Hedging position boosts Carter Holt Harvey half year result

By NZPA

Wednesday 17th July 2002

Hedging against the surging New Zealand dollar helped boost Carter Holt Harvey's half year result above market expectations.

New Zealand's biggest forest products company said today that it had a June half-year net profit of $73 million against a $15 million loss in the year ago period.

Ebit (earnings before interest and tax) operating earnings increased by 74 percent to $143 million, compared to the $82 million made last year.

Carter Holt posted a first quarter net profit of $17 million. June quarter net earnings were $56 million against a loss of $34 million in the same quarter last year. Analysts had predicted earnings of around $40 million-$50 million for the quarter.

But the hedging, taken out at around US42c, against the current value of nearly US49c, helped boost the bottom line by around $7-8 million in the last quarter.

Chief executive Chris Liddell said the company's policy was to hedge 12 months ahead. It was hedged into a good part of next year and partially hedged into later years.

Mr Liddell expects earnings to continue for the rest of the year at a similar rate to the half year. "While the global outlook continues to be mixed, we expect over the remainder of the year to see a continuation of the solid operating performance experienced in the first half of 2002," Mr Liddell said.

Macquarie Equities forestry analyst David Stanley said the better than expected result set the scene for a better second half year.

"We already have quite large expectations for the second half and this just gives us increasing confidence," he said, adding that brokers' consensus forecasts would likely be raised as a result of the first half performance."

The company declared a dividend of 3 cents per share. It carries no tax credits and will be paid on August 19.

Total operating revenue rose 7 percent to $2.03 billion.

Mr Liddell attributed the improved performance equally to improving markets and a focus by management on several initiatives.

"We've made good progress, not only in terms of the marketplace but also in terms of some of the key indicators that we have been talking to the market about for at least a year now. I'm pleased with the progress we have made."

All divisions improved year-on-year other than pulp and paper which lagged, principally due to weak global prices.

The company is aiming to lay off around one third of its workforce at its Kinleith pulp mill in Tokoroa in order to boost productivity. Mr Liddell expects negotiations to be completed in one or two months.

Mr Liddell said exports continued to grow with New Zealand export sales for the first half up over 19 percent on the same period last year.

He said the company had also maintained its focus on working capital, reducing it by $202 million over the last 12 months.

Cash flow returns on investments improved one percentage point to around 7 percent but were still less than the cost of capital.

Capital expenditure as a percentage of depreciation and amortisation was at its lowest level since 1994. Selling and administration costs were decreasing as a percentage of sales.

Mr Liddell said the balance sheet was especially strong with net interest bearing debt $420 million less than a year ago and the ratio of debt to total assets now the lowest it had been in over a decade.

Carter Holt shares initially rose 2 cents but fell back to be 1c down on yesterday at $1.93 in a weak market.

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