Fletcher Forests no longer wants central NI forests - Spring

By NZPA

Wednesday 13th November 2002

Fletcher Forests says it is no longer interested in purchasing the key Central North Island Forestry Partnership, which it is currently managing for receivers.

Fletcher Forests previously owned the 165,000ha asset in the central North Island with Chinese investment company Citic before the CNIFP went into receivership.

Fletcher Forests drew up a complex deal this year to repurchase the estate, which was voted down by shareholders in August leaving the partnership with no owner.

Chairman Dryden Spring said in speech notes for the company's annual meeting today that it was no longer pursuing any involvement with the forest partnership.

"We are still managing that asset for the receiver, under a management contract set up in 1996. However, the receiver has recently requested a revised management proposal from Fletcher Forests and, we understand, other parties, in relation to the ongoing management of the CNIFP," Sir Dryden said.

"Also, a new owner might not wish to continue with Fletcher Forests as manager. The future of those management arrangements is, therefore, uncertain."

Fletcher Forests' earnings before interest and tax (ebit) was $28 million for the first four months of the financial year, an improvement on $20 million for the same period last year, reflecting gains in all operating units, particularly in North America.

Net profit after tax for the first four months was $13.3 million, compared with $9.1 million last year.

Fletcher Forests' full year result last year was a $249 million loss, including a write-off of $324 million in debt owed by the CNIFP.

However, he warned the current favourable market conditions did not look set to continue for the rest of the year.

"We are now seeing some pressure on export prices, in particular logs to Korea and lumber to the United States. Higher oil prices are also impacting on our shipping and distribution costs.

"But nevertheless we expect to deliver a continuing improvement in operating results over last year, in the absence of any unexpected events and prior to any foreign exchange impacts," Sir Dryden said.

"Looking beyond the current year, we need always to bear in mind that Fletcher Challenge Forests is not yet harvesting at the rate which will be achieved when our forests are fully producing in about six years.

"Based upon our current holdings, forest output will lift by about 45 percent over that period and, with it, cash flow and operating earnings."

Last year's ebit of $136 million, inclusive of the annual crop revaluation and foreign exchange movements, represented a return on capital of 9.6 percent, below the company's goal of at least 11 percent.

Fletcher Forests turned its focus to secure better returns for shareholders, who had not received a dividend for some years.

"We are very conscious of the fact that shareholder returns have been totally unacceptable in recent years and, at 21c-22c, the company's shares are trading well below their book value of 41c, below the 37c placement price agreed by Citic, and below analysts' fair value assessments which average around 33c," he said.

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