Evergreen trims its growth

Duncan Bridgeman

Friday 23rd April 2004

Evergreen Forests is downsizing but has promised to remain a "pure play" forest investment company.

Chairman Peter Wilson said the company had decided to consolidate its core business and reduce debt amid a progressive decline in log prices.

"The situation is that our forest values have come down and the board would prefer us to have less debt," he said.

Evergreen, which was involved in a bid for the former Fletcher Challenge Forests' estate last year, wrote down the value of its forests to $118.7 million as at December 31, from $138.2 million six months earlier.

The company has now abandoned its previous aggressive expansion plans and is considering selling off non-core forests.

Mr Wilson said Evergreen did not have an active asset sale process but would sell its smaller forests or land that had a higher alternative use value if and when the opportunity arose.

Evergreen shares are largely held by foreign investors, including Ohio Public Retirement System with 42%.

Asked if the lack of a growth strategy could turn investors away, Mr Wilson said the company was committed to the forest industry but the priority was to consolidate its assets first.

"It's a matter of waiting and seeing," he said.

"But we're not driving this on the basis that we anticipate there might be something spectacular coming out of left field.

"To do nothing is not an option ... we've got some extremely patient shareholders who want to see value around their investment."

Evergreen's net loss of $13.15 million for the six months ended December (4.27 million profit in the corresponding period) included a forest value writedown of $13.16 million after tax, yet the company had a $6.48 million tax liability, compared with nil in the 2003 half-year.

The company changed from historical cost accounting policy to valuation accounting in the period.

Evergreen has no downstream facilities or long-term supply commitments, which means greater flexibility to maximise cyclical opportunities. But in recent times the industry has been battered by a number of external events, particularly the high New Zealand dollar.

A combination of other factors such as Resource Management Act provisions and the country's commitment to Kyoto protocol principles have also rocked investor confidence in the sector.

Both the big players in the local market, Tenon and Carter Holt Harvey, have sold off their forests to concentrate on wood processing and marketing of wood products.

However, Mr Wilson remained positive the long-term future of the industry was secure.

Comments from our readers

No comments yet