Fletcher Forests returns to profit

By NZPA

Thursday 13th February 2003

Fletcher Forests today announced a return to net profit, albeit just $4 million for the six months to December 31, against a $302 million loss a year ago.

The company announced operating earnings before unusual items of $47 million compared with $28 million.

Net profit after tax, before unusual items, was $20 million, an increase of $1 million over the corresponding period.

Unusual items for the period were a loss of $16 million (after tax), associated primarily with the proposed sale of cutting rights announced in January 2003,

The loss in the prior period included a net unusual loss of $321 million relating predominantly to a write-off of the company's subordinated loan to the Central North Island Forest Partnership (CNI).

No dividend was announced.

Operating revenue increased 11 percent to $359 million with operating earnings from the North American business up 55 percent to $17 million.

Operating earnings included an unrealised foreign exchange gain of $12 million, compared to $1 million in the corresponding period.

The company said foreign exchange hedging arrangements mitigated the effect of the strengthening New Zealand dollar on operating earnings.

The forest crop valuation this period was negative $3 million compared to an increase of $17 million in the corresponding period, reflecting the effect of recent lower average log prices.

Net tangible assets per share were estimated to have risen to $2.05, from $1.96 at December 31, 2001. Fletcher Forest shares were up 1 cent to $1.15 shortly after the result announcement.

Earnings per share were 0.7 cents compared with a loss of 54.1 cents.

The company forecast a lower second half and similar full year result to 2001/2002.

"Overall, we anticipate lower operating earnings, prior to unrealised foreign exchange impacts, revaluations and unusual items, in the second half relative to the first half.

"Operating earnings for the full year to June 2003, on the same basis, are expected to be similar to the $58 million recorded last year."

Earnings before interest and tax in the December half year fell to $44 million compared with $45 million.

Cash flow from operations rose to 5.2cps from 3.9cps.

The company said the improvement in operating earnings was driven by a strong performance from processing and distribution operations, up 91 percent to $21 million, in particular the North American business, up from $11 million to $17 million.

Sales volumes rose 5 percent, fuelled by buoyant house construction and remodelling expenditure in New Zealand, Australia and the United States.

The forest and logs business segment returned slightly reduced operating earnings, before unusual items, down $2 million to $14 million.

"While the continued growth in export log demand, most notably from China, contributed to an increase in log sales volumes, this benefit was offset by higher harvesting and forest management costs together with lower margins on third party trading."

Interest expense in the six months to December 2002 included costs associated with US dollar fixed interest rate hedges and reflected the impact of a higher proportion of New Zealand dollar denominated debt.

The interest expense in the second half of the year to June 2003 will benefit from lower rates and the receipt of proceeds from the cutting rights sale announced on 15 January.

The company said its financial position improved further during the six month period with a $23 million reduction in net debt to $224 million. Cash flow from operations in the period, before working capital movements, was $29 million.

Its stronger position allowed it to negotiate a new $300 million debt facility that will give it additional flexibility in capital management.

It said its recent $US65 million cutting rights sale of 8 percent of its forests to UBS Timber provided the market with tangible evidence of underlying value well above the company's current share price.

The company plans to return $140 million to shareholders once the deal is completed. It will be effected by cancelling one in every two ordinary and preference shares and paying to shareholders 50 cents for every share cancelled, by way of return of capital.

Following the return of capital and share cancellation, the company's share price should automatically adjust into a higher trading range, because there will be substantially fewer shares on issue, Fletcher Forests said.

A company meeting in late March or early April will be held to approve the capital return.

The company said the New Zealand residential and commercial construction sectors remained buoyant and are expected to support continuing strong levels of demand for wood products through the balance of the current financial year at least.

"The Australian residential and commercial sectors appear to be slowing, but should still remain at relatively high levels."

In the USA, demand for clearwood lumber and moulding products also remains firm, but New Zealand dollar returns were being diminished by the appreciating New Zealand dollar.

In the key export log markets of Korea, China and Japan, conditions were mixed due to the New Zealand dollar.

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