Carter Holt's Australian Building Supplies units fattens margins in 2013, reverses write-down

Monday 12th May 2014

Carter Holt Harvey, which sold its pulp, paper and packaging businesses last month, more than tripled gross margins at its Australian building supplies in 2013 and reversed write-downs it took on its timber business a year earlier, narrowing the company's annual loss.

Building Supplies Group Holdings, an Australian unit of the combined Carter Holt group, made a loss of A$14.6 million in the 12 months ended Dec. 31, compared to a loss of A$326.6 million, a year earlier, according to financial statements lodged with the Australian Securities & Investments Commission. The company fattened gross margin to 6.29 percent of revenue from 1.98 percent a year earlier, even as sales slipped 4.9 percent to A$869.6 million.

The result included a A$62 million reversal of impairment losses on Building Supplies' wood products timber business, amounting to almost half the charge it had taken in 2012. The Carter Holt unit made an operating profit of A$56.8 million, compared to a loss of A$304.8 million in 2012.

"These partial impairment reversals reflect a combination of improved trading conditions, the implementation and realisation of restructuring and operational efficiencies and improved general market expectations regarding housing construction," director Helen Golding said in her report. "Collectively, these factors resulted in a revised estimated of the probable future value to be generated by the Wood Products Australia - Timber business."

Carter Holt shut two South Australian timber mills and laid off about 100 people in 2012, blaming the state government for refusing to renegotiate the price the firm had to pay for logs. It rejected an A$27 million assistance package from the South Australian government which would have forced the company to keep the mills open and maintain a minimum level of employment and production.

Last month Carter Holt agreed to sell its pulp, paper and packaging business for NZ$1.04 billion to Japan's Oji Holdings and Innovation Network Corp of Japan, adding the Tasman and Kinleith pulp and paper mills, and a large Australasian packaging enterprise to Oji's Pan Pac pulp and paper mill, near Napier. The transaction is expected to occur in the second half of the year.

INCJ, a government-backed innovation agency that attracts private sector investment to "promote innovation and enhance the value of businesses in Japan", will invest a maximum of NZ$363 million for a 40 percent stake.

Carter Holt's pulp, paper and packaging business had revenue of NZ$1.15 billion and earnings before interest, tax, depreciation and amortisation of NZ$113 million in 2013, Oji said in a statement. That values the transaction at about 9.2 times Ebitda.

The Australian Building Supplies unit returned to positive equity of A$12.8 million as at Dec. 31 from a deficit of A$56.4 million a year earlier, with A$70 million of related party debt forgiven and a A$53.6 million capital reduction in connection to loan receivable by one of its subsidiaries also being forgiven.

As at Dec. 31, Building Supplies had bank debt of A$328.2 million, up from A$279.9 million a year earlier. That accounts for its share of a combined Carter Holt facility.

The remainder of the group's debt includes fully-drawn term loan facilities of NZ$363.9 million and US$2.9 million by Carter Holt Harvey Finance, and a fully-drawn term loan facility of NZ$696.2 million by Carter Holt Harvey Ltd. That leaves an undrawn revolving facility of NZ$50 million.

The forest products group was forced to refinance NZ$1.45 billion of debt in 2011 after failing to find a buyer for its pulp and packaging businesses at the right price.

Building Supplies manufactures, imports and distributes panels, timber and plywood and packaging materials mainly in Australia, and is owned directly by Hart's Rank Group via New Zealand incorporated Nerva Investments. It refers to the Carter Holt companies as related entities in the document.

Hart bought Carter Holt Harvey in 2006 for NZ$3.3 billion, and put a NZ$3 billion-equivalent five-year leveraged loan in place to recapitalise the group.

BusinessDesk.co.nz

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