NZFP to re-assess exports

Press, 30 August 1985, Page 8

NZFP to re-assess exports

PA Auckland New Zealand Forest Products is to take a hard look at the economics of some of its exports. The chairman, Mr Lyn Papps, told shareholders at the annual meeting in Auckland yesterday that this had to

occur because of the strengthening of the New Zealand dollar and the phasing out of the export tax incentive. He said 95 per cent of the company’s exports were sold in Australia and United States currency which had weakened against the New Zealand dollar. “The situation- has been reached where we have to examine seriously the viability of at least some products we are now exporting.” Mr Papps told a packed meeting that the serious downturn in export prices — on top of the dollar strengthening, increased internal costs and industrial relations problems — was likely to affect the profitability of the company’s operation in the current financial year. But he said world prices for pulp and paper were considered to have now reached a cyclical low, and there was some evidence that they were improving. Mr Papps indicated local demand for the company’s products was generally good, although earlier in the year there was some evidence of

reductions in stock holding by many large customers. Demand for timber was buoyant and expected to continue for some time. Demand for building materials was also strong. “However, we are having difficulties in the export field,” Mr Papps told shareholders. “Initially, the devaluation of the New Zealand dollar was seen as a benefit to exporters — as indeed it was. “On the other hand it added to the cost of servicing and ultimately repaying overseas loans, and to the cost of capital equipment for the Kinleith modernisation programme and imported materials. “The floating and strengthening of our dollar in recent months, against virtually all predictions, has also had its effect on the company," said Mr Papps. One beneficial effect was that the cost of overseas debt and imported materials and equipment had been alleviated. Mr Papps said these beneficial effects were less easy to quantify, especially in loan repayments which could not be

fully determined until the loans were repaid.

He assured shareholders that the increase in the New Zealand dollar was not all bad news.

“On balance the fluctuations in currency rates have at this stage resulted in a small gain to the company.”

NZ Forest Products had used the opportunity of raising money on the European market. It had recently arranged an Australian dollar denominated bond issue for $5O million. “The rate of interest will be significantly lower than the current Australian borrowings, arid the proceeds of this bond issue will be used to repay those borrowings and some other overseas loans,” said Mr Papps. “Further borrowings will be needed over the next two years to finance the Kinleith capital projects, but retained earnings will ensure, that the shareholders’ equity in the company will remain at least equal to the interests of lenders.”