Caution amid CHH revival

By PAULA OLIVER

Evidence of the dramatic turnaround in the fortunes of century-old forestry giant Carter Holt Harvey was revealed yesterday, with the company unveiling more impressive results from three years of aggressive cost-cutting and restructuring.

The best net earnings in five years - $176 million for the half year to September 30 - and record production from the revamped Kinleith pulp and paper mill provided further proof of the company's resurgence.

But chief executive Chris Liddell was cautious about the future, warning that a drop-off in the Australian building market meant it would be difficult to hold the figures over the coming six months.

"While we are pleased that the first six months have been so strong, the outlook in our markets is mixed and we are therefore cautious looking forward," Mr Liddell said.

"I don't want to sound unsatisfied forever, but we're still not making a satisfactory return on our capital base."

Net earnings were triple what they were last year, and Mr Liddell attributed this to better pricing, increased volumes for logs, pulp and panels, and the better-than-expected trading by the company's recent Australian panels acquisition.

Mr Liddell revealed that the $400 million investment in Australia had made a $30 million contribution to the wood panels division.

Particularly pleasing was the fact that all parts of the business had showed increased earnings on last year, he said.

The turnaround almost brings to an end three years of aggressive change for the company, characterised by a drop in employee numbers, multimillion-dollar revamps of existing assets, and a shift away from non-core businesses.

The resulting success has seen Carter Holt's employee count rise again to 11,400 in Australia and New Zealand, compared to last year's figure of just below 11,000.

Analysts greeted the half-year result positively, but they, too, warned that the turnaround would be difficult to maintain for the rest of the year.

ABN Amro forestry analyst Dennis Lee said it was a much better result than he had expected, but the effect of the Australian slowdown was about to show.

"It's fair to say the drop in housing activity has been sharp, post-GST, so maybe we're not far from the bottom."

The DF Mainland Securities head of research, Bruce McKay, said the profit figure had been slightly under what he had been expecting, but clearly the business was travelling a lot better than it had been.



He said Carter's pulp and paper division was clearly feeling positive effects from the $320 million Kinleith revamp.

The $2.5 billion Carter Holt received from the sale of its Chilean assets this year also gave it a strong platform to work from.

In the past it had acquired too much at once, but its more cautious approach was paying off.



Mr Liddell agreed it was a good time to be looking, but he would not comment on the likelihood of a purchase before the end of the year.

A low exchange rate had been good for the export-strong company, Mr Liddell said, and the forests, wood panels and pulp, paper and tissue divisions were performing well.

The packaging division had turned around a loss in the same period last year to earnings of $3 million this year, after a drop in staffing, the sale of surplus equipment and a lift in prices.

Carter's retail stores were trading well despite a drop in construction activity, because they had improved margins and relationships with commercial construction companies.

"It's a long journey, but we will try things," Mr Liddell said. "Australia is probably the hardest market to pick at the moment, but we do think it will bounce back."

But he said there was an underlying lack of confidence in the New Zealand market, and there seemed to be a lot of soul-searching going on.

"The outlook is mixed, and challenging for us."

Carter Holt will pay an interim dividend of 4c a share on December 4.

Shares traded unchanged after the result, closing at 163c.