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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
03 Nov 2018 11:00
Pine Group’s Whopping  Record Breaking  Operational Profits
Tropik Wood Industries Ltd owns and operates sawmill and chip plant and produces woodchips

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

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