NZ Forest profit at $75.4M little better than expected

Press, 12 May 1984, Page 22

NZ Forest profit at $75.4M little better than expected

By

ADRIAN BROKKING,

in Auckland

The unaudited group net profit of NZ Forest Products for the year ended March 31, at $75.4 million, was marginally better than market analysts predicted. It was after minority interests of $900,000, and includes the group’s share of undistributed profits of associated companies amounting to $8.7 million—s 3.4 million the share of the Wattie Industries profit for three months. In addition, there was an extraoardinary profit of $2.5 million ($2.7 million last year). Apart from the Wattie’s share, the increase in equity profits of $6.4 million came from a higher share in UEB Industries and Pine Chemicals, the chairman (Mr L. M. Papps) says in the preliminary report. The profit had the benefit of $15.9 million in export incentive allowances, (last year $12.0 million) and was after providing $15.7 million more for tax at $16.9 million, $3.3 million more for depreciation at $26.0 million, but $4.4 million less for interest charges (including foreign exchange losses). Local sales rose 16.0 per cent to $658.3 million, and export sales 35.4 per cent to $173.3 million. The result, reported on an historical cost basis, was for a full twelve months operation of all trading companies in the group with the exceptions of:—Fabco Industries, Ltd—3 months;

Rayovo Pty., Ltd, (Australia)—9 months; A. J. Rhind, Ltd—s months. Mr Papps says that the result serves to indicate the potential of NZFP when the conomic situation is favourable, operating conditions stable, and a relatively low rate of inflation prevails. “The cyclical nature of the business of forest-based industry companies is apparent from the results. The trough of the previous year, especially in respect of pulp and paper, has given way to buoyant markets, and both demand and prices have been and continue to be higher than they were 12 months ago,” he says. “Plant performance during the year was excellent, and output increased to meet demand. Industrial problems were minimal. Local demand for the company’s products increased throughout the year with rapid acceleration in the latter months, particularly so for building materials, multiwall paper bags, and packaging papers and boards, the economic recovery in Australia reestablished a keen demand for timber, while sales of pulp and paper improved. At the same time the freeze on prices assisted in stabilising costs from outside the company while regulations combined with strict control of costs within the company have contributed to improved profitability of

operations. For the current financial year to March 31 next, the expectation is for demand on the domestic market to remain at least at the present level, while sales income from export should continue to increase, Mr Papps says. Output from the major pulp and paper mills is fully committed for some months ahead, and most plants should continue to operate at full capacity provided production is not interrupted by industrial action, some production has been lost in April and May because of protest strikes against the Government wage policies. Under the current conditions in New Zealand, with co-ordinated union action against major employers, the possibility of some further disruption cannot be overlooked.

“Nevertheless, the directors remain optimistic that, with the continuing improvement in the New Zealand and world economies and the ability, under equity-accounting principles, to include in the company’s results its share of the profit of Wattie Industries, the year will produce sound results. The directors are recommending a final dividend of 8.5 c a share, making a total of 13c for the year—an increase of 8.3 per cent on the 24c a share paid last year on 100 c shares. Shares of the new issue are not

entitled to the final dividend.

The first instalment on the new issue will increase the balance in the Share Premium Account available, under current New Zealand legislation, for taxfree distributions by some $4O million. Mr Papps says that it will not be possible to obtain the necessary consents for part of this sum to be used for the payment of the recommended final dividend. Any tax-free content of this dividend will be limited to available capital profits, and a small balance of approved eligible funds in the Share Premium Account before the cash issue. This is expected to be sufficient

to meet 2.0 c a share of the 8.5 c payable, if the directors’ recommendation is endorsed by shareholders. On this basis the total annual dividends of 13c a 50c share will be paid as to 6.5 c from sources regarded as of a capital nature, and 6.5 c from profit. When the current cash issue has been completed in February 1985 and the necessary consents obtained, the premium arising from the issue should ensure that at least the next three dividends can be paid as distributions from the Share Premium Account to provide tax free dividends to the majority of shareholders.