Prospects unclear for N.Z. Forest

Press, 14 July 1982, Page 34

Prospects unclear for N.Z. Forest

The prospects of N.Z. Forest Products, Ltd,Tor 1982-83 were less ' clear ‘ than they appeared a year ago, said the managing'director (Mr D. R. Walker) in the' annual, report.

Although industrial problems affecting the Kinleith mill had now been, resolved in an agreement between the .company and the unions, a serious breakdown in a recovery unit had limited the production of pulp. “This will affect both profitability and the company’s ability, to service pulpsales contracts,'’ he said. In international markets, many overseas companies making wood-based products were adversely affected by r depressed demand which had continued longer than expected. “Some optimism is being expressed, particularly in North America, that a recovery will begin towards the end of; 1982, as the principal objective of American economic policies to control inflation has largely been secured.” Producers in Northern Europe were earnestly seeking better prices for pulp and paper on international markets, and it seemed likely this would succeed late in 1982-83, producing improved profitability. This would provide some stimulus for new plant and equipment investment and mark the upturn in the teriodic business cycle, Mr Valker said.

The chairman (Mr L. N. Ross) said that further funds would be needed during the next three years for the major upgrading of plant at Kinleith, in addition to instal-

lation of the new corrugating medium paper machine at Penrose, which was being financed through an “off balance sheet” leveraged lease. Although engineering and technical studies had not been completed, it was expected that, a programme to modernise the Kinleith recovery system, and in the process increase the mill’s output and reduce plant emissions, could require funds of more than $lOO million spread over a five-year period. Chemical recovery systems were key units in" a kraft pulp mill, consisting of recovery, boilers and ancillary units. “Of the four such boilers in the Kinleith pulp mill, three are ending their operational lives, ■ and will need to be replaced,” he said. Although it was the directors’ intention to seek funds within New Zealand to offset exchange risks, there was a limit to finance available from local sources. “The demand which will be created as energy and other projects proceed will not improve the position and the company may find it necessary to again turn to offshore sources for the funds required,” Mr Ross said. The board and management were watching the negotiations for closer economic relations (CER) with Australia.

N.-Z. Forest was already implementing CER through the establishment of trading subsidiaries in Australia, and by further strengthening the joint relationship that it had with Australian Paper. Manufacturers, Ltd, of Melbourne. “It is difficult at this stage

to forecast the likely result for the year, but after reviewing all known and expected factors, the directors have budgeted to at least equate the profit level of the 1981-82 ’financial year,” Mr Ross said.

The total group net equity profit rose 17.6 per cent to $61,323,000 in the year to March 31, on sales and services 26.4 per cent higher at $688.1M. Included in the result were equity net earnings Of $8,798,000 ($4,194,000 previously). The profit was after providing $2,082,000 more for depreciation at $20,884,000, but $10,095,000 less for tax at $5,454,000. Exchange losses on overseas loans rose SSM to $7,496,000. A recommended final taxfree dividend of 13c a share increases the annual rate from 22c to 24c a share’ (24 per cent). The dividend requirement is $22.7M, and it is covered 2.7 times’ by the profit. As reported yesterday, the Fees and Distribution Appeal Authority rejected N.Z. Forest’s proposed one-for-10 bonus issue under the Companies (Limitation of Distributions) Regulations, 1982. The shares arising from the proposed issue were not eligible for the final dividend. Shareholders’ funds rose $81,795,000 to $438,323,0'00, including ordinary capital up $14.2M to $94.6M resulting from staff share, issues, shares issued for acquiring land and companies, and the one-for-seven cash issue in August. Working capital rose $56,697,000 to $165,857,000, and the current ratio improved from L 8 to 2.2 to one.