Forum Archive Index - August 2002

["Ian Andrews" <iandrews@ihug.co.nz>]

B.Bourke is demonstrating the flawed thinking which characterises the more vocal segment of FFS's  critics.

 

(a)

They have faulty calculators or haven't mastered simple arithmetic. 22 cents is an 88% difference from $2.50; a considerable difference from 500%; & B. Bourke, despite your protestation, when comparing 88% with 500%, the difference DOES matter. i.e. It is a material difference ( or one shouldn't be investing )

 

(b)

They can't distinguish an old Board Of Directors from a new one. Of the 7- member FFS board, only 1 ( Michael Andrews) came from the old Fletcher Forests Board pre-1999, which was the Board which made the

major mistakes. The poor directors have long since gone, but B.Bourke imagines they are still there.

 

This may sound trite,but if the current directors were replaced, B.Bourke & company in all likelihood would also be unable to distinguish them from the pre-1999 Board  & Board cleanouts would become an annual event. Where would it end?

 

(c)

They are shortsighted & are hard of  hearing. They accuse FFS of having poor management even after having been told the company had an operating surplus of $79 million in the past year & because this surplus was represented by cash  & not  book entries, FFS was able to reduce debt by a similar sum. This Surplus amounted to 3.2 cents per share ( 14.5% of the current share price ), but this fact went right over the heads of B.Bourke & company.

 

(d)

They have an out-of-date mental image of the Chinese. Very dangerous. New Zealand is a lovely ( economist Gareth Morgan calls it a "lifestyle blockl" ) but isolated country. This leads to smugness, which has us cling to paradigms of  countries such as Singapore, Hong Kong, Greece , Italy & Portugal being  having "inferior" economies to our own , when they passed us several years ago. Likewise with China. A commitment to economic growth has seen China  rapidly joining the developed world. It is no longer a country based on subsistence farming, whose businessmen are oout to secure maximum short-term advantage from their relations with Western Businesspeople. I have had business contacts with mainland China for years.  China has learnt how to do business with the west since taking over Hong Kong ( actually, it is more like Hong Kong taking over China ). I accept developments during the 1990's have not been readily apparent to the man in the street ( although they have to international businesspeople) & that CITIC could  have tried harder to sell itself, but then so could the critics have done some homework to bring themselves up to date.

 

(e)

They think all debt is bad debt.. Debt is just an alternative form of  funding to equity ( do we want another rights issue ? ).The proposal would have had debt increase several times, but off an extremely low base. Ironically, had the Board been poorer managers & not managed to clear $80 million of debt in the past year, the " % increase" figures quoted by Bruce Sheppard would have looked better for them. The company would have ended up with a 1:1 debt:equity ration, which really isn't all that startling in the context of either the international forest industry or other NZ listed companies.