Archive | Carter Holt Harvey

Carter Holt revises earnings & values

Published 27 October 2005

Carter Holt Harvey Ltd’s committee of independent directors said after the company made its September quarter profit announcement and revising its full-year earnings forecast, it was looking at how this would affect cashflows & valuation.

The committee, chaired by Kerry McDonald, said it had engaged Cameron & Co to make the evaluation and that Grant Samuel & Associates had been re-engaged to assess any implications for its original target company statement report.

Grant Samuel said it would complete its review on Monday.

Meanwhile, the committee concluded the revised 2005 forecast didn’t warrant a change in recommendation that shareholders shouldn’t accept the takeover offer from Rank Group Investments Ltd. Rank said on 25 October it had 69.78% of Carter Holt.

The committee is also reviewing whether the revised 2005 forecast has implications for the company’s longer-term projected cashflows & values, and said it would give shareholders more advice on that within 48 hours (by sometime on Saturday).

Carter Holt Harvey Ltd announced a $31 million after-tax profit, $41 million operating profit (down from $72 million for this quarter last year), on revenue of $879 million for the September quarter. The revised full-year operating profit forecast is $200 million, including an adjustment for $9 million less of land sales than in previous forecasts.

Website: Carter Holt Harvey


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Rank goes unconditional after Grant Samuel recommends against its Carter Holt bid

Published 17 September 2005

Carter Holt Harvey Ltd’s independent directors said on Thursday Rank Group’s offer to minorities was below fair value, but Rank made its unchanged offer unconditional at the close of business on Friday.

Rank (Graeme Hart) already has agreement with US forestry company International Paper Ltd to buy its 50.5% for $1.65 billion at 2.50/share. The offer to minorities, at the same price, closes on Thursday 13 October.

Grant Samuel & Associates Ltd said in its independent appraisal it valued Carter Holt at $2.55-2.95/share ($3344-3864 million equity value, $3505-3975 million enterprise value), with a $2.75 midpoint. Rank’s offer is at a 9.1% to the midpoint.

“Under a full takeover offer Rank Group should pay a price equivalent to the full underlying value to the minority shareholders despite having previously agreed to acquire a controlling shareholding,” Grant Samuel said.

Local investment bank Cameron & Co examined management plans & forecasts, held discussions with management and reviewed the Grant Samuel report, said it generally agreed with grant Samuel’s view on the merits of the offer and also noted the significant opportunities to enhance the performance & value of the business.

Rank said the premium in its offer was around 16% after adjustments for the recent sale of Carter Holt’s forests, the dividend payment & the general sharemarket improvement. Grant Samuel said the offer represented a 1.6% premium on the $2.46 closing price the day before Rank made its offer in August, and a 29.5% premium on the 24 closing price, the day before International Paper announced it was considering strategic alternatives for its stake.”

Grant Samuel said it valued Carter Holt by aggregating the estimated market value of each of its 4 operating divisions together with the value of non-trading assets & liabilities and adjusting for corporate costs & net borrowings. It estimated the value on the basis of fair market value as a going concern.

“The valuation of CHH is appropriate for the acquisition of the company as a whole and accordingly incorporates a premium for control. The value is in excess of the level at which, under current market conditions, shares in CHH could be expected to trade on the sharemarket.”

Grant Samuel said it had used discounted cashflow analysis to value the company: “DCF analysis is commonly used to value forest estates because it allows prices, exchange rates & harvest profiles to be modelled explicitly. It is also appropriate in valuing downstream processing of logs into wood products, pulp & paper and packaging because it enables the valuer to test the sensitivity of earnings to fluctuations in key underlying assumptions, capture the impact of lumpy capital expenditure and to reflect different levels of performance at different stages in an economic cycle.”

New valuation approaches change forest assumptions

In its valuation summary, Grant Samuel said: “Based on recent sales of forests it can be assumed that buyers believe there will be log price appreciation. Valuations based on today’s log prices would not support the prices paid for the forest estates. Timos (timber management organisations) & reits (real estate investment trusts) have brought a new method & approach to the funding of forests which enabled Tenon (formerly Fletcher Forests) and more recently Carter Holt to sell assets at above book value which were not delivering earnings close to their cost of capital.”

