Forestry's fiasco fells Fletcher's finale

Friday 2nd March 2001

By Nick Stride

Fletcher Challenge's massive $525 million Central North Island Forests writedown swamped a $457 million gain from the Paper division sale, leaving the group struggling for profits in what may be its final half-year.

As a bidding war erupted for the Energy division its parent posted a $22 million profit, down from $239 million a year ago.

Energy proved its worth with a 41% revenue lift, to $1.04 billion, as oil prices rose. Profit rose 77% to $308 million, boosted by gains on the $113 million sale of a one-third stake in Natural Gas Corporation.

But red ink gushed in the Forests and Building divisions, both of which are scheduled to stand alone after the mooted group break-up.

Building's revenue fell 14.3%, to $1.1 billion, as work in the New Zealand and Australian markets dried up.

Profit before tax and unusual items was $18 million, down from $65 million a year ago. The bottom-line loss was $41 million after $56 million of unusual charges.

The main items were a $25 million provision for a dispute over an Australian co-generation construction project and an $11 million writedown of Auckland properties.

Forests, still struggling with low log prices in the wake of the Asian crisis, notched up a 15% revenue rise to $348 million and a 31% lift in operating profit to $38 million. But $603 million of unusual items dragged the division to a $498 million bottom-line loss.

Forests late last year wrote $525 million off the value of its half-share of the Central North Island Forests Partnership, comprising all of its equity investment and part of its loans.

It is in legal dispute with its CNI partner, China's Citic. The failure of the partners to inject further equity this week prompted their bankers to put the partnership into receivership.

There was little to cheer shareholders in either Forests or Building.

Forests predicted low building activity in New Zealand over the next year. In the US key customers were reporting declining sales while in Asia demand remained too low to create any upward price pressure.

Building was also gloomy on the domestic outlook and blamed poor conditions in Peru and Bolivia, and higher transport costs, for its poor result.

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