Electricity costs give no respite to Carters

By CHRIS DANIELS

Low commodity prices overseas and high power prices at home hit Carter Holt Harvey hard enough to inflict a second consecutive quarterly loss on the wood products giant.

The company yesterday reported a loss from operations of $25 million for the three months to September 30, after a net loss of $34 million in the first quarter.

Only by including a one-off tax credit of $40 million was Carter Holt able to report a second quarter net profit of $15 million.

Quarterly sales rose from $972 million in June to $1.082 billion in September.

The result gives Carter Holt a first-half net loss of $19 million, compared with a profit of $176 million for the same period last year.

First-half sales totalled $2.054 billion, up from $1.92 billion for the same period the previous year.

No dividend will be paid.

Chief executive Chris Liddell said high winter electricity prices added $14 million to costs, especially in the pulp and paper section of the business. World commodity prices were particularly low.

"Clearly it was a tough six months, virtually all of our products were at cyclical lows at some stage."

Mr Liddell said he expected a dividend to be paid at the end of the year, but could not say how much it would be.

Forestry analyst at UBS Warburg, Frances Loo, said it appeared Carters was "battening down the hatches", cutting costs and capital expenditure during a time of low world prices for its products.

"We thought the result would have been close to break even, so the loss was bigger than we had expected, primarily in the pulp and paper area." she said.

Ms Loo said it was fair to say Carters was a victim of world prices.

She said the depths of the slump in pulp prices, particularly in Asia, and the impact of high power prices, had hit Carters harder than expected.

The separate results for Carters divisions show a similar pattern - sales up from last year, but earnings from record sales well down.

The forests group - earnings before interest and tax of $14 million for the six months to the end of September, down from $90 million, from sales of $329 million, up $28 million.

For the wood products group - earnings of $15 million, down from $56 million the year before, from sales of $682 million, up $31 million.

Pulp, paper and tissue division - earnings of $6 million for the six months, down from $79 million for the same period last year. This despite sales increasing by $98 million to $808 million.

Packaging - bucking the Carters downhill trend, this division increased earnings before interest and tax at $7 million, after just breaking even for the same six months last year. Sales were up $22 million, from $269 million.

The outlook for Carters was clearly mixed, Mr Liddell said. The New Zealand and Australian economies were surprisingly robust compared with the rest of the world, and new housing starts across the Tasman were particularly strong.

Global conditions were the exact opposite, and had been heading downhill even before the September 11 terrorist attacks.

"On balance we are going to take a stance of being cautious. We would like to think there is some good news out there but we will treat it as a positive surprise," Mr Liddell said.

"We will run the business over the next three to six months on a cautious basis."

One test of this cautious approach will be how Carters handles its well known interest in the assets of the now-defunct Central North Island Forest Partnership, worth an estimated $2 billion.

Ms Loo said Carters already owned a lot of forest that was not making much of a return.

It was difficult to see Carters getting involved in aggressive bidding for the forest, she said, but the company might be thinking that a bigger forest could provide an opportunity for it to save on costs.

Carter Holt shares closed up 1c at $1.56. They have ranged between a year high of $2.01 and a low of $1.40.