The O'Brien Column: Industries rate currency woes differently

Friday 17th November 2000

The government's performance in areas affecting investors and financial markets will be examined in markets over the next week as we reach the first anniversary of the 1999 election.

Such reviews give either praise or condemnation, depending on the philosophy of the reviewer.

It is sometimes forgotten that a government that said it would implement specific policies can hardly be accused of a lack of performance if it took action on those policies, irrespective of what one thought of it.

There are also matters beyond a government's control, the value of the New Zealand dollar being an example. It is more a matter of a strong US dollar and the activities of currency dealers, including speculators, than shortcomings of the New Zealand government.

Contrasting reaction to the currency's value was seen last week in some company results and annual meetings.

A good summary was in Evergreen Forests' chairman Peter Wilson's address to the annual meeting.

He said the low New Zealand dollar value was assisting New Zealand export industries.

"Unfortunately, it is no more than a window of opportunity.

"A low exchange rate means that domestic costs will increase rapidly."

Mr Wilson said we were seeing clear evidence of that, particularly in relation to fuel prices and there were going to be other fiscal pressures to follow.

In the case of a forestry company the lower currency is another advantage to go with rising prices for timber products, to which Mr Wilson also referred.

The meat industry has been another beneficiary of the currency and prices for its product.

Meat exporter Alliance Group's preliminary report for the year ended September 30 was released last week.

Net profit was $17.17 million after pool payments of $19.5 million and non-recurring items of $10.03 million, compared with $2.04 million and non-recurring items of $10.03 million, compared with $2.04 million in the previous year when there were non-recurring items of $17.24 million.

Chairman John Turner said the company and farmers had had a positive financial year after good lambing in 1999, favourable climatic conditions throughout the season, improved prices in export markets and a depreciating New Zealand dollar.

Chief executive Owen Poole said the outlook for the current year remained positive.

Mr Poole noted the value of the dollar against the currencies of our trading partners would be a factor in the new season's return to producers.

Higher costs of imported goods, including fuel, have an impact on farmers as well as the wider community, but it seems there has been considerable net benefit when export returns are offset against import costs.

The adverse effects of currency realignments was contained in comments accompanying Fisher & Paykel Industries' report for the six months ended September 30.

The company said the continued fall in the value of the New Zealand and Australian dollars had increased the cost of overseas-sourced materials and export receipts did not benefit from the drop in our dollar.

Fisher & Paykel locked in margins more than 12 months ago when exchange rates appeared favourable.

Foreign exchange cover was taken at rates higher than those currently ruling.

The low New Zealand dollar also affected the whiteware division on the import side, because a significant portion of its costs were in US dollars for which the company had limited foreign exchange cover.

Other government policies either put in place, or on the agenda, were discussed in NBR Personal Investor, on July 7.

They included the new Employment Relations Act, changes to accident compensation legislation, the new "people's bank," an increase in the top margin tax rate for incomes of more than $60,000 a year and the proposed superannuation scheme funded from general taxation.

The people's bank seems to be coming closer as noted in NBR last week and it appears the superannuation proposal is progressing.

There are some misconceptions about the latter policy, although not among people familiar with investment markets and fund management.

Any idea that a fund could be used as a source of investment capital for greenfields enterprises can be dismissed, a point the government seems to have acknowledged.

Nor could all the money be invested in New Zealand across the traditional fund management asset classes.

It would have to be spread across other countries and their asset classes.

In terms of its general relationship with business the government has been trying to improve the situation but has had lapses. That probably "goes with the territory" of any government.

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