Tough times for Carter Holt

Carter Holt Harvey chief executive Peter Springford unveils the company's latest financial results in Manukau yesterday. Picture / Fotopress

Carter Holt Harvey chief Peter Springford predicts a tough first three months in 2005 for the company because of low pulp prices, softer housing markets in Australia and New Zealand, and a weak US dollar.

"The first quarter will be difficult," said Springford at the company's Auckland office yesterday.

"We're not expecting a recovery in pulp prices until after Chinese New Year (early in February) at the earliest."

Shares in one of New Zealand's biggest listed companies closed at $2.07, down 1c, meaning they have lost almost 20 per cent over the past six months.

The forest and wood products company said foreign exchange and demand in the Australian and New Zealand housing markets were the key issues for 2005.

Carter Holt bounced back to the black with a bottom-line profit of $435 million for last year, boosted by the sale of its tissue business.

The result follows a loss in 2003 when the company wrote down the value of its forestry estate.

Carter Holt expects the housing markets in Australia and New Zealand to stay strong - but not as exceptionally strong as last year.

"The nature of the business is that they don't control their own destiny," said Richard Leggat, director of research sales at sharebroker UBS.

Operating earnings for the fourth quarter of 2004 were $62 million.

That was slightly higher than analyst estimates although land sale profits and gains from foreign exchange hedging played a bigger than expected part.

In other words: right number but not the best make-up.

Springford said the company was confident it would increase earnings in 2005 despite pulp prices, housing market and foreign exchange issues and expected slower economic growth in the world and New Zealand.

The annual result should include contributions from the soon to be acquired Wadepack carton business and Tenon structural sawmills as well as a full year of earnings from Plantation Timber Products in China.

Springford said those three assets - and the associated synergies - would replace 95 per cent of the earnings of the divested tissue business despite costing less than half the money reaped in the tissue sale.

The big question from an analyst's perspective is whether the acquired businesses are of the same quality.

Looking back on the year, Springford said $113 million in productivity gains partly offset the $160 million impact of the higher New Zealand dollar and reduced foreign currency hedging.

The company's sales for 2004 were down 9 per cent on the previous year, mainly because of the tissue sale.

Carter Holt said it was responding to expectations of a slowing housing market by reviewing the future of its Tasmanian medium density fibreboard plant and looking at a cut in timber production at its highest cost facility in Victoria.

It is losing about A$1 million ($1.08 million) per month at the Starwood plant in Tasmania.

The company will decide by February the future of Starwood, which has 110 employees.

More acquisitions are possible, with outgoing chief financial officer Jonathan Mason describing its balance sheet as "frankly a bit under-geared".