CNIFP Financial Data
CNIFP Financial Data
Auckland, 7 August 2002 – Fletcher Challenge Forests today provided the following updated financial data in relation to the proposed acquisition of the assets of the Central North Island Forest Partnership (CNIFP).
Interest costs hedged
The Company has entered into an agreement which, contingent upon the CNIFP purchase proceeding, enables the Company to fix a base interest rate on US$200 million, for the two year period commencing 16 September 2002, of 2.69% prior to bank margins under the Company’s proposed new debt facility.
Based upon this hedging transaction, recent Japanese Yen denominated transactions and the general downwards movement in global interest rates, the Company now expects interest costs to be approximately NZ$5 million per annum lower than previously projected in the Explanatory Memorandum to shareholders dated 17 July 2002 (“the Explanatory Memorandum”).
Impact of lower New Zealand dollar
The Company notes that the financial projections in the Explanatory Memorandum assumed a US$/NZ$ exchange rate of 0.49. The sensitivity of the Company’s operating earnings to movements in foreign exchange is shown on page 99 of the Explanatory Memorandum.
At the current US$/NZ$ rate of 0.451, operating earnings and free cashflow would increase by approximately $12 million per annum.
Foreign exchange acquisition risk hedged
The CNIFP purchase price of approximately $650 million is denominated in US dollars. Shortly after entering into the CNIFP purchase contract with the Receiver the Company took out cancellable forward exchange contracts which in substance provide the Company with an option to buy US$250 million at an exchange rate of 0.465. As a result, the Company is not exposed to weakness in the New Zealand dollar below this level, in relation to this component (US$250 million) of the purchase price. The balance of the purchase price is primarily to be funded in NZ dollars.
Return on invested capital exceeds 10% after taxation
The Company notes that it has valued the CNIFP assets adopting a real after-tax discount rate of 8.1% (nominal rate of 10.2%). As noted on page 18 of the Explanatory Memorandum the resultant value exceeds the proposed purchase price. This implies a nominal return on the funds to be invested in the CNIFP in excess of 10% after taxation.
Returns on an annual basis increase over time, as the annual harvest from the CNIFP lifts from its current level of approximately 3.2 million m3 to its long term level of 3.9 million m3. Accordingly, returns in the 2003/4 periods are not indicative of the longer term returns from the asset.
As a pre-completion requirement to the bank financing of the transaction, the Company engaged an independent forestry consultant to review, on the funding banks’ behalf, the proposed harvest levels of the combined estate. The independent consultant has completed the review and concluded that the combined estate is being harvested on a sustainable basis, and indeed there is potential to increase the harvest level if desired.