Hedging saves Carter's bacon in tough year

Nick Stride

Friday 30th January 2004

Little more was forthcoming on Carter Holt Harvey's possible break-up this week despite market attention on the company's 2003 profit.

At a results briefing yesterday, chief executive Peter Springford said only that the company would "continue to reshape our portfolio so that we can meet our objectives to improve our returns."

He reiterated that no decision had been taken to sell the forests.

For the Tissues division, a number of financial and trade buyers were doing due diligence and an IPO (initial public offering) option was also being worked on.

Carter Holt would be in a better position to indicate possible outcomes at the end of the first quarter.

The company's former chief executive Chris Liddell, in town this week in his capacity as chief financial officer of Carter Holt 's majority owner International Paper, also gave no indication of why two key assets were under review.

IP's patience may finally have run out after years of returns below the company's cost of capital.

Currency hedging again came to the rescue in a year that saw productivity gains swamped in tough markets.

Stripping out $178 million of foreign exchange gains, and adding back the $918 million of one-off losses from the forests writedown and other items, CHH lost $78 million on an asset base of $5.9 billion.

The actual bottom-line loss was $656 million, compared with a $137 million gain a year ago.

Even so, Springford pointed out, earnings had picked up sharply in the second half of the year.

The biggest-earning division, Forests, contributed ebit (earnings before interest and tax) of $92 million, down 31%.

But Forests was also the weakest financial performer by far, turning in a fourth-quarter cash flow return on investment of just 3.2%.

Springford said the target fee harvest for 2004 was down again, to 4.9 million tonnes.

Forests' return compared with 10.9% for the strongest performer, Packaging, which contributed 25% higher ebit of $30 million.

Pulp and paper also had a good year following the resolution of the Kinleith strike and the closure of the Tokoroa sawmill.

Carter Holt noted several key pulp producers had announced price rises on the back of foreign exchange movements.

The division's fourth-quarter cash flow return was 7.1%.

Wood Products' ebit fell 9% to $87 million despite a record year for sales volumes in the booming Australian and New Zealand housing markets.

Springford said the outlook for those markets remained strong "in the near term."

The division was the third-best performer with a cash flow return of 9.4%.

The Tissue division held the line, with ebit up $1 million to $52 million and sales down 6% to $745 million.

All the division's businesses facial, toilet, and paper towels, and babycare got higher trade and promotional support in highly competitive markets.

Tissue's cash flow return was the second strongest at 10.1%.

Chief financial officer Jonathan Mason said net debt, at $990 million or 19% of total capital, was at its lowest level for 20 years.

Comments from our readers

No comments yet