Tiaki Plantations

Tiaki is located in the Central North Island region of New Zealand, operating a 38,587 hectare plantation estate that was acquired in June 2004. The Tiaki estate is close to established infrastructure, including roads and rail, for transportation of logs to mills or directly to port.

During 2007, Tiaki achieved total product revenue of NZ$78.0 million, which is 8.5 percent above the previous year and above expectations. EBITDA was also above expectations, at NZ$34.2 million - 5.2 percent above 2005/2006.

Once short-term demand issues in export markets are resolved, the outlook for Tiaki is positive. However, any sustained recovery in domestic markets will require an improvement in US housing, and/or a reduction in the NZ dollar. The longevity of the tight shipping market will also be a strong driver of export profitability.

The strong trading result for the year was primarily driven by favourable export markets, with strong demand from the Japanese plywood sector, and Chinese and Korean demand for utility grade timber, which was assisted by supply constraints in tropical hardwood and Russian log-producing regions.

In response to this, Tiaki switched some volumes originally intended for domestic customers to exports. However, export volumes were offset somewhat by high freight costs and a strong NZ dollar. In addition, export markets softened over the year due to a build up of stock.

These factors led to a significant reduction in export volumes late in the year, but volumes for the entire year were above budget. Hancock expects this stock adjustment to last for three to five months. In the meantime, the excess is being redirected to the domestic market, which accounts for approximately 50 percent of all of Tiaki's sales. As export returns have recently eased, Tiaki is looking to increase domestic volumes to maximise stumpage returns.

Domestic sales were weaker than expected during the year, particularly for pruned sawlogs. These are predominantly used in US housing, for which the outlook remains flat. A key issue in the domestic market is the extent of rationalisation following the sale of Carter Holt Harvey's (CHH) business to the Rank Group and the acquisition by a Hancock-led consortium of CHH's forest estate.

Due to the fixed term nature of the investment (single rotation cutting right), Tiaki's management is developing a series of cost-reduction initiatives. Part of this program focuses on the ability to improve contracting rates by purchasing in scale.

During 2007, Hancock acquired the 205,000 hectare CHH timberlands. In an agreement finalised in June 2007, HFMNZ will operate and market the CHH timberlands in addition to its existing clients, including Tiaki, which will result in significant synergy and scale benefits.

HFMNZ has agreed to fee reductions in order to pass some of these savings to Tiaki. Hastings worked with HFMNZ to put in place appropriate corporate governance measures to ensure that the new arrangements are positive for Tiaki investors. Tiaki will also benefit from HFMNZ's scale in export markets, albeit through a third party agent. The new arrangements commenced from 1 July 2007.

HHIT's independent valuer increased the value of HHIT's interest in Tiaki as at 30 June 2007. On a consistent basis with the HVP valuation, this was driven by a review of discount rates used for recent transactions. Again, Hancock's independent valuer, Chandler Fraser Keating, came to the same conclusion independently.

Tiaki PlantaTions
Financial and operational performance

* CAGR: Compound Annual Growth Rate
(1) Part year from 14 May to 30 June.