CHH profit affected by dollar, soft timber prices

Carter Holt Harvey is continuing to feel the pinch of a strong New Zealand dollar and soft timber prices, today posting a 24 per cent fall in third quarter profit, and downgrading its full-year forecast for the third time in recent months.

The country's biggest forest products company and subject of a $3.3 billion takeover by New Zealand billionaire Graeme Hart, recorded a September quarter net profit of $31 million.

The result matched analysts' forecasts, and compared with a loss of $43 million a year earlier when the company booked a major asset writedown.

But earnings before interest and tax of $41 million were down sharply on the $72 million recorded in the same quarter a year ago.

Carter Holt now expects its full-year earnings to clock in at just $200 million - up to 22 per cent lower than earlier forecasts for annual earnings before interest and tax (ebit) of $250-258 million.

The company reported a half year net profit of $139 million.

Carter Holt, which has pulp and paper, packaging and wood products businesses, as well as the country's biggest forest estate, said lower pulp and paper prices, fewer gains from forest sales, maintenance shutdowns, and foreign exchange issues ate into its bottom line during the quarter.

The company recorded a $12 million drop in earnings due to lower prices for pulp and paper and Australian timber; $10m fewer gains from forest land sales; $3m of increased shutdown costs for scheduled maintenance at its Kinleith pulp and paper plant; $4m accrued for a staff share plan; and $5m of net benefit from the depreciation of the New Zealand dollar.

Carter Holt's independent directors today held firm on their advice for minority shareholders to reject Mr Hart's $2.50 a share offer, which falls short of the $2.55 to $2.95 valuation arrived at by independent appraiser Grant Samuel.

"The revised 2005 forecast does not warrant a change in the recommendation," the directors said.

Shares in Carter Holt were trading down a cent at $2.50 this morning, against a high of $2.62 struck in August when the takeover play was first announced.

Carter Holt is a long-time underperformer. It is expected to undergo a transformation as Graeme Hart, majority owner of Australian food products business Burns Philp, is looking to sell parts of the business.

Mr Hart is likely to attract bids above book value, as he looks to cut costs and increase returns.

Having acquired International Paper's 50.5 per cent stake in August, Mr Hart is expected to delist the company if he increases his nearly 70 per cent stake, according to the latest shareholder notice, to 90 per cent when he can compulsorily acquire remaining shares.

Under Mr Hart's control, Carter Holt is expected to sell assets such as the pulp and paper mills, packaging operations, and the forest estate. That would leave wood products, a poor performer but with a potential to improve amid strong demand.

Analysts value Carter Holt on a break-up basis between $3.6 billion and $4.4 billion, above its market capitalisation of $3.3 billion. Potential buyers include Weyerhaeuser Co, Australia's Amcor Ltd and Paperlinx Ltd, private equity companies, and timber management organisations.

- NZPA