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

The nation's biggest forestry business Kaingaroa Timberlands posted a 37% 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 $US332.8 million in the year ended June 30, from $US243.7 million a year earlier, according to the company's financial statements.

Profit included a $US281 million gain on foreign exchange movements, compared to a year-earlier charge of $US149.7 million.

Revenue fell 22% to $US355.2 million, of which the bulk came in reduced log sales.

Kaingaroa is the single-biggest investment of the New Zealand Superannuation Fund, which owns 42% of the business, while the Canadian Public Sector Pension Investment Board owns 55.5% and local iwi group Kakano Investments the remaining 2.5%.

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," says 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 says 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," Ms Dent says. 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 mainly in radiata pine in the central North Island between Rotorua and Taupo. The land itself is owned by a collective of seven North Island iwi.

Its 2015 accounts show liabilities fell 25% to $US1.01 billion, of which $US976.5 million was in related party loans from shareholders, down from $US1.29 billion a year earlier.

As a result, its interest costs fell to $US49.8 million from $US55 million a year earlier. It didn't declare a dividend, having paid out $US2.3 million to shareholders in 2014.

The Super Fund's annual report shows 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)