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Forests sway in buoyant market

Peter V O'Brien

Friday 12th December 2003

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Generally buoyant economic conditions failed to disguise weaknesses in some sectors as companies engaged in the reporting round for periods ended September.

Major retailer Pacific Retail Group confirmed intense competition as traders of all goods chased consumers' discretionary spending. Pacific Retail has additional interests in finance (Pacific Retail Finance) and apparel (Bendon). Retail sales of appliances, computers, furniture, beds and giftware accounted for 76% of external revenue in the six months ended September 30, excluding income from corporate activities and eliminations.

The company's references to competition followed reports from Briscoe Group and The Warehouse Group about pressure on margins, although the latter's Australian operations were an additional factor affecting the business.

Pacific Retail's half-year profit before unusual items, tax and minority interests was $3.81 million, compared with $10.98 million in the corresponding period of the previous year. Deductions for unusual items ($2.8 million pre-tax), tax ($664,000) and minority interests ($374,000) left a net loss of $33,000. There was a profit of $6.12 million in the first six months of 2002-03.

Pacific Retail at balance date was still sorting out its recent UK acquisition of appliance chain Powerhouse and said it would take time to re-establish the business since it started out of receivership, although the subsidiary's management had already made "significant progress."

Retailers have entered their major revenue period, the extent depending on the specific lines. Booksellers, for example, are likely to have a higher percentage of total annual sales in the Christmas period than retailers dealing in "big-ticket" items such as whiteware and expensive furniture.

Problems in the forestry industry hit results from the two farm forestry funds, Nuhaka Farm Forestry Fund and Opio Forestry Fund. , as trustee for both funds, said forest values had fallen due to reduced log prices. The value of Nuhaka's forests was $10.5 million on September 30, compared with $12.35 million on March 31 and $17.3 million in September, 2002.

Perpetual Trust said there was a change of $1.92 million in the value of standing forests, the difference between that figure and the book value movement over the six months being related to a reduction in the harvestable area as a result of harvesting to date.

Opio's change in tree crop value was $953,924. The fund's forest investments had a book value of $9.81 million on September 30, against $10.76 million on March 31 and $10.88 million in the previous September.

Perpetual Trust's Jeff Stainland summed up the overall state of the export log industry. He said in Nuhaka's report that "falling export log prices, continued strengthening of the NZ dollar and significant increases in shipping rates had caused returns from harvesting to decline over the half year."

Returns had recovered in the past month (apparently October-November). Stainland said returns were forecast to remain strong into the New Year "all tings being equal."

It remains to be seen whether all things remain equal, but unit holders in the two funds may be unconcerned about the hiccup. They had good capital and income returns over the years (income from Nuhaka) and knew they were involved in a long-term venture when they acquired units.

The results released so far have seen the usual deficits from relatively new companies. Investors tend to shrug off losses if they can see eventual solid profit and seem to have taken that approach to Mooring Systems, a company with revolutionary systems for mooring vessels.

It reported a $128,000 loss for the six months ended September 30 on revenue of $2.21 million. Figures for the corresponding period last year were a loss of $274,000 on revenue of $137,000. None of that stopped the share price going from $1.22 at the end of 2002 to $1.82 on Monday, a gain of 49.2% on top of 40.2% in the previous year.

Mooring Systems has supply contracts for the mooring technology with Australia's Patrick Shipping and the UK's Port of Dover. The company said it expected to have systems at five ports in New Zealand, Australia and the UK by the end of 2004. Those contracts would provide a "valuable springboard for the widespread commercialisation and adoption of the technology by many shipowners and port operators globally."

That is a lot more than many so-called New Zealand "technology" companies could say about the future of their operations.

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