Revaluing trees

Press, 16 July 1986, Page 34

Revaluing trees

Forest assets have jumped sharply in the latest NZFP report In the 1985 report, they were listed at $181.4M, and joint ventures were listed at 515.6 M. The latest report lists them at 5498.5 M and 525.3 M respectively. The rises include SI44M for forest revaluation and $196.8M of land revaluation.

Mr Papps said in his review that for valuation purposes the forests were divided into development forests and production forests. “Development forests were revalued at replacement cost at March 31, 1985, and the book value will be increased annually by subsequent expenditure, including holding costs.

“We revalued production forests in the books at the estimated market value as at March 31, 1985. Market value is determined as the net present value of the after-tax revenue expected from the forest managed In perpetuity. “The revenue stream is determined from the measured annual forest yield multiplied by the stumpage rate (based on N.Z. Forest Service published trends at an average of $l4 a cubic metre in the mid-1985 financial year). “This is discounted by a real rate of return of 4 per cent to arrive at the present value.

"Obviously yields, stumpage rates and discount factors will be variable over time. Your directors will review the forest periodically taking into account any longterm movement in these factors.”

Mr G. A. List, the general manager, finance, of NZFP, said last evening that inflation was ignored when 4 per cent was used as the net present value basis. The Forest Service rates are con-

servative, and there has been criticism of the amount being charged by it for its timber skid rate (cut trees ready to be taken out of the forest). This, and Mr List’s comments suggest that NZFP asset valuations are still very conservative.

NZFP sold more that 2M shares in its newly-formed investment vehicle, Rada Corporation, Ltd, during the year to reduce its status from a subsidiary to an associate company. NZFP now holds 49.9 per cent of Rada’s issued capital. Had Rada remained a subsidiary, it would have been subject to the provisions of NZFP’s debenture trust deed and other loan covenants, which could have restricted Rada’s power to borrow to the maximum extent. NZFP has a substantial cross-shareholding arrangement with Wattie Industries, Ltd. They each hold 24.9 per cent of each other’s issued capital. The auditor’s report said NZFP’s treatment of its crossshareholding in the accounts did not comply with the Statement of Standard Accounting Practice No. 2, but it concurs with the company’s departure from iL

NZFP said that where an associate company held a reciprocal interest in a group company, the share of earnings of the associate was calculated using a formula which recognises the effects of reciprocal holdings.

Reference was made in last year’s report to the fact that the Society of Accountants was reviewing procedures to be used for equity accounting where there was a significant cross shareholding.. So far, no firm ruling had been issued, and accordingly no change in equity accounting treatment had been

The year’s developments included:

• Sales were up S74M to 51178.9 M. However, although sales in New Zealand and Australia Increased by SBBM, exports dropped 513.7 M.

• A tax credit of SO.SM was expected. • Financial charges were down 56.5 M or 9.7 per cent. • Profit on the sale of investments was S22M, compared with S2.IM last year. Investments sold included shareholdings in Alex Harvey Industries, Nissan Datsun Holdings, Goodman Group and Hercules Finance.

• The benefit of export Incentives fell from 517.2 M in the previous year to SB.SM. • Earnings per share fell from 34.6 c to 26.8 c. This was after two 1:5 bonus issues during the year and an issue of 8.5 M shares in lieu of dividends in February. • A decrease from $26.9M to $14.6M in NZFP’s share of profit from associate companies. This arose from downturns in the profitability of associates — particularly UEB Industries and Wattie Industries.

Shareholders* funds rose 63 per cent to 51.184 M. A substantial portion of this resulted from the revaluation of forestry assets. As previously reported, the consolidated, after-tax, afterextraordlnaries profit for the year was $106,307,000 (previous yean $121,463,000). A final dividend of 8.5 c per share (17 per cent) has been recommended, making a total for the year of 14.5 c (29 per cent).

The annual meeting of the company will be held in Wellington on Wednesday, August 27. This is the first annual meeting of the company to be held out of Auckland.