Fletcher's fruits of the forest costly to harvest

By PAM GRAHAM

Documents sent to shareholders in Fletcher Challenge Forests yesterday paint a bright future but reveal a $44 million bill to get there.

The company is selling all of its forests to Kiwi Forests Group for $725 million and returning money to shareholders. Its biggest shareholder, Rubicon, will collect $104.6 million.

The amount of capital returned to shareholders depends on whether the sale of Tarawera forest, which is conditional on finance, is concluded.

Documents for the February 20 shareholder vote on the plan include an independent report from Grant Samuel giving the thumbs up and profit projections for the residual processing and distribution business.

These have the company's North American operations more than doubling revenue in the next two years.

Overall revenue will rise to $678 million in 2005 from $393 million last year, and earnings before interest, tax, depreciation and amortisation are projected to rise to $57 million from $43 million.

The numbers have raised eyebrows as some exporters of wood products are struggling at present exchange rates, but Fletcher Forests is assuming that the New Zealand dollar falls to 60USc by 2005 and that its distribution network in the US will give it an edge.

The forest sale plan must be approved by 50 per cent of shareholdings and is still waiting on a tax ruling. If all goes to plan, the deal will be done by February 27.

The documents also detail future wood supply arrangements for Fletcher's mills.

The new forest owners have agreed to supply Fletcher with logs for 10 years, but refused to take on Fletcher's contracts to supply wood to Carter Holt Harvey and Norske Skog in perpetuity.

The documents show that Fletcher's log supply contract with the Central North Island Forest Partnership estate, now owned by the endowment fund of Harvard University, will end on June 30. Fletcher is using back-up "Tasman" contracts with the estate until new arrangements are negotiated.

Meanwhile, the bill for downsizing Fletcher Challenge - it was split into four companies and the forest business is now getting out of owning forests - keeps rising.

The forest sale is costing $44 million, including the $17 million break fee to failed bidder Campbell Group. Restructuring and separation costs of $119 million in 2001 and $19 million in 2000 were incurred when Fletcher Challenge was split into separate companies.