Weak markets thump Carter

By PAULA OLIVER forestry writer

Timber giant Carter Holt Harvey lifted the lid on a stunning $34 million first-quarter loss yesterday, laying the blame squarely on weak markets and a global economic slowdown.

In stark contrast to last year's $90 million profit for the quarter to June 30, Carter Holt's loss came as it struggled to offload high stock levels in weak markets.

Although the financial market had expected a tough result, the extent of the loss had not been widely predicted.

Bundled into it was a $25 million hit for the mothballing of the Mataura paper mill and a small Australian sawmill. Chief executive Chris Liddell said the chance of either reopening was now remote.

Describing the quarter as difficult and disappointing, he said the immediate outlook remained challenging.

"We indicated at last quarter's announcement that we expected this quarter to be tough," he said.

"What transpired were market conditions in all of our major businesses at, or near, cyclical lows."

Worst hit was the Forests division, which courted controversy last year when it bought logs nationwide with the aim of lifting prices and consolidating the industry.

It was left nursing high stocks when markets crashed, and the resulting offload in weak markets hit the division's result hard.

Forests' posted earnings before interest and tax of just $1 million, compared with the previous year's $50 million.

The high stock levels also forced Carter Holt to write down the value of remaining logs by $5 million because they had aged.

Mr Liddell said log stocks had been reduced 134,000 tonnes during the quarter to a level the company would normally carry, 300,000 tonnes.

On the bright side, Forests received $US2 more for logs into Korea - the first increase for months. Japan remained a difficult proposition.

"It's worth taking a step back from Forests," Mr Liddell said. "While it was a difficult quarter, it did still make a profit.

"There are big opportunities there for improvement."

Wood Products, which had suffered from an unprecedented slowdown in building in Australia, improved earnings amid signs of a pick-up.

The division earned $4 million before interest and tax - up on the previous quarter's $9 million loss but way below last year's boom result of $31 million.

Mr Liddell said building activity had clearly improved last month. He partly credited the Australian Government's $14,000 first-home rebate.

Lower interest rates and higher consumer confidence also contributed to a brighter outlook, said Mr Liddell.

Soaring international pulp prices hurt the Pulp, Paper and Tissue divisions, but inventories were reduced.

The Tissue and Packaging divisions posted good results.

Analysts said the company was operating in tough conditions but gave all the indications that when markets picked up it would be well-placed to take advantage.

The newly acquired Tasman pulp mill and Morwell sawmill in Australia both made profits.

Mr Liddell said Carter Holt's prospects hinged on the expected recovery of the United States economy towards the end of the year. Asian economies would follow, although Australia was already showing signs of improvement.