Profitable year tails off for Carter Holt

By Phil Boeyen, ShareChat Business News Editor

Wednesday 18th April 2001

Carter Holt Harvey (NZSE: CAH) has lifted net earnings by 17% over the previous year although a lacklustre March quarter result will be giving the company food for thought.

For the year ended March Carter Holt made a profit of $237 million compared with $202 million previously. Sales revenue reached $3.7 billion from $3.2 billion.

March quarter profit at $19 million however dropped considerably from last year's $57 million. The result followed a similar poor performance in the December quarter, when net earnings more than halved compared with the previous year to $42 million.

CEO Chris Liddell said the poor outcome for the March quarter was a result of a very weak international trading environment.

"While market conditions in the first half of the fiscal year were strong, the second half was significantly weaker.

"In particular housing starts were down 35% and 13% respectively in Australia and New Zealand in the March quarter compared with the same quarter last year.

"In addition the slowing economies in the United States and Asia led to lower demand for pulp and containerboard in our export markets."

Mr Liddell says while the company is continuing to focus on factors it can control, realistically the market conditions in the short term will remain very challenging.

Looking at the full financial year the company says it was characterised by strong market conditions for pulp, containerboard and Australian residential construction in the first half of the year, followed by sharply weaker market conditions in the second half of the year.

Earnings before interest and tax (Ebit) in the company's forests division was $142 million compared with $110 million the previous year. The division also posted record sales volumes and record export log volumes.

The pulp, paper and tissue division improved even more markedly, with an Ebit of $146 million, more than double the previous year's $64 million.

CAH says its Kinleith and Penrose mills achieved excellent operating performances and export prices rose in the first half of the year but fell in the second half.

The company's packaging and distribution division's also put in better performances compared with last year. Ebit for packaging was $8 million compared with a loss of $3 million while distribution delivered an Ebit contribution of $12 million compared with $9 million previously.

Ebit from wood products however fell from $66 million last year to $53 million.

CAH says the three main influences on wood products' results were the severe contraction in Australian construction markets, higher log costs, and the positive contribution from 11 months trading of the Australian panels business and a sawmill.

Income from associated companies was just $10 million compared with $124 million previously, following the sale of the company's Chilean investment.

Despite the improved profit result Carter Holt is warning that the immediate outlook for the next two quarters is for difficult trading conditions.

"Economic growth in the US, Asia and Australia has slowed appreciably. Residential construction levels in both New Zealand and Australia are at cyclical lows and are not expected to recover until the spring, as lower interest rates encourage new investment in housing," says Chris Liddell.

However Mr Liddell also says the company is looking forward with confidence to its new financial year.

"The recently announced acquisitions of the Tasman pulp mill, Asian distribution channel and new sawmill are each expected to make an immediate contribution to earnings."

Carter Holt says it has been actively reshaping its business portfolio during the past financial year, but is committed to investing only when it is confident that returns will exceed its cost of capital.

It says the Australian softwoods panels business and sawmill which it purchased last May for A$330 million achieved a cash flow return on investment of 16% for the year and it is expecting a 20% return on its US$130 million purchase of the Tasman pulp business from Norske Skog.

The final dividend will be announced after a board meeting later this week.

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