Forester loses faith in trees

By Nick Stride

Friday 15th November 2002

Fletcher Challenge Forests appears to have lost its faith in growing trees as an economic activity, this week suggesting it could eventually get out of forest ownership altogether.

At Wednesday's annual meeting, chairman Sir Dryden Spring said the company had abandoned any ambition to own the Central North Island Forests.

It would sell existing forests if offers were made at prices that would deliver value for shareholders and was charting a new course as a processor, marketer and distributor.

Chief executive Terry McFadgen did not disagree with shareholder Raoul Daroux, who told the meeting that by his calculations forest ownership was not on its own an activity that created economic value.

Sir Dryden conceded Fletcher Forests had not created value for shareholders for many years. He outlined a four-prong strategy for lifting returns.

The company would strive to operate to world-best standards. "We must have the lowest cost position," Sir Dryden said.

Selective investment would be made in processing. The company would also invest in the non-capital-intensive areas of marketing and distribution.

And capital management would come to the fore as significant sums were freed for return to shareholders.

The "first tranche" would be a $50 million on-market share buyback, details of which would be announced in February.

Sir Dryden said that was a better course than resuming dividend payments as the company's losses meant dividends could not be paid with imputation credits.

Forests' earnings before interest and tax for the first four months of the June year were $28 million, up from $20 million in the same period last year.

North America was the standout performer but there was now pressure on export prices, particularly to Korea and the US. Oil price rises were also increasing transport costs. The company nonetheless expected the 2003-year profit to exceed last year's.

Sir Dryden at times looked rattled as the Shareholders' Association's Bruce Sheppard attacked the company's voting of undirected ADRs (American Depositary Receipts). Sir Dryden was forced to concede the company had requested the votes from the US bank holding them on behalf of ADR holders.

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