Chinese venture fails to match hopes for CHH

Carter Holt Harvey yesterday wrote down by as much as a quarter the value of a Chinese medium-density fibre-board business acquired in 2004 for $176 million.

The writedown was disclosed alongside a rise in annual net profits from continuing operations from $108 million to $132 million and the suspension of the dividend. Sales fell from $3.29 billion to $3.27 billion.

The forest giant has written off goodwill from Plantation Timber Products, which has MDF plants in the Shichuan and Hubei provinces in the middle and east of China.

At the time of the acquisition, CHH heralded PTP for its scale in a market close to customers. It expected to lift PTP's performance, adding there was room to improve the investment.

CHH was not precise about the extent of writedown as it was bundled up in $143 million of impairment provisions against its MDF business. However, it said $50 million of the charge was goodwill, of which the "vast majority" was PTP. The remainder was across the whole business.

Outgoing chief executive Peter Springford said: "Although we have had reasonable results from PTP they have not been as good as we hoped. We still are achieving our cost of capital, it is more about the concern about the MDF industry."

CHH was in the black thanks only to $112 million of foreign exchange gains, $45 million of land sales and a $195 million increase in the value of its forests. Operating profits at all its divisions, apart from its forests, were sharply down. The packaging division posted a modest increase in operating profits from $40 million to $42 million.

The strong New Zealand dollar, the slowdown in the Australian housing market, falling pulp and paper prices and increased competition all hurt.

The dividend cut reflects the attitude of its 85.7 per cent owner Graeme Hart. His other listed company, Burns Philp, does not pay dividends.