Weak $Aust plays big part in NZFP budget lag

Press, 28 August 1986, Page 26

Weak $Aust plays big part in NZFP budget lag

By

SIMON LOUISSON

in Wellington

Sales are ahead, but profit is considerably below budget, NZ Forest Products chairman, Mr Lyn Papps, reported at the jubilee annual meeting yesterday. Speaking in Wellington where the meeting was held for the first time, Mr Papps said that profit was slightly behind last year’s result at this time and it did not meet budget. The strength of the New Zealand dollar, low prices in overseas markets and a downturn in the domestic market were factors cited for the fall. With 40 per cent of the company’s exports going to Australia the weakness of the Australian dollar had been particularly significant. Domestically, the problems in the farming industry and the slackening in home starts have created a “soft market” for timber products adversely affecting the building supplies operation. Mr Papps commented that the rate of inflation had declined, but interest rates had not fallen to the extent of earlier predictions.

Amplifying his comments at a press conference after the meeting, Mr Papps said the bright aspect to current events was the performance of Rada Corporation, the 49 per cent owned investment company associate, which was performing better than anticipated. “Rada is going like a bomb,” he said. The paper products division was also performing well with forward orders for pulp and paper ensuring all machines will be operating to capacity for the rest of the year.

Both sales and returns were expected to pick up for wood products in Australia, but the local market remained an unknown quantity because of the effects of GST and the tax cuts.

Provided the expected improvements in sales and currency materialised, and the company was able to maintain full production, profit for the year was expected to be about the $lOO million of last year.

Mr Papps foreshadowed the establishment of a “significant manufacturing operation” in Australia, the details of which will be announced tomorrow. He said it will be a larger venture than-the

recent SHK4S million paper converting project in Hong Kong. Some analysts ventured that it might be a joint venture with North Broken Hill subsidiary, Associated Pulp and Paper Manufacturers. NZFP and Rada jointly own 14.9 per cent of North Broken Hill.

Progress on the reduction of manning levels was “proceeding satisfactorily” on all sites without industrial disruption.

“This is clear indication that the package offered to employees, after consultation with the unions, is fair and reasonable,” said Mr Papps. So far the company has achieved 550 out of a planned 944 redundancies. Only two redundancies have been compulsory, and the company was also reducing numbers by natural attrition. “I believe there is a change of attitude among our people. They have acted responsibly and realised the world doesn’t owe them a living,” said the chief executive, Mr Warren Hunt. The redundancies will be continued until New Zealand manning levels equate with overseas. Mr Hunt thought claims that New Zealand manning levels were six times those of Canada were "somewhat exaggerated.” The average cost per redundancy was about a year’s salary, bringing the total cost to about $3O million. This had already been budgeted for. Mr Papps was asked to comment on the likelihood of industrial trouble at Kawerau spreading to NZFP plants, but he said he was loath to comment in view of the talks which were proceeding. He did say NZFP dealt with a different union. Directors’ fees were increased from $140,000 to $190,000 for the eight nonexecutive directors. This gives Mr Papps $40,000, deputy chairman, Sir Russell Pettigrew $30,000 and other directors $20,000 each.

Mr Papps believed NewZealand directors were not paid enough, particularly compared with overseas, and the fact that their responsibilities were increasing. The recently passed Commerce Act made directors liable for fines up to $lOO,OOO “even if they inadvertently breach the act.”

A motion was suggested by Mr Dennis Thom that the directors' fee increase should be increased by another $50,000. Mr Papps

replied that while it was the nicest thing he had heard all day, he wouldn’t want it increased at this stage.

Questions were asked about NZFP’s policy regarding native trees. Mr Papps said that the company policy was not to clear native forest and that where it bought land which was indigenous forest, it would either sell it or put it in reserve. Replying to a question about why the company did not plant native trees, Mr Papps said that, depending on the species, it would take between 100 and 300 years to get a return. :

“While environmentally and sociologically it would be a nice thing to do, pragmatically the return would be totally and completely unsatisfactory,” he said.

For shareholders who elected to receive shares in lieu of dividend, the price the conversion was made at was $2.21 compared with the latest price of $2.68. At the press conference Mr Papps said that NZFP was quite happy to share UEB Industries with NZ Equities. The main issue was what to do with that company’s wool operations. Downstream processing of wool was no longer profitable and both owners were agreed that something had to be done about the operations.