Forestry companies lose pace as a result of global, local changes

Thursday 12th April 2001

By Peter V O'Brien

The forestry sector has gone from a pace-setting area of the Stock Exchange to a dull investment.

Changes in worldwide commodity prices were part of the reason but the industry has also undergone considerable change in the years since most of it was New Zealand owned.

Evergreen Forests, which described itself in the interim report for the six months ended December 31 as "a pure play, plantation forestry investment company, with no downstream processing" is under effective overseas control.

The company's interim report highlighted the point that "two European institutional investors became substantial security holders over the past six months." They joined US- based Xylem as shareholders.

Much of the country's forestry assets are either owned or effectively controlled overseas.

That may, or may not be a "bad thing," depending on one's view of overseas investment in New Zealand, assuming investment means more than buying existing assets, rather than introducing capital into any particular sector.

Share prices for listed companies with forestry interests are shown in the table.

The comparison with prices a year ago is based on figures used (April 10, 2000) when The National Business Review last examined the sector, April 14, 2000.

Our latest figures disguise the significant price changes that had occurred in April 2000 since August 1999, namely: Carter Holt Harvey -22.8%, Evergreen -6.0%, Fletcher Forests -27.6%, Nuhaka +13.1% and Opio -10.9%.

Overseas ownership of New Zealand forest assets includes Carter Holt Harvey (CHH), which is under the control of International Paper and part of Nuhaka Farm Forestry Fund where Evergreen had 29.4% of the units at December 31.

The movement of overseas institutions and funds in and out of New Zealand companies could see them have sizeable shareholdings in Fletcher Forests.

Add in the interests of companies such as Weyer-
haeuser, Rayonier and various Japanese interests and it can be seen a considerable part of the forestry industry is subject to international corporate decision-making.

The industry's structure could change again after the receivership of the joint venture Central North Island Forestry Partnership (CNIFP).

Carter Holt Harvey has applied to the Commerce Commission to buy the partnership's assets, although the partners are also likely to bid.

CHH has agreed to pay $311 million to buy Norske Skog's Tasman kraft pulp manufacturing business at Kawerau. While that is not directly a forestry business, it uses wood for the manufacturing process. The deal was subject to regulatory approval and completion of final due diligence at the end of March.

Carter Holt Harvey's interests go beyond forestry, encompassing packaging, pulp, paper, tissues, manufacturing, venture capital and information technology activities but it is a significant forestry operator.

The forestry industry's reliance on Asian export markets has been a feature of its structure, particularly in the log trade.

Calls for New Zealand companies to export value-added wood products rather than "raw" may have merit but manufactured products often attract high tariffs in Asia, despite moves to have them lowered.

The Evergreen interim report had an example of reliance on Asian markets.

Pie charts showed 20% of the company's wood production by volume went to Korea, 27% to India and 16% to Japan with the remaining 36% taken up on the domestic market.

The Philippines took 1%, compared with 4% in the six months ended December 1999.

Some of the Asian economies are still in difficulty, a situation that accounts for relatively low timber prices, although they have improved from the position in 1997/98.

World prices for timber and general forest products will come again but investors need good timing if they buy into forestry companies.

Carter Holt Harvey, for example, said recently a downturn in Australian housing construction was a reason for weakness in its forestry division's profit, a comment that indicated the need for caution when investing in the sector, unless one wants to work on the counter-cyclical theory.

Forestry companies' share performance (c)
Company	Price	Price	% change	2000/01	2000/01

	6.4.01	10.4.00	4.00/4.02	high	low
Carter Holt Harvey	181	193	-6.2	252	154
Evergreen	52	47	+10.6	54	44
Fletcher Forests	32	76	-57.9	76	24
Nuhaka	1025	1335	-15.7	1401	1025
Opio	50	49	+2.0	57	45
NZSE 40 cap index	2047.82	2154.27	-4.9	2173.76	1867.85

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