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Market ho hum over CHH's top result

By Nicholas Bryant

Friday 20th October 2000

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FOREST PRODUCTS: 'Any disappointment offset by the company's annoucement it would buy back shares'
Despite posting strong profit results for its second quarter running, Carter Holt Harvey has been left paralysed by the market.

The country's biggest forest products company has refocused its business, and has been treated kindly by commodity markets, but still can't receive big investor support.

Carter Holt Harvey shares finished Wednesday's trading unchanged at $1.63, despite news it had achieved a $176 million profit for the six months to September. That eclipsed last year's effort of $56 million by 214%.

Some analysts said investors were disappointed at a lack of announcements on how the company will spend the $2.5 billion it got from selling out of Copec earlier this year.

"The bulk of investors want to see additional capital raised from the sale of Copec re-invested in high-value projects or returned to shareholders - that's really the issue," Deutsche Securities' David Stanley said.

Not so, according to Salomon Smith Barney's Stephen Hudson, who said such expectations were unrealistic.

"You just don't get announcements tied to earnings releases ... the company has been good at providing updates," he said.

He believed any disappointment would have been offset by the company's announcement it would buy back about 34 million shares, about 2% of issued stock, on-market over the next 12 months.

"When a company has net debt to total capitalisation of 16%, it has plenty of capacity to manage its capital base more efficiently and grow at the same time," he said.

Total sales for the half-year rose 26% to $1.92 billion, while earnings before interest and tax were up 60% to $222 million. The quarterly figures also impressed, with after-tax earnings of $86 million posted. A 4c a share dividend was announced, up 1c on the previous corresponding period.

The company has copped heat in recent times for raising log prices and threatening availability to mills with its domestic log price-leadership strategy.

After angry lobbying, mainly from South Island members of the timber industry, Carter Holt Harvey chief executive Chris Liddell was asked to defend himself.

He did so emphatically.

"At current prices people who are planting trees are destroying value ... they're not earning their cost of capital and we have a situation in the industry where huge streams of fibre are coming on stream in the next five to 10 years. It's ludicrous to suggest we can influence the domestic market, there's so much wood," he said.

Mr Liddell added that Carter Holt's lead was being followed, with Fletcher Forests and two other large players helping raise the price of export logs to Korea, but only by incremental levels.

"It's very difficult but if we can raise the price per tonne by only $1 or $2 it's still worth it," he said.

Production from forest estates was a record 3.8 million tonnes, with sales hitting $301 million compared with $237 million for the same period last year due to higher prices in all markets and 8% higher volume.

In May the company paid $A330 million for an Australian wood panels business, which Mr Liddell said had been trading above expectations.

Of the wood products' division's $56 million earnings before interest and tax, $30 million came from the new Australian business.

Pulp, paper and tissue had a much improved result with higher export prices and record production delivering ebit (earnings before interest and tax) of $79 million compared with just $5 million last year.

Tissue's earnings for the first half of the year were lower, however, due to higher pulp prices and weaker exchange rates.

Mr Liddell said the immediate outlook was mixed, with Asian markets positive and the lower dollar increasing returns in local currency.

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