Carter Holt suffers steep earnings slide

By Phil Boeyen, ShareChat Business News Editor

Tuesday 17th July 2001

First quarter operating earnings and net profit for forestry giant Carter Holt Harvey (NZSE: CAH) have taken a dramatic tumble.

The company has announced that first quarter operating earnings before restructuring items has dropped to $31 million, well below last year's $120 million result and also $20 million lower than the March quarter.

After interest costs and one-off restructuring charges, the company has reported a $34 million.net loss for the quarter.

The major item in the restructuring and non-recurring charge is a non-cash $25 million write-off of assets for the Mataura paper mill and Mt Burr sawmill that were both mothballed last year.

Carter Holt says the likelihood of these two facilities re-opening in the current economic environment is now remote.

The casualties of the first quarter are spread throughout the company.

Forests' earnings before interest and tax were just $1 million compared with $50 million for the same quarter
last year, although sales were higher at $166 million compared with $147 million previously.

"Forest Resources will continue to hold back volume to less than sustained yield harvest levels until market prices recover sufficiently to justify increased sales," says CEO Chris Liddell.

"While this will negatively impact Forests' short term earnings, we believe this is the sensible medium term action for shareholders."

Wood products' Ebit was $4 million compared with $31 million for the same quarter a year earlier, while the company's pulp, paper and tissue division recorded Ebit of $17 million for the June quarter , down from $37 million last June.

Pulp, paper and tissue's earnings include the results of the Tasman pulp mill acquired at the end of April.

On the plus side, the packaging and distribution divisions both improved over last year, with packaging turning a $1 million loss last June into a positive Ebit of $6 million. Operating earnings in the distribution group tripled to $3 million for the quarter.

Chris Liddell says the company indicated at last quarter's announcement that it expected this quarter to be tough.

"What transpired were market conditions in all of our major businesses at, or near, cyclical lows."

"Our strategy, given these tough conditions, has been to best manage those factors inside our control, and focus on the long term strategy for the company. This operating environment has only served to strengthen our resolve to pursue innovative strategies to create value for our shareholders."

Mr Liddell says Australian housing approvals for the quarter were 26% lower than the same quarter last year, export bleached pulp prices were on average 42% lower at US$400 a tonne, while average export log realisations were down 21% on last year.

Although the company's internal transformation from six groups into 33 businesses is going well, Chris Liddell says in retrospect the company couldn't have picked a more difficult time for such a major restructure.

"However I am extremely encouraged by the way our people have managed the change."

While the immediate outlook is for more of the same challenging conditions due to the global economic slowdown, the US is expected to recover later in the year, and the Australian economy is now showing signs of recovery.

Mr Liddell says the fact that profitability and therefore shareholders' returns are still too low, despite the company delivering profit improvement projects of over $200 million in the last three years, shows the cyclicality and competitiveness of the forestry business.

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