Kaingaroa Timberlands profit rescued by foreign exchange gain as log prices fall

Wednesday 16th December 2015

Kaingaroa Timberlands, the nation's biggest forestry business, posted a 37 percent gain in full-year profit as a foreign exchange gain more than made up for a drop in international log prices.

Net profit rose to US$332.8 million in the year ended June 30, from US$243.7 million a year earlier, according to the company's financial statements. Profit included a US$281 million gain on foreign exchange movements, compared to a year-earlier charge of US$149.7 million. Revenue fell 22 percent to US$355.2 million, of which the bulk came in reduced log sales.

Kaingaroa is the single-largest investment of the New Zealand Superannuation Fund, which owns 42 percent of the business, while the Canadian Public Sector Pension Investment Board owns 55.5 percent and local iwi group Kakano Investments the remaining 2.5 percent. Pension funds are natural owners of forests because of their decades-long maturity profile and ability to look through short-term fluctuations in prices, such as the decline in the latest year.

"It is no secret that log prices have been soft in recent months, but the fund is a long-term holder and we believe the business is well placed for 2016 and beyond," said Super Fund spokeswoman Catherine Etheredge. The fund is "very satisfied" with the investment.

Kaingaroa declined to comment on its performance or the state of global demand. NZX Agri forestry analyst Emma Dent said prices fell because of a build-up of inventories in China.

"Inventories got overloaded in China, so their demand went right down and they weren't buying logs, so we dropped our prices," Dent said. Since then, inventories have run down again and prices have picked up in the past month, she said.

Kaingaroa manages about 178,000 net stocked hectares of forests in the central North Island between Rotorua and Taupo, mainly in radiata pine. The land itself is owned by a collective of seven North Island iwi.

Its 2015 accounts show liabilities fell 25 percent to US$1.01 billion, of which US$976.5 million was in related party loans from shareholders, down from US$1.29 billion a year earlier. As a result, its interest costs fell to US$49.8 million form US$55 million a year earlier. It didn't declare a dividend, having paid out US$2.3 million to shareholders in 2014.

The Super Fund's annual report showed it has $4.4 billion of its $29.54 billion portfolio invested in New Zealand, compared to $3.7 billion a year earlier. The fund first invested in Kaingaroa in 2006.

BusinessDesk.co.nz

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