CHH's $70m best quarter profit for three years

By PAM GRAHAM

Carter Holt Harvey yesterday reported its best quarterly profit for three years.

Foreign exchange cover and reduced interest costs are insulating the nation's largest forest owner from the lowest log prices since 1988, a six-year high in the kiwi dollar and a 30 per cent rise in freight rates.

The company has cut its harvest and an across-the-board efficiency drive is expected to make up for a "$120 million challenge" from a falling-off in foreign exchange cover next year.

The key message from chief executive Peter Springford was that "productivity improvements are starting to deliver results and we're very well-placed for a cyclical upturn in prices".

Carter Holt reported a $162 million profit for the nine months to September 30, up $29 million on last year even though a reduced harvest contributed to a cut in net sales to $2.85 billion from $3.05 billion.

A $600 million reduction in debt last year and the appreciating currency were reducing interest costs, chief financial officer Jonathan Mason said.

The $70 million profit in the September quarter was the best since September 2000 and a $10 million improvement on last year.

The company does not expect to pay tax in New Zealand or Australia for the next three years because of available tax losses.

At a time rival Fletcher Challenge Forests is selling all of its forests, Carter Holt is not talking to anyone about its estate.

"We always look at our portfolio," Springford said. "We do have more trees than we can process but I don't believe it is the right time to consider any type of sale process for trees.

"We are at a low point in pricing and we are also going through productivity changes that we need to get embedded in."

Carter Holt had nothing new to say about a $900 million hit it has signalled from a revaluation of its forests estate at the end of the year.

The forest division continues to return just 3 per cent on a cashflow-based return on investment measure compared with wood products on 10.8 per cent, pulp and paper 6.4 per cent, packaging 11.1 per cent and tissue 10.5 per cent.

The Australian and New Zealand housing markets continued to underpin the wood products business, though diversion of timber from weak appearance grade export markets was a pressure on prices.

The Kinleith mill, where industrial action had ended, produced a record 85,000 tonnes of paper in the quarter and paper market conditions were improving.

Springford said commodity prices were hard to predict. The pulp price was the most important to the company and inventories held globally had reduced at the end of last month, with softwood inventories dropping 105,000 tonnes.

The average price pulp was sold at this month was likely to average US$480 a tonne, up from US$460 a tonne in August, and demand in North Asia had been quite strong, Springford said.

But advertising rates in Europe and North America were sluggish and that drove paper demand.

The log market was starting to look "okay" because of the reduced harvest and Silva, the joint log export venture with Central North Island Forest Partnership, was implementing a US$2 to US$4 a tonne price increase.

"In the marketplace, having the volume of both businesses is giving us an opportunity to deliver some better results," Springford said.

He did not agree that the industry would never deliver acceptable returns.

"We are in a cyclical downturn. Log prices are the lowest they have been since 1988 and it is 10 years since we saw the highest prices.

"Inevitably the Russians will have to increase their prices to cover their costs, so over time that part of the equation will improve.

"We also feel we are very well positioned as far as pulp and linerboard into Asia goes." .

Carter Holt's share price is up 6 per cent from a month ago, closing at $1.83 yesterday. Springford put the rise down to a catch-up with a peer group it had been trailing.