FCL confident of $650M target

Press, 29 July 1989, Page 25

FCL confident of $650M target

PA Auckland Fletcher Challenge, New Zealand’s largest publicly-listed company, said it will achieve its target of a record $650 million net profit for the year to June 30. Better results from New Zealand businesses, particularly good second half earnings from energy producer, Petrocorp, will offset a downturn in Canadian operations, chief executive, Mr Hugh Fletcher, said. “I think we’re going to end up fractionally above $650 . million,” Mr Fletcher said in an interview. FCL, the world’s second biggest newsprint maker, forecast a $650 million net when reporting its $315.5 million interim result in March.

It earned $532.3 million in the previous fiscal year. The firm will report its. result on September 13. Brokers’ forecasts range between $660 and $675 million for 1988-89 and between $7OO and $765 million for 1989-90. But share analysts see problems ahead for FCL, whose annual earnings have grown spectacularly from $l3l million five years ago. They say newsprint prices have fallen, U.S. housing starts are slow, pulp prices are peaking, the Canadian dollar is high, the Australian economy is heading into recession and the New Zealand economy is refusing to pick up strongly. Fletcher Challenge Canada’s net fell to SNZIOS

million in the half ended June 30 from $116.5 million a year earlier. The strength of the Canadian currency against the U.S. dollar and the N.Z. dollar was one of the main reasons for the profit fall, with Fletcher Canada’s ■ chief executive, