Fletcher lets go of forests

By PAM GRAHAM

The Fletcher Challenge Forests shareholders who scuttled the $1.3 billion purchase of central North Island forests in August returned to Eden Park yesterday to hear that their company's ambitions as a forest owner are over.

Chairman Sir Dryden Spring said Fletcher Forests was not pursuing any other deal to buy the forests and might lose the contract to manage them, worth a net $10 million to $20 million a year.

Instead, it would "lighten" its own $1.3 billion investment in forests and build the marketing and distribution "front-end" of the business.

That coupled with a buyback of shares, starting with an initial $50 million, and further cost cutting would boost earnings per share and the share price, which at 22c is half asset backing.

There was no plan to pay dividends because the company had tax losses to use up, meaning it could not attach tax credits to dividends.

The new strategy - and a statement that pretax earnings in the first four months rose 40 per cent to $28 million - was the news at the two-hour meeting.

A walkout by Shareholders' Association chairman Bruce Sheppard after 30 minutes of unrelenting questioning provided the drama.

Sheppard, in shorts and sandals and minus the forestry hat he wore in August, did not go far.

He was later seen in the foyer where the after-match refreshments were served in conversation with Fletcher staff.

His questions mostly related to the company's handling of proxies for its American Depository Receipts, corporate governance issues and executive pay.

He was supported by two other shareholders who identified themselves as representing the association.

The chairman fielded the questions and at times referred them to others, but finally lost patience and ordered that Sheppard's microphone be turned off when he did not heed a call to order.

Sir Dryden began the meeting with a half-hour speech which traversed the history of the failed deal to buy the Central North Island Forest Partnership (CNIFP) with an associate of Chinese investment company Citic and events since.

Smartly dressed in a double-breasted dark blue suit, he emphasised key words but became animated when talking about marketing, thumping the rostrum to underline the point that the industry had to work "intelligently together".

Asked later why it would do so now when it had not done so in the past, he said "reality" would be a catalyst.

Forest companies have low returns on capital and their shares are trading at huge discounts to asset backing, prompting Fletcher Forests chief executive Terry McFadgen to call for more consolidation and co-operation to boost returns.

Sir Dryden did not disagree with a shareholder who said different land uses, even dairying, should be considered for land where pine trees now grow.

He said the company was not selling its forests overnight, and it had no target in mind. Potential buyers included international funds.

"Control of the CNIFP would have given us a leg to get competition out of the market and some control," he said. Other ways would now have to be found.

Meantime, the receiver "has recently requested a revised management proposal from Fletcher Forests and, we understand, other parties in relation to the ongoing management of the CNIFP".

Sir Dryden would not say if the company planned a legal challenge if it lost the contract.

McFadgen said the wood supplied to the Waipa saw mill, which employs about 200 people, was not guaranteed by contracts.

The mill is part of the CNIFP assets in receivership.

The meeting approved the re-election of directors Michael Andrews and Michael Walls, the reappointment of PricewaterhouseCoopers as auditor, and a change in constitution to comply with a full Australian Stock Exchange listing and to allow a consolidation of every five shares into one share.