CHH: cautious optimism

Company has turned a corner, reports Mark Reynolds

Profit figures from Carter Holt Harvey suggest there might be some justification behind a recent surge in the forest group's share price.

The accounts recorded a cheerless 59 per cent slump in overall profit to $62 million for the full year ended March, compared with $151 million a year earlier. But in the final quarter, Carter's earnings finally appeared to turn a corner they have been stuck behind for a couple of years.

After-tax profits in the fourth quarter rose 54 per cent to $37 million, from $12 a year earlier, while earnings per share in the final quarter rose to 2.1 cents each from 1.4 cents each.

Carter Holt executives were cautiously optimistic about prospects.

"I expect to see some growth in worldwide demand this year, through it is more modest than past recoveries, said chief executive John Faraci, who will leave the company in two weeks to take up a post with the company's main shareholder, International Paper of the United States.

Mr Faraci said the annual results represented far less than a satisfactory return for shareholders - who will suffer a 59 per cent cut in their full-year dividends to 3.6 cents a share. But the company had taken action to improve profits.

We are committed to the fact we are going to improve earnings this year over last year, Mr Faraci said.

A programme of change led by him over the past three years has included cutting staff numbers and in spending on everything from transport to power supplies. But it has also included a gradual accumulation of assets in Australia, and outlays of about $250 million a year to upgrade equipment at company plants, like its Kinleith pulp and paper mill.

"The company is now in a much better position to improve its financial results without relying on the need for market price improvement, Mr Faraci said.

Price erosion for products like timber and paper bags cost the company about $88 million before interest and tax during the year. But that was offset by $96 million in savings from the Genesis programme of cost reductions and new marketing and operating measures.

Earnings were affected by an ongoing upgrade of the Kinleith pulp and paper plant, which is not expected to be fully complete until the end of this year.

The chief executive designate, Chris Liddell, said the company still had some gaps to fill in terms of restructuring its operations.

He would not comment directly on the level of the share price, but said the recent increase reflected "high expectations about future earnings.

Carter Holt will increase prices for some of its wood and timber prices in New Zealand this year, but expects continued tough times in its main log export market of South Korea, along with a continued increase in competition for products like tissue in Australia and packaging in New Zealand.

Earnings from Carter's $1.5 billion investment in Chilean conglomerate Copec contributed $31 million to the result, up from $11 million a year earlier. There were still no signs of a resolution in Carter Holt's ambition to have more of a say in how Copec operates.

Carter Holt shares closed up 1c at 262c.