Numbers elusive for CHH

By PAM GRAHAM

The long march to earn returns greater than its cost of capital is not over for the sharemarket's second-largest company.

Carter Holt Harvey yesterday reported a $137 million profit in 2002, up from $25 million a year ago, but the 6.9 per cent return on money invested was less than the 11 per cent it costs to supply it.

Revenue rose 0.7 per cent to $4.14 billion from $4.11 billion in 2001.

One-off charges of $47 million took the fourth-quarter bottom line to $4 million from $25 million last year but at the operating level fourth-quarter earnings rose 21 per cent.

The result was "good progress" from the hard work of a solid team inherited from Chris Liddell, said his replacement, Peter Springford: "I can't take credit for these results."

The new chief executive provided light relief by showing the company's television commercial featuring Australian tennis player Lleyton Hewitt keeping a crowd waiting while he uses Sorbent toilet tissue.

It made a point about Springford. He wants to be known for being customer and market-focused and is not signalling big strategy swings like the forests sales by rival Fletcher Challenge Forests.

"I am determined that we have to work harder on the marketplace and we still have to have the best cost structure," he said.

It was "not a good thing" to be failing to earn your cost of capital and 50.5 per cent owner International Paper was "still not getting the return they would like out of their investment". The company's share price fell 2c yesterday to $1.76, which is 65 per cent below asset backing.

CHH has big cash flows and its strongest balance sheet in 15 years, from which it can consider repaying more debt, buying back shares or making new investments.

Its "disciplined" investments in wood products in Australia, such as sawmills and medium density fibre plants, have outperformed the traditional forests and pulp and paper businesses in New Zealand. Its new laminated veneer lumber plant at Marsden Pt is hitting design targets, though the LVL business overall earned less than last year.

In the latest quarter the wood products units, which sell to the buoyant home building industry, earned a 10 per cent return on investment, compared with 3 per cent in forests. CHH expects the New Zealand building market to hold up this year and the Australian market to turn down from the second quarter.

Low Korean log prices reduced returns in the forest business but the company is forecasting a recovery. It is also hopeful that "fickle" pulp prices will pick up. Executives had been worried about the impact of a rising New Zealand dollar, but it was policy to be fully hedged one year out. The kiwi would be "a worry" if it stayed high for a long time, the company said.

The big issue of last year was the Kinleith pulp and paper mill, where the labour force contested the outsourcing of work and a restructuring that Carter Holt called just "stage one" of its plans.

"We can improve the productivity of that mill," Springford said. It had a record output last year even with 14 stopwork meetings, but the Machines could run faster and more efficiently with less downtime, he said. The mill now had 415 direct and 173 indirect employees, from 770 last year.

Any plans for a new mill in New Zealand to process the so-called "wall of wood" coming onstream had not been considered beyond the back of an envelope, Springford said.

"We could build another pulp mill but is that going to give us the returns? Today we have not got an answer to that."

Meanwhile the company is progressing plans to jointly market logs with the receiver of the huge Central North Island Forest Partnership and expects that to save $10-20 million in costs. Devon McLean, the executive in charge of the project, said the savings would come from lower port costs and freight rates.

Export Co would initially employ former CHH staff, he said.

The company paid back a US$100 million ($182.6 million) foreign bond issue last year.

It has about $100 million a year to spend on new projects, Springford said. "There are a lot of opportunities for us in Australia." .