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Fletcher Forests reports $249m year loss


Thursday 22nd August 2002

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Fletcher Forests appalling year continued when it revealed today its loss for the year to June was $249 million.

In the previous year, it posted a $107 million loss.

Last week, its $1.4 billion deal to purchase the Central North Island Forestry Partnership (CNI) in conjunction with China's Citic, unravelled when it failed to garner the 75 percent requisite majority of shareholder approval.

The result was impaired by an unusual item loss of $324 million, principally relating to the write-off of the balance of the company's subordinated loan to CNI which was announced in the first half of the year. After tax the net unusual loss for the year was $249 million.

The overall company loss was marginally better than analysts had predicted.

It was on sales of $649 million, up from $622 million. It was on earnings before interest and tax of $136 million including a revaluation upwards of its forests of $53 million.

Ebit, before unusual items and the crop revaluation, totalled $83 million for the year, an increase of $66 million over the $17 million recorded last year.

Cash flow from operations for the year was strong at $56 million, increasing from $22 million in the first six months to $34 million.

Ebit before unusual items grew strongly in the second half of the financial year to $93 million, compared to $43 million recorded in the first six months of the year.

The company said its Japan Engineered Wood Products operation performed unsatisfactorily, and had been wound up.

The results were achieved on the basis of a clearfell harvest from the company's estate of 1.59 million cubic metres.

The company said its annual harvest would increase by about 45 percent over the next five years as forests matured, with a commensurate growth in operating earnings and cash flow.

"The strong growth in operating earnings was assisted by the benefits flowing through from the company's ongoing cost reduction programme, an excellent performance from our North American operations, and an unrealised foreign exchange gain ($25 million) as a result of the strengthening New Zealand dollar."

The value of the forest estate rose an estimated 5 percent, to $1.176 billion.

Harvesting has been less than the biological growth on all remaining areas, giving rise to an increase in forest inventory of $51 million, the company said.

Fletcher Forests said it was now in a "very satisfactory financial position", with net debt reduced to $247 million, down $76 million from $323 million at June 30, 2001.

No dividend was declared for the year.

The board said that given the comfortable debt level, the directors were reviewing capital management options.

Net tangible assets per share were estimated at 41 cents at June 30 compared with 39.3 cents at December 31.

The company said it was optimistic for the current year.

"In the absence of any unforeseen material adverse event, we would expect to deliver a further significant improvement in operating results, prior to any currency impacts, in 2003."

It said it would continue to take a close interest in the future ownership of CNI "and will evaluate any opportunities that will create value for our shareholders".

"Management's immediate priority is to focus on our existing business strengths to maximise the performance of the company."

It said it was expanding by 30 percent its plywood manufacturing facility at Mount Maunganui and a third line was planned for its solid wood moulding plant at Taupo.

Other processing opportunities were being evaluated.

During the year, Forests commenced full production of "clear boards" for the US hobby and DIY market. These knot-free, small dimension boards were produced from the highest value lumber grades and in turn commanded the highest price of any solid lumber product.

Forests said it was working with other New Zealand companies to improve the market positioning of pinus radiata. Significant success in India had shown the potential of joint action.

Market conditions had improved in the last six months with strong demand in residential construction in New Zealand and Australia, a continued recovery in the Asian log markets led by Korea and China, and good demand from the US.

Residential construction activity remained strong in New Zealand.

Structural lumber sales were running ahead of this time last year and demand from Australia remained firm. US spending on housing and house renovations had shown remarkable resilience over the last two years, "and we are not seeing any significant slowdown in demand from the market segments in which we operate".

Korea, the largest of Forests' log markets, continued to grow strongly, and demand from Japan was stable.

The company expects sales to China to continue to grow over the current year, supported by strong GDP growth and continued expansion of the construction, residential and furniture sections.

Current trading was benefiting from firmer prices across most products and markets, and earnings would also be assisted by operational improvement programmes and capacity expansions.

The company plans to harvest approximately 1.9 million cubic metres in the current year, an increase of approximately 20 percent over the 2002 cut level.

A $US28 million ($NZ61 million) claim against Forests by Precision Lumber of the US had been formally withdrawn.

Claims by CNI receivers Ferrier Hodgson against Forests remain unresolved as the receivers' agreement to withdraw this action had lapsed as a result of the collapse of the deal to buy CNI.

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