Pine Group’s Whopping Record Breaking Operational Profits
Fiji Pine Group of Companies (Group) is forecasting record breaking $35 million operational profits in 2018.
Group executive chairman, Faiz Khan, said if the company adds back the record $7 million paid to landowners for lease bonus, the 2018 operational profits is forecasted at a whopping $42 million.
This is more than most large companies trading on the stock exchange and compares with large profitable banks.
This is even more notable given the company was on the verge of collapse only eight years ago.
The company was debt ridden to the tune of $57m; had obsolete and old factory assets that were falling apart and did not have a sustainable forestry business practice.
Not only has the Pine Group of Companies moved from a big minus to a plus, it has catapulted itself to a business trend setter in Fiji.
Mr Khan stressed: “The Fiji Pine Group is debt free for all intents and purposes. The debt stood at $56.5m in 2010.
“Loans to European Investment Bank, Westpac, FDB and FNPF have all been paid off.
“Interest free Government debt of $12m borrowed from 1990 to 2001 has been reduced to $7.8 m, with $600,000 repaid every six months.”
Forecast
Mr Khan further explained that against that, the Group currently holds around $15 million in interest bearing deposits.
“With liquid high levels of inventory due for imminent sale the Group is forecasting to have far more than $30 million cash at bank by the end of 2018,” he said.
“From where we were only eight years ago, to where we are today, that is a complete transformation of the Pine industry.”
With astronomical debt paid off and most
the Group is looking at developing a large office complex in Lautoka city commencing in 2019.
Confirming this, Mr Khan said, this investment is being done to allow further diversification of its portfolio of investments.
Interview with Rachna Lal:
Doom to Trendsetter – Pine Industry
Fiji Pine Group of Companies (Group) is forecasting record breaking $35 million operational profits in 2018.
This is more than most large companies trading on the stock exchange and compares with large profitable banks.
How has a company that was on the verge of collapse only 8 years ago; debt ridden to the tune of $57 million; had obsolete and old factory assets that were falling apart and did not have a sustainable forestry business practice – transformed itself so quickly?
Not only has the Pine Group of Companies moved from a big minus to a plus, it has catapulted itself to a business trend setter in Fiji.
We took this opportunity to talk with Faiz Khan who has been the Executive Chairman of Fiji Pine Group of Companies since March 2011.
Q1: People find it hard to believe the transformation. What are the secrets?
First and foremost, the results may not be believable but they are real.
We don’t have debts anymore; have upgraded old factory capital to state-of-the-art without borrowing – through operational cash generation; and have returned our forestry sector to sustainable practices.
Seven and half years ago with no money in the bank account, banks calling upon you for payment of their debts, factories that could not operate without breaking down, no pine replanting done for 10 years prior to that, we didn’t quite know how we would get out of the dreadful situation.
Maybe we have done the simple things right and got lucky.
Q2: Any specifics you could give?
We had to understand our business to start with. That allowed us to map out a short term plan and a long term strategic direction. It also allowed us to make courageous decisions in line with our strategies. Some specifics:
a)Our business is vertically integrated with Fiji Pine as the resource owner and Tropik as the processing arm. Each relies on the other.
It takes on average 22 years for pine to mature, so it’s a long term investment business with obvious risks.
Our landowners are both our shareholders and lease their land to Fiji Pine for our pine plantations.
Our landowners are our key stakeholder.
However, we found that the industry was disjointed with the landowners.
We found ways to rebuild trust through listening, good communication, understanding what the issues were and giving returns to landowners that were always promised in the past but could not be delivered due to lack of profits and cash.
The lease bonus has grown from $0 to $7 million in last five years.
The bonuses go to our landowners. 26,500 hectares of expiring leases were renewed in last seven years. We have re-built our relationship.
b)Our business is very volatile. A significant portion of our business is wood chip exports that is a commodity subject to price and demand swings based on what is happening in USA, Asia and Pacific.
So we have limited control over the revenue we derive from these sales.
Therefore, we had to focus on the cost fundamentals. That has allowed us to ride the highs and the lows.
c)We have also been lucky to build well over the last seven and half years, starting with the Wairiki chip pad and conveyors, the state-of the- art automated Drasa sawmill, new kilns, planner mill, post and pole mill, treatment plants for chemicals and water, cogeneration plant upgrades and many more.
When you build infrastructure well it provides long term value back to the company.
When through good planning and implementation, you build well at lower costs than what others would; you also boost your cash position.
As paradoxical as it may sound, good value for money infrastructure makes any company cash rich.
d)We have many of the same people working in our team as before. We have also had good many young budding men and women who have joined us.
More importantly we have endeavored to bring an organisational culture that is driven, fair, equitable, honest and progressive.
We have a great team of people that communicate, discuss ideas, and argue to progress. And we continue to learn and grow.
The team will get a good bonus before Christmas.
Q3: You make it sound very simple. What do you think differentiates the Fiji Pine Group to the other companies so much so that you are considered a trendsetter?
I don’t really know the answer. But perhaps it has to do less with the business itself, and more with modern management philosophies and habits.
I could not possibly talk about all things that worked or didn’t work for us. In fact there is no complete answer to your question.
However, I give couple examples.
Integrity of reporting – I remember I was one of the speakers at a CPA Congress a few years ago.
Part of my presentation was about the forecasts of financial turnaround that the Pine Group (and Fiji Airports – the other company I am involved in at an executive level) was going to experience. When I met people afterwards they were questioning how much of my presentation was factual and how much was financial re-engineering of numbers.
We probably should not blame those people asking such questions.
They were asking such questions because company executives can and do manipulate numbers, or talk about less relevant data and make it sound important when the true performance is hollow.
Boards may not have the capacity to pick out the misreporting, or not have the courage to, or simply not care. Accurate reporting is vital for our success.
For example, we don’t talk about total assets of our Group, we talk about net assets.
We look at operational profits without forest valuations fluctuations due to market.
We look at real results like cash position.
They sound simple but these do get lost sometimes.
At Fiji Pine we believe that if we cannot be honest to ourselves, we cannot be honest to others.
Being honest allows us to keep challenging ourselves, identify gaps and improve. That shows in the results. It also allows us to foster partnerships with all stakeholders based on trust and win / win.
Effective engagement – We spend considerable time in effectively communicating with our people, encouraging them and assisting them to grow. This is not rocket science.
People reciprocate good gestures and habits, and you build loyalty and passion towards the company. In turn the company will row faster in the direction it wants to go.
Q4: You also have international recognition for sustainable forestry practices. Could you elaborate on this?
We have a Forest Stewardship Council (FSC) certificate that is a global forestry sector recognition for responsible and sustainable practices.
Next time you open a box of tissue you may see a sign “FSC certified’.
Always buy FSC certified to support companies that dedicate time and effort to environment and sustainability. Fiji Pine and Tropik (under a chain of custody) are the only companies in the South Pacific to have the FSC certification recognition.
This is not just a certificate for us. We believe in the principles of FSC because it allows us to remain long term focused for the benefit of our shareholders.
Q5: What is in store for the Pine Group in future
We want to continue to diversify our business investment portfolio. For example, we are planning to build a landmark office complex in Lautoka starting 2019.
We will continue to do things to make our business more resilient, for our shareholders.
Feedback: rachnal@fijisun.com.fj
