Fletcher's $302 million loss really rather good

By CHRIS DANIELS

Losing $302 million in six months may sound like bad news, but Fletcher Challenge Forests is reporting better earnings and a rosy future.

The forestry company announced its results for the half year ended December 31 yesterday, saying earnings before interest and tax reached $41 million before unusual items.

After taking out a forest revaluation of $17 million, earnings were $24 million, up from the $8 million result of the previous six months and slightly above earnings of $23 million for the same period the year before.

As an unusual item, Fletcher wrote off $349 million it is owed by the now defunct Central North Island Forest Partnership.

Fletcher is trying to buy the forest from the receiver and many hoped it would take the opportunity to say something about the sale while announcing its half-year results.

Company chairman Sir Dryden Spring drew a veil of secrecy over any discussion about prospects for the sale, but confirmed that plans to make a statement on the matter had been scuttled.

"We had hoped to be able to tell you something about the [partnership] today as the sale process has been underway since August. But I regret I am unable to do so."

Fletcher told shareholders last year that it was one of the bidders for the forest and was involved alongside an unnamed third party.

Sir Dryden yesterday said he was so constrained by confidentiality requirements that he could not say whether this party was still involved.

Although few facts were offered about buying the huge forest, Sir Dryden went to some lengths to stress that the company would not buy it unless it was absolutely convinced it was for a good price.

If successful in buying the forest, the size of the transaction meant it would have to get shareholder approval first. That would involve getting an independent expert's report.

Despite the sheer scale of the central North Island forest hanging over yesterday's results announcement, a lot of good news was presented for shareholders.

Most of the earnings improvement came from the forest and logs business, where world wood prices were up and sales volumes had improved.

Chief executive Terry McFadgen said the earnings gain had been achieved when the global economy was in recession or near recession.

Cash flow was very strong during the six months. Net debt was cut by $34 million to $289 million at December, with the current total between $270 million and $280 million.

Predicted higher earnings for the second half of the year, if annualised, would take the company to earnings of nearly $100 million a year - getting ever closer to the earlier target for earnings before interest and tax of $150 million a year.