Carter profit small return on big assets

By CHRIS DANIELS forestry writer

Carter Holt Harvey watchers are expecting few dramas, but hope some light will be shone today on what the future holds for our second-largest listed company.

Carter Holt reports year-end results today, after changing its balance date to December 31.

This means it will be reporting December quarter and nine-month financial year results.

Frances Loo of UBS Warburg expects a $9 million profit for the quarter, compared with a $25 million loss in the September quarter.

In the same quarter the previous year Carter Holt had profit of $53 million.

A forestry analyst with Credit Suisse First Boston, Andrew Mortimer, said log prices had improved and were "off the bottom" - although this did not mean the cycle had turned.

The only business unit experiencing a true turn for the better was the wood products division, which makes lumber and panels.

CSFB is predicting a profit of $26 million - the top end of most forecasts.

Despite this, Carter Holt's revenue is about $3 billion, so a profit this big was nothing to be excited about.

"It's going to be a poor result whichever way you look at it," said Mr Mortimer. "To get a reasonable return on equity you would be looking at up around $400 million. This is all around the margins of error."

Whether the profit announced today was $5 million, $10 million or $26 million, it remained a very poor return on a large asset base, he said.

Last year was a busy one for Carter Holt.

The company bought the Tasman pulp mill at Kawerau from Norske Skog for $311 million and spent $432 million in Australia on a sawmill and buying the medium density fibreboard (MDF) and particle board business from building materials giant CSR.

It also spent $132 million on a new laminated veneer lumber plant in Whangarei and an undisclosed sum on a quarter share of Hong Kong paper distribution firm Pacific Millennium Paper.

Mr Mortimer said the asset base of Carter Holt had changed markedly over the past 18 months and some divisions were at the downside of a cycle.

"Carter hasn't yet seen all those businesses running at full steam, or at their potential.

"The cycles turned on them just after they bought them.That doesn't mean they were bad buys.

"It just means we haven't seen their earnings visibility yet."