explored new markets and introduced new technology that have allowed Donelley’s to produce a sustainable, environmentally-friendly product that is completely chemical-free. Turnover has tripled in the last eight years and Donelley’s now has a workforce of over 50.

It’s a long way from the little batten mill in the middle of the forest but it sounds like Aaron’s a chip off the old block…