1. Classification: Restricted NZ Institute of Forestry Conference Financing the NZ Forestry Industry Matthew Richards Regional Manager - UDC Finance 8 th July 2014

2. Classification: Restricted What I’m going to cover today Overview of UDC A brief background about me Investment trends with Forestry Contractors UDC’s Forestry clients Our view of the investment trends Today’s challenges Summary Questions

3. Classification: Restricted UDC Finance – An Overview Wholly owned subsidiary of the ANZ Bank. NZ’s largest commercial asset financer specialising in motor vehicle and plant and equipment finance. NZ’s largest and most widespread dedicated team of asset finance specialists. Total loan book of $2.2b with Forestry representing 10%. Forestry has been one of our two largest growth sectors in the past year. Our Forestry lending is all to privately owned forestry contractors. We’re a significant financier to the NZ Forest Industry and we see Forestry as one of our core industries.

4. Classification: Restricted UDC’s Regional Manager for the lower North Island, leading a team of asset finance specialists based in Taranaki, Palmerston North, Hawke's Bay, Gisborne and Wellington. 30 years experience in the Asset Finance industry. Eight year break from finance working for a log transport and harvesting company plus time with an industrial equipment supplier. I have a great interest in forestry … in fact it’s more of a passion! Matthew Richards – A Brief Background

5. Classification: Restricted What are the Investment Trends with Forestry Contractors ? Large multi crew operations with a growing emphasis on cable hauling. These crews are contracted to the larger forestry companies. Smaller single crews focusing on the growing woodlot opportunities. Transport contractors. The past 36 months has been relatively stable for the forestry industry which has seen a good level of confidence. With confidence comes an appetite to spend on new plant and equipment. Our Forestry clients are in three distinct groups:

6. Classification: Restricted Larger Multi Crew Contractors – An Overview Contracted to one of the larger forest owning or management companies. Better Health & Safety (H&S) systems often in partnership with the forest company. Equipment is newer (< 5 years) with a growing trend to more specialised logging equipment and mechanisation. They have often been in the industry a long time and have average to strong financial positions (both on and off balance sheet). We are now seeing a growing emergence of second generation harvesting contractors in this group.

7. Classification: Restricted Smaller Single Crews – An Overview In the main sub contractors or work in the smaller woodlots. Often are start up operators. Harvesting equipment is often older having been traded in by the larger crews. Weaker financial position, both on and off balance sheet. We find it harder to lend to this type of contractor.

8. Classification: Restricted Log Transport Contractors – An Overview Again two categories: Large fleets and owner drivers. Both groups have grown in size in the past five years and there has been (at times) a shortage of truck capacity. In the past five years a significant amount of capital expenditure in new trucks and trailer units with the flow on effect being a very healthy second hand market. High capacity vehicles are a growing trend but application is limited by the quality of the forest roading conditions. Industry sources tell us that while they have many new truck orders under build the tap for new orders has been turned off until confidence returns. An immediate effect on the truck suppliers is their ability to on sell traded in truck and trailer units. Investment trends in this sector are often determined by the length of log to be carted. Ie: full stem vs. log lengths cut before transporting.

9. Classification: Restricted Our view of the Investment Trends H&S front of mind for all involved in the forestry sector. UDC takes it’s responsibility as a lender very seriously. Our recent annual sales conference was themed around forestry safety. We heard from Wiremu Edmonds, Dale Ewers (Harvesting Contractor), John Stulen (FICA CEO) and visited a mechanised harvesting crew. Our view is that the most effective way to improve safety is through an on going focus on H&S standards plus a move to more mechanisation. Mechanisation is a growing trend with more and more larger harvesting crews moving towards this. But its not without it’s challenges due to capital cost. We’re seeing early evidence of improved financial performance as a result of this mechanisation. However these are early days!

10. Classification: Restricted Today's Challenges Already some of our contracting clients have been stood down or have had their tonnages reduced. We expect that this is just the start with many industry commentators picking a 3 – 4 month slowdown. We’re a long term player in the forestry industry and will work with our clients who are impacted. Generally this means we rearrange the debt to interest only and recommence principal and interest payments when production recommences. Another impact to UDC will be fewer new lending opportunities with machinery equipment and truck sales (new and used) depressed. Hopefully we will all be full steam ahead again in 2015! We’re all aware of the downturn in export log prices and I’m sure all in this room have been effected in some way. I’d like to talk to you about how this impacts upon UDC.

11. Classification: Restricted Summary Log harvesting and cartage is a capital intensive industry with the equipment being very specialised. Vast majority of harvesting and transport contractors are privately owned and contract to a forest owner or management company. Investment trends are based around productivity and safety. We’re now experiencing the start of the first significant downturn in many years. We’ll work with our clients to ensure they have the best opportunity to survive this downturn. UDC has been involved in the forestry industry for at least 30 years and we see no reason why we won’t be here for another 30 years!

12. Classification: Restricted Questions? Matthew.richards@anz.com Tel No: 0272 461 618