NZFP profit falls as predicted

Press, 3 December 1985, Page 37

NZFP profit falls as predicted

True to predictions at the annual general meeting, the group after-tax profit of N2. Forest Products, Ltd, fell 16.4 per cent to 544.5 million in the first six months of the company’s financial year to September 30.

Sales were $66.4 million, or 12.7 per cent higher at $583.2 million, but exports declined $21.2 million to $71.2 million (23.0 per cent).

The earning rate on average shareholders’ funds was 5.9 c in the dollar (8.9 c last year), a 33.7 per cent decrease on the corresponding period last year. The chairman, Mr L. M. Papps said that the strengthening of the NX dollar was greater than expected resulting in reduced contributions from exports which were partly offset by savings in the cost of imports, and in the costs of servicing and providing for repayment of overseas loans.

In the circumstances the directors regarded the profit as reasonable, but not adequate, he said.

The increase in sales was not reflected in increased profits, and during April and May, strikes at Kinleith resulted in reduced output and a substantial loss of profit.

Production levels and profitability at most other units were good, particu-

larly the builders’ supplies group of companies. Commenting on future prospects Mr Papps said the strengthening NX dollar was having a significant impact on NZFP’s operations. If it continued, without compensating factors, it would result in the short term in reduced production for export

“It will necessitate securing further improvements in productivity by the investment of additional capital, and improved performances by all sections of the labour force” he said.

Mr Papps said the directors were continually reviewing performances against profit budgets, and advised that although a satisfactory profit for the year was anticipated, it would be difficult to equal last year’s record.

Regarding development and expansion, he said that as at April 1, 1985, the company’s forests have been revalued by $294 million to $491 million. Management had developed inventory controls and related forest mensuration methods and the next valuation was based on these methods and intensive research of market prices and forest economics.

Mr Papps said completion of the new recovery boiler at Kinleith would be delayed, largely because of inter-union labour problems.

The commencement of the new sawmill, deferred earlier this year, was still under review.

Mr Papps said the prospectus for Rada Corporation, Ltd, the company’s new investment company, would be registered on December 4. It is expected to show almost immediately diversified investment and entrepreneurial skills which will complement the profitability of NZFP’s existing resources. The mainstream activities of NZFP, including forestry and its utilisation will continue as before.

Regarding the closing of the No 2 boardmill at Whakatane Board Mills, Ltd, Mr Papps said the decision had been forced upon the company as a matter of necessity. Adverse exhange rates, reduction of export tax incentives, and increased competition in traditional markets had made it impossible to retain export markets.

A steady interim dividend of 6c a ’ share has been declared, payable on February 26. Subject to agreement at the extraordinary general meeting on December 4 shareholders will have the further benefit of the shares in lieu of dividend plan, in terms of which they may elect to be alloted additional shares at a discount, Mr Papps said.