Grant Samuel valued the Carter Holt forests at $1250-1400 million, using a 7.4% real discount rate and assuming the $NZ:$US exchange rate declines from US69c to US60c by 2009, but recognising that even slight shifts in log prices can have significant impacts (a 2.5% move would change the value by 12.2-12.3%).

Carter Holt got an average $2500/ha for the 94,600ha of freehold land it sold in July and Grant Samuel has used that to value the remaining 126,000ha.  However, Grant Samuel said later in its summary the July sale to Rayonier and RREEF Infrastructure “achieved a price of $US3263/ha”, while in a chart on transactions it put that sale value at $US3139/ha – unexplained confusion.

The comparative sales chart puts the Carter Holt deals in July at the bottom of the heap:

Evergreen Forests Ltd’s sale of forests this quarter is put at $US4029/ha
Rayonier’s sale into the joint venture which bought the Carter Holt forests was put at $3850/ha
Weyerhaeuser’s 3rd quarter 2004 sale of forests to Hancock was at $4534/ha
Kiwi Forests Group’s acquisition of Fletcher Forests was at $4204/ha
The Kiwi/Hancock acquisition of the Tarawera forest from Fletcher was at $6184/ha, and
The sale of the Central North Island Forests Partnership assets to the Harvard fund was at $4012/ha.

Carter Holt is also in the process of selling another 11,000ha of non-strategic forests & freehold land and, for a number of years, has been selling land for dairy conversions & lifestyle blocks.

“The range of prices received has varied significantly but is averaging around $7000/ha. CHH has estimated that it will take 10 years for all HBU land to become available for sale, and accordingly Grant Samuel has assumed the sale of 3600ha of HBU land each year for the next 10 years to determine a net present value for the HBU land.”

The valuation attributes a forests value of $US3565-4410/ha (which I think refers to net stocked hectares).

On the issue of deferred tax, Grant Samuel said: “The remaining forests after the sale announced in July have a deferred tax liability of $361 million, which could be crystallised if the forests were sold directly to a purchaser or over time as the trees are harvested by CHH. A significant proportion of the residual forests are held in subsidiary companies. If the remaining forests were sold, CHH believes about 75% could be sold by way of a share sale, effectively transferring the full amount of the deferred tax liability to the purchaser.”

Dark possibilities

Grant Samuel presented some fairly dark possibilities in the outlook for minority shareholders in a Rank-controlled Carter Holt which remained listed, although it said some of these options were unlikely. The dark-side options were based on Rank making a highly leveraged purchase and seeking, by one method or another, to transfer that debt either to Carter Holt or to minorities.

Grant Samuel said:

Rank has little or no synergy with any of the Carter Holt business
Carter Holt has $1.7 billion of available subscribed capital which it could repay to shareholders tax-free, thus reducing Rank debt by halving Carter Holt shareholders’ funds but still leaving the debt:equity ratio conservative
Carter Holt could raise debt to repay shareholders, transferring some of Rank’s acquisition debt to Carter Holt
Carter Holt could pay surplus cash from asset sales or an increase in debt through a dividend without imputation credits, leaving the tax bill to shareholders to pay
Grant Samuel said if Rank had accumulated tax losses it mightn’t incur any tax liability from that option, but it was an unlikely course for rank to pursue
Takeover by Rank would probably lower Carter Holt’s investment ratings, raising its borrowing costs.

Despite the possible downside, Grant Samuel expected a low takeup of Rank’s offer, given Mr Hart’s record of successful business transactions, and the fact that Carter holt was well positioned for earnings growth after comlelting a substantial proportion of its restructuring initiatives.

