Carter Holt spurns goodwill dividend opportunity

Friday 5th May 2000

By Nicholas Bryant

Improved commodity prices have helped forestry and wood products company Carter Holt Harvey bounce back from last year's lacklustre result.

It posted an after-tax net profit of $202 million for the year to March 31, on the back of vastly improved commodity prices and reflecting a major revamp of its operations. It was more than three times the previous year's profit of $62 million.

Carter Holt, in its centenary year, has made a more rapid recovery than was projected but it is still a long way from providing returns its management sees as satisfactory.

"We need to deliver better than cost of capital returns in the company as a whole and in all its parts. We are still some distance from doing that," Carter Holt chief executive Chris Liddell said.

The annual result was helped by the $1.2 billion sale of Carter Holt's South American investment Copec, which also led to speculative buying of the company's shares. On Wednesday, the day before the announcement, Carter Holt shares rose 11c to close at $1.95, much of the buying in expectation of a quick-cash goodwill dividend.

But Mr Liddell decided to keep the money in the company's pockets, earmarking it for future investment in what he called an "uncertain world environment," where "asset prices were all over the place.

"In that environment we need to maintain good financial flexibility," Mr Liddell said.

That caused most of the previous day's profit hunters to bail out and the shares had lost 13c by midday Thursday.

"We're being offered opportunities for investment on a continual basis, so we're looking to keep lowly geared and take advantage of them," Mr Liddell said.

True to plan, those investments would be in core business areas, with Australasia the primary focus.

The company's net sales were up 15% at $3.21 billion, while earnings before interest and tax were $624 million, up from $219 million.

Despite better returns for commodities, Mr Liddell was also quick to take credit for the company's ability to turn its financial situation around.

"Prices have improved but not that much. I think we could take 80% of the credit for managing to improve our performance and say 20% of it was the good fortune of the market."

Mr Liddell said the company had created some of its good fortune by driving markets, such as export forestry, with particularly competitive prices.

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