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Expectations low for CHH


Monday 27th January 2003

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Carter Holt Harvey will open the December balance date reporting season on Wednesday with a bouquet for the strong Australasian housing cycle and a brickbat for the weak Korean log and global pulp markets.

The share price of the Stock Exchange's second-largest company -- which owns forests and makes wood products ranging from tissues to boxes and wooden panels -- fell 3.2 percent last week as analysts appeared to lower their expectations for fourth-quarter operating earnings.

Earlier, the stock had been running higher on hopes of a recovery in pulp prices next quarter.

This morning the shares eased 3c to $1.78, against a 12 month high of $2.16 struck in June last year and a low of $1.53 touched in September.

The market is expecting a $194 million bottom-line annual profit. Five brokers put out new research last week, with two moving that forecast down and three tweaking it up, according to Bloomberg and Thomson First Call data.

Analysts expect fourth-quarter earnings of just below $60 million, including about $24 million of restructuring costs relating to the company's Kinleith mill. Earnings before interest and tax in the third quarter were $108 million.

"As the December quarter unfolded it became apparent that the markets for some products such as pulp and logs have been more volatile than we previously expected," ABN Amro said.

Also, the Kinleith mill was affected by strikes, the Tasman mill had a maintenance shutdown and the New Zealand dollar rose, reducing export returns. The Kiwi dollar rose 11.5 percent against the United States unit in the December quarter, and has since gained a further 5 percent.

"We would not be surprised if the actual result falls short of our expectations," the ABN Amro report said.

The December quarter is traditionally the strongest for many of the company's businesses.

The wood products division, which supplies the booming Australian and New Zealand home construction markets, will be the star, although it is too early to include income from the newly bought Starwood Medium Density Fibreboard plant in Tasmania. The fourth quarter is also usually strong for tissue and packaging.

The log export business will be affected by a 10 to 12 percent decline in Korean log prices since the third quarter, and analysts said the pulp and paper business was a tough call. Asian pulp prices eased in the quarter, but North American producers announced price rises from February 1 that have raised optimism.

Salomon Smith Barney analyst Mark Benseman said benchmark Northern Bleached Softwood Kraft pulp prices had spiked to $US490/tonne ($NZ904) earlier this month, mainly on the back of Chinese buying, from a low under $US400 last year, and prices were expected to stay strong.

"We expect pulp prices to appreciate over the course of this year and beyond, averaging $US490/tonne in 2003, $US595/tonne in 2004 and peaking at $US675/tonne in 2005," Mr Benseman said in a research paper quoted by Reuters.

Each $US10/tonne rise in pulp prices adds about $NZ10 million to Carter Holt's earnings before interest and tax.

Peter Springford -- the New Zealander Carter Holt's owner International Paper has moved from Hong Kong to Auckland to replace Chris Liddell as chief executive -- will have his first outing in front of analysts and the media at the results presentation.

The former are expected to be interested in what he says about dividend and forestry accounting policies, while the latter will be looking for comments on industry consolidation and the location of future processing businesses.

The company released its third-quarter result in Australia, where its wood products businesses are out-performing the New Zealand pulp, paper and forest assets, and yet the company has failed to lure Australian fund managers. Only about 5 percent of shareholders are Australian.

Three-quarters of its assets remain in New Zealand.

The company changed its annual balance date to December from March last year, making annual comparisons difficult.

Carter Holt made a net profit of $25 million in the fourth quarter of 2001 and $60 million in the third quarter, helped by a record boom in house building in New Zealand and Australia.

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