Websites: Carter Holt Harvey

Grant Samuel report


Earlier story:

19 August 2005: Hart buys control of Carter Holt, plans full takeover

28 June 2005: 28 June 2005: International Paper considers “strategic alternatives” for Carter Holt stake

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Hart buys control of Carter Holt, plans full takeover

Published: 18 August 2005

Carter Holt Harvey Ltd’s 50.5% controlling shareholder, US company International Paper Ltd, has agreed to sell its stake to Rank Group Investments Ltd (Graeme Hart) for $1.65 billion, at $2.50/share, and Rank will proceed to a full takeover offer.

Carter Holt put 95,000ha of forests on the market in March, and International Paper followed that up in June with a statement that it was exploring “strategic alternatives” for its Carter Holt stake.

20 July 2005: Carter Holt nets $385 million as RREEF-Rayonier consortium buys this & Rayonier forests

28 June 2005: International Paper considers “strategic alternatives” for Carter Holt stake


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International Paper considers “strategic alternatives” for Carter Holt stake

Published: 27 June 2005

US company International Paper Ltd has told its New Zealand forestry subsidiary, Carter Holt Harvey Ltd, it’s exploring “strategic alternatives” for its 50.5% stake. International Paper indicated the process was at an early stage and should be completed by the end of the year. Carter Holt said it was premature to speculate on any outcome.


Carter Holt will continue with the proposed sale of its non-strategic forests with International Paper’s full support.


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Carter Holt expects operating profit fall, forest value gain under new accountancy rules

Published: 29 March 2005

Carter Holt Harvey Ltd said today its first-quarter operating profit would be down by about one-third under a change in accounting rules, but it expected an even greater forest revaluation gain.

Meanwhile, it said, demand in the residential building sector still hadn’t picked up after the traditional Christmas slowdown. But it expected better market conditions in the 2nd half and expected the underlying overall financial performance to be in line with expectations, assuming forex & pulp prices are at forecast levels.

That last sentence isn’t a full direct quote but is an abbreviated version of what the company said in a statement to NZX today.

The result will be the company’s first under International Financial Reporting Standards (IFRS). Carter Holt said it would report the result in April and would be one of the first companies in the region to report financial results under IFRS.

It expected its first-quarter operating profit to fall from $77 million last year to $45-50 million this year.

But there would be a $90-100 million increase in profit for the value of the forest asset, taking it to $1.565 billion.The key factors affecting the operating profit are the requirement to take the full impact of maintenance shutdowns during the quarter, cessation of goodwill amortisation and softness in demand for wood products, particularly in Australia.

Carter Holt said the forest asset would be revalued quarterly under IFRS, taking into account changes in average price during the quarter as well as what has been harvested and what growth occurred over the current quarter. Price improvements during the March quarter are the main reason for the forecast increase in value of the forest asset.The company will release full details of the quarter’s result on Wednesday 20 April. Its tenders for the sale of 41,000ha of land & 95,000ha of trees close 2 days later, on Friday 22 April.

Earlier stories:

13 March 2005: 39 Carter Holt freehold lots on market include 8930ha near Auckland

4 March 2005: Carter Holt puts 95,000ha of forests, some land on market


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Carter Holt earnings up, outlook positive

NZ should ease out of housing doldrums in spring, optimistic forester and miller says

Carter Holt Harvey reported a net operating surplus up 17.3% to $237 million on operating revenue up 16.7% to $3.8 billion for the year to March.

But its fourth quarter was poorer, with earnings down 67% to $19 million on sales up 7% at $901 million.

All round it was an upbeat result despite the severe contraction in Australian construction markets and slowdown in New Zealand construction, which affected a fair part of the business.

Chief executive Chris Liddell said in his results report that operating earnings (before income from associates, restructuring and non-recurring items) rose 44% to $364 million. Market conditions were strong in pulp, containerboard and, for the first half, Australian residential construction.

But he said the immediate outlook for the next two quarters was for difficult trading conditions as economic growth in the US, Asia and Australia slowed considerably.

Recent aggressive reductions in interest rates should flow through to increased business activity later in the year.

Residential construction levels in both Australia and New Zealand are at cyclical lows and not expected to recover until spring, when lower interest rates should encourage new housing investment.

Forest-based companies have had to battle hard for a decade to justify their existence as commodity prices have slumped. But in this report Carter Holt could show good commodity returns — forests ebit up 29% to $142 million on a 23% sales rise to $612 million, ebit from pulp, paper & tissue up 128% to $146 million on sales up 12% to $1.44 billion.

The wood products division increased sales 41% to $1.2 billion, but ebit fell 20% to $53 million. In contrast, the distribution group’s sales fell 2% to $452 million, but ebit rose 33% to $12 million.

Carters, the building products distribution business, traded profitably despite difficult conditions. Despite the Australian slump, the $A330 million Carter Holt paid for Australia’s leading softwood panels business and a sawmill has proven a worthwhile investment. The business remains ahead of pre-acquisition expectations, achieving a 16% cashflow return on investment for the year.

Carter Holt is also positive about its $US130 million (plus a possible $US10 million) Tasman pulp mill purchase, At trendline pulp prices and a US exchange rate of 45c, Carter Holt expects the mill to achieve a cashflow return on investment above 20%. Even at bottom-of-cycle pulp prices, it expects the mill to earn its cost of capital.

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Carter Holt December quarter profit dives

Australian housing helps

Carter Holt Harvey made $25 million on operating earnings of $68 million before interest, tax & restructuring items in the December quarter, compared to $42 million from $81 million in the December 2000 quarter.

The company made $15 million on $16 million operating in the September quarter, and a $34 million loss in the June quarter. The company has shifted its balance date from March to December: it made $6 million net for the nine-month year compared to $218 million the previous year, but sales for the nine months were a record at $3.154 million, compared to $2.854 million in 2000.

Carter’s Forests division achieved record export log sales and an improvement in prices in the December quarter.

The recovery of the Australian residential building industry from its worst slump in 25 years saw an improvement in both wood product volumes and a lift in prices in the last quarter.

Log inventory slashed

The company decided to cut inventory in June despite the prices, and by December had reduced it from 326,000 tonnes to 106,000 tonnes. The Korean market strengthened through the year with solid demand from the plywood & sawmill industries. Investment in infrastructure, particularly apartment projects, was strong.

The weak state of Japan’s economy resulted in log sales to that market dropping 20%. Prices in Japan generally eased during the year. Bellwether Japan A grade logs averaged $US52/tonne fob for the year, $US8 less than last year. Smaller-dimension Korean K grade logs averaged $US35/tonne fob, down $US5 on the previous year.

Average realisations for domestic logs fell due to a drop in demand for high-margin pruned logs from sawmills servicing the American appearance & mouldings markets. In the December quarter, 417,000 tonnes were sold as

Wood Products’ annual ebit halved, December quarter better

Wood Products’ ebit for the nine months was $31 million compared to $62 million in 2000, on sales up from $940 million to $1.05 billion. December quarter ebit was $16 million, up from the September quarter’s $11 million.

In Australia, December-quarter trading conditions were strong, buoyed by low interest rates and the first home owners grant. Improving market conditions enabled a 5% increase for structural timber products to be implemented in October.

Currently, demand remains strong and price increases of 5% for timber products and 3% for panel products have been announced, effective February.

The grant will continue for six months at a reduced level of $A10,000. Although there has been a fall in recent building approvals figures, November 2001 approvals were still 40% ahead of November 2000. In the private house category, building permits for the six months to November were 54% ahead of the previous six-month period.

The New Zealand construction market started to lift in the December quarter due to seasonal influences and lower interest rates, for an average price increase of 5%.

Marsden LVL on stream soon

December quarter timber production was 10% higher at 169,000 m³ than the December 2000 quarter.
The Marsden Pt laminated veneer lumber (LVL) mill’s log peeler is almost completed and commissioning is expected by the end of March 2002. Planned LVL production is 35,000m³ this year.

Carter expects the New Zealand building market to remain firm through at least the first quarter of 2002 as recent interest rate cuts, immigration inflows & housing consent increases support current levels of activity.

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