Tax mars Carter's quarter

By PAM GRAHAM

Carter Holt Harvey argues that its year got off to a good start in the first quarter, although foreign exchange gains were down and costs from taxes and executive pay were up.

The price of pulp is rising, an efficiency drive is paying off, interest costs are low care of a strong balance sheet and there is a $464 million profit coming next quarter from the sale of the tissue business.

The country's only remaining integrated forestry giant is not ruling out using the cash for a takeover of Tenon, the wood processing remnant of rival Fletcher Challenge, but is not sending out strong signals either.

"I don't want to be drawn on it," said chief executive Peter Springford. "We're concentrating on getting the sale of the tissue business properly closed so we can start considering other opportunities."

Springford presented a $38 million first-quarter bottom-line profit, down from $51 million last year after providing $16 million for tax. The company expects to pay tax for the first time in eight years in 2005.

Before tax, the $54 million profit was up from $51 million last year, even though gains from foreign exchange hedging were down at $8 million from $49 million last year.

An 18 per cent rise in share price this year has been good news for investors, but the pay of 250 executives is linked to it, creating a charge of $9 million this quarter and a further $8 million next quarter.

Kinleith, the pulp and paper mill in Tokoroa closed for three months last year by a strike, was highlighted by Springford in yesterday's results.

Production was at record levels and the pulp price achieved in the quarter of US$519 a tonne was the highest since 2001. It is now taking orders at US$610 a tonne in China.

The bad news is that it is slow to feed through to paper prices, while high shipping costs and the high New Zealand dollar eat into the gains, though the currency has fallen in recent weeks.

Chief operating officer Devon McLean said the forest business was "the sum of a number of moving pieces".

The harvest in the quarter was down 23 per cent on last year to rebuild the age profile of the forests, costs from service providers were reduced 6 per cent and Korean log prices are not expected to rise because demand is weak.

Carter Holt is the country's biggest forest owner. It will review strategy for those forests in the second half of this year knowing that it makes its cost of capital on non-forest businesses but not on forests.

"We believe we need to own trees," said Springford. "Strategically they are important to our big processing assets and we do not want to have people leveraging price against us.

"We do see there are better ownership options for trees that we do not necessarily need and we are going to examine all of those opportunities."

The broad equation is that it has a sustainable harvest of between 7 and 8 million tonnes and uses 3 million tonnes itself.

"Do we need to own the balance, or is there a better structure for owning the balance?" said Springford.

The tissue business sold to Svenska Cellulosa for $1.015 billion reported a lower profit as higher sales were offset by the cost of trade support, but it is still one of Carter's most profitable units.

Carter Holt will treat all shareholders the same in a $478 million pro rata share cancellation and per share payment of 27.5c in the third quarter.

The company has closed a saw mill in Tokoroa and is selling a mill in Rotorua which served the North American market.

"Strategically we want to grow the structural business in New Zealand and Australia," said Springford.

Carter Holt's shares fell 2.2 per cent to $2.21, and brokers said it was because the stock had had a good run, the result was at the low end of expectations and there were many one-off factors to weigh up.