Boom then gloom for Carter

By PAULA OLIVER forestry writer

Carter Holt chief executive Chris Liddell used a soccer analogy to describe his company's annual result as a year of two halves - a first-half boom followed by second-half gloom.

The country's largest forest owner yesterday reported an annual profit for the year ended March 31 of $237 million, up 17 per cent on the previous year.

But the figures for the year masked a difficult past six months, with a building slump deepening across the Tasman and locally, and economies in the US and Asia starting to slow.

Carter Holt returned net earnings in the last quarter of $19 million - a long way from the heady results of the first half-year with quarters of $90 million and $86 million.

But the result did not surprise analysts, who had expected market conditions to impact heavily on Carter Holt's last quarter.

Hardest hit was the Wood Products division, which returned a loss of $9 million in operating earnings for the March quarter.

The division felt the effects of a drastic slowdown in building which began last July, when GST was introduced across the Tasman.

A flurry of building before GST, as people scrambled to beat the tax, inflated the first half-year result. But the bust that followed, when housing consents "fell off the cliff," in Mr Liddell's words, hit markets hard.

Housing starts in the March quarter were down 35 per cent in Australia against the previous year's quarter, and 13 per cent in NZ.

Mr Liddell said the immediate outlook for Carter remained tough.

"It's a half-empty or half-full jar argument. On the full side, we have done some extremely good things with our portfolio, and the culture has never been better.

"But on the empty side, clearly the results in the short term are going to continue to be difficult. We will concentrate on the things we can control, and eke out what profitability we can."

Wood Products chief executive Devon McLean said demand in Australia remained weak, despite interest-rate cuts and housing incentives. Analysts expect the interest cuts to spur activity in spring, but say Carter Holt is well positioned to take advantage of any pickup.

"The result was not surprising, and I think there is light at the end of the tunnel," said Credit Suisse First Boston's Andrew Mortimer. "The problems are volume-related, not price-related. It's a lot harder to pick up when they're price-related."

The Forests division returned record sales, and Mr Liddell was particularly pleased to see new markets in China and India growing.

Reducing inventory pileups in the Forests and Wood Products divisions would be a key focus over the next year, he said. Already production had been cut dramatically.

On the bright side, Carter's Australian panels business - acquired last year from CSR - returned a result in line with the purchase model despite tough conditions.

And the Packaging division felt the effects of a major restructuring to return earnings before interest and tax of $8 million for the year - compared with a loss of $3 million the year before.

In the Distribution division, retailers held up under extreme pressure to turn a profit, and Pulp, Paper and Tissue enjoyed a stronger year, with record production at Kinleith and Penrose.

Prices in pulp markets were unlikely to improve until late in the year, the company said.

ABN Amro's Dennis Lee said Australia had hit the company hard, but the log markets were not as bad as expected.

"I think the next quarter will be quite difficult too, but we think things should start to pick up later in the year." The Carter Holt board will decide next week whether to issue a dividend.