Fletcher Forests loses $271m

By PAM GRAHAM

Fletcher Challenge Forests yesterday announced a $271 million full-year loss after slashing the value of its forests by $292 million after tax.

The company said the sale of the forest estate, now carried in its books at $728 million, including $181 million of land, was on target to be concluded by the end of the year. Joint chief executive John Dell had no comment on speculation the sale could be announced as soon as next week.

Like all forestry companies, Fletcher Forests has taken a hit from a rise in the New Zealand dollar, low prices in markets and high freight rates. The company holds US debt as a natural currency hedge and this provided a $23 million gain.

On top of common industry problems, Fletcher Forests has lost a multi-million dollar management contract for the neighbouring Central North Island Forest Partnership forest estate and is trying to cut head office costs by $13 million a year.

"We are becoming a smaller company," said chairman Sir Dryden Spring.

Dell was positive about the distribution ventures into the US and processing businesses the company is now focusing on.

"Looking ahead, we're cautious overall. There are some signs of a modest improvement in current market conditions, but the higher level of the New Zealand dollar likely to prevail during the year will create an environment at least as challenging as the last year," he said.

The loss for the year compared with a full-year loss of $249 million last year when the company wrote down loans to CNIFP. This year there was a $140 million tax credit, effectively a writeback of provisions made in the past for tax payable on any forest sale at higher values.

Operating earnings for the year were $81 million compared with $83 million last year. Second-half operating earnings were down at $34 million from $47 million last year. No dividend was paid.

Fletcher Forests said the new forest valuation was not an indication of sale price. It was derived using two quarters of price data, instead of 12 quarters previously and a discount rate of 9.75 per cent, instead of 8 per cent. The changes produced a lower valuation, more closely reflecting the market, especially the impact of the higher kiwi dollar.

The massive revaluations publicly-listed forestry companies were making to forests this year was another reason why they should not own them, said Dell. Carter Holt Harvey has signalled a $900 million writedown this year and Evergreen has also written down the value of its forests.

Fletcher Forests increased its harvest by 19 per cent in 2003.

"We expect log export prices are likely to show some improvement from current levels as a reduced New Zealand harvest starts to impact supply," said Dell.

In US dollar terms sales, US sales rose 20 per cent and sales also rose to China, compensating for the weak South Korean market.

Australasian businesses performed well and the New Zealand housing market had been particularly buoyant.