Fletcher Forests upbeat at annual meeting

By Phil Boeyen, ShareChat Business News Editor

Wednesday 14th November 2001

Fletcher Challenge Forests (NZSE: FFS) has told shareholders it is trading profitably and the next decade should see growth in operating earnings as forest assets mature.

CEO, Terry McFadgen, informed the annual general meeting on Wednesday that in the four months to the end of October the company had earnings before interest and tax, excluding foreign exchange movements and non-recurring items, of $18 million.

Net earnings, excluding foreign exchange movements and non-recurring items, were $7 million.

No comparative figures have been given with last year but Mr McFadgen says the result was a solid performance, achieved through aggressive cost control, improved operations efficiencies and working capital control, and lower interest costs.

He says it was also helped by a continued aggressive drive in global markets.

Chairman, Sir Dryden Spring, told shareholders that last year's tough decisions on financial restructuring have given the company a sustainable, realistic and transparent financial footing.

"A comprehensive strategic review has confirmed significant operational and strategic advantages on which business strategies are now focussed," says Sir Dryden.

"The maturing harvest profile of the company's forest assets will deliver increased volume and value of wood, in the next decade, that should more than double operating earnings from the forest based on current prices."

Sir Dryden says even without any improvement in current prices the maturing asset alone can earn the cost of capital in the medium term and the company also has further scope for cost improvement.

Meanwhile Terry McFadgen says that while the events of September 11, and the recessionary conditions in both the USA and Japan, are clouding the short-term outlook, the medium term trends are pointing to an improvement in prices.

"There is likely to be significantly increased demand for wood in the Asia/Pacific region," he says

"Some major competitors will be impacted by unsustainable forest harvest practices, and new initiatives are possible in terms of consolidated export marketing and greater economies of scale."

Mr McFadgen says the success of added value customer strategies in markets such as the US has confirmed the potential of more aggressive and sophisticated product innovation and marketing.

The company also told shareholders that while the Central North Island Forest Partnership is a desirable adjunct to its own forests, it is not critical to operations.

"Fletcher Challenge Forests will be rigorous in assessing the value of the asset and will only be a participant in the final purchase if it is value enhancing for shareholders," says Mr McFadgen.

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