Clear strategy for Carter Holt group

By BRIAN GAYNOR

The results presentation has become a fixture of the corporate scene, but it is unfortunate that these meetings are not open to all shareholders - they can give an excellent insight into a company's performance and prospects.

This week's Carter Holt Harvey result presentation would have impressed shareholders. Chief executive Chris Liddell offered a succinct explanation of the March 2000 year result and mapped out a coherent strategy.

He gave a clear message that the forestry giant has finally shaken off the Asian economic crisis and the next few years should be far better than 1998-2000.

Most result presentations have a standard format and this was no exception.

Analysts and media arrived at Carter Holt's Manukau head office at 8.30 am and were ushered into sealed rooms and handed the profit announcement. The announcement was not due to be given to the stock exchange until 10 am and a company minder ensured that no one phoned out the result.

This is the only time insider trading regulations are actively enforced in New Zealand.

The atmosphere in the lockup room was extremely serious. There was no time for conversation as analysts added the figures to their laptop spreadsheets and journalists tried to identify eye-catching headlines.

Everyone was on a tight deadline; his or her opinions were to be electronically transmitted as soon as the embargo period ended.

At 9 am, everyone reassembled in another sealed room and Mr Liddell began his presentation. The first impression is that he is far too young to run a large industrial organisation.

Many smokestack chiefs would have difficulty completing 18 holes of golf, but the Carter Holt chief has a long way to go before he is eligible for the Senior Tour.

However, as soon as Mr Liddell began his 55-minute address there was little doubt that he has a firm command of the company's operations and a clear vision.

First, the results. Carter Holt announced a net profit of $202 million for the March year, a 216 per cent improvement on the $62 million achieved in the previous year. On first appearance the result was impressive but two important considerations have to be taken into account. These are:

The result included a net profit of $121 million from the sale of its Chilean assets. Without this, the group achieved net earnings of just $81 million.

In 19951996 Carter Holt achieved a net profit of $453 million after a tax charge of $119 million. The latest result was after a nil tax charge on operating activities.

The profit trend is positive but it is still unsatisfactory. The $202 million profit represents earnings a share of just 11.6c and the group's net tangible asset backing of 265c a share compares with yesterday's closing price of 180c.

No chief executive should rest easy while his company's share price is well below its asset backing.

Mr Liddell was cautiously optimistic about this year. He said the outlook for pulp and paper was positive, forestry and wood products should perform satisfactorily but the tissue and packaging sectors would be flat.

His presentation on the group's longterm strategy was well received. It contained initiatives in the areas of staff development, a forestryoriented venture capital fund, product innovation and a focus on marketing instead of costcutting.

The group's new $132 million laminated veneer lumber plant in Whangarei is its first big greenfield plant for more than 20 years. It is refreshing to see New Zealand companies making positive investments after a decade of costcutting.

After the presentation there was a short questionandanswer session before the 10 am embargo was lifted.

In reply to a query about a capital repayment, Mr Liddell stated that his preference was to hold the $2.4 billion from the sale of Copec in Chile. After the meeting, he said that a capital repayment would have had a positive short-term impact on the share price but it was doubtful if it was in the best longterm interests of the company.

Carter Holt's minders had done their job; there were no leaks from the lockup. The share price traded at 197c until 10 am, but quickly fell to 182c after the announcement.

The result was in line with expectations but investors were disappointed there was no capital repayment. Many shareholders were looking for a capital repayment - the group's historical performance has been so poor that the sharemarket places a value of only $68 on every $100 contributed by shareholders.

By contrast, the market places a value of $1370 on every $100 of Telecom's shareholder funds.

This indicates that Telecom has invested its shareholders' money much more wisely than Carter Holt.

At 11.30 am, the company held a conference call for Australian and New Zealand analysts and journalists who were unable to attend the earlier presentation. This questionandanswer session was more robust because the participants had a longer period to study the result and there was no time restraint.

The bulk of the questions were about a potential capital repayment and the group's investment strategy.

Mr Liddell maintained Carter Holt was not rejecting a big payout to shareholders but the group's priority was to improve its credit rating, maintain a strong balance sheet and look for attractive investments.

Its immediate priority was to bed down the $A330 million ($398 million) purchases of CSR's medium density fibreboard plant and sawmill in Australia. Mr Liddell said: "You just don't buy a business, bolt it on and move on."

This approach is in contrast to the helterskelter investment activity of the information technology companies.

Mr Liddell is unlikely to fritter away the proceeds from the Chilean asset sales as he had extensive experience of investment analysis before joining Carter Holt.

The unfortunate aspect of the Carter Holt presentation was that it was not available to all shareholders. In this regard, New Zealand companies are many years behind their international competitors.

Most listed companies in the United States have internet sites with extensive investor relations sections. Shareholders, and potential shareholders, can obtain a raft of information, including the annual report, stock exchange announcements, press releases and share prices.

Shareholders can also listen to recordings of conference calls with analysts and the media. The newly listed NZ company E-cademy is developing these internet video facilities.

Interest in the local sharemarket would increase if shareholders could watch an annual meeting or results presentation - live or recorded - on a company's website.

Mr Liddell delivered an optimistic message. Carter Holt has emerged from the Asian crisis, its earnings trend is positive, it has a strong balance sheet and it has a focus on growth instead of costcutting.

Unfortunately, the company - like most New Zealand organisations - has yet to embrace the technology that would allow it to disseminate this positive story to a wider audience.

Disclosure of interest: Brian Gaynor is a Carter Holt Harvey shareholder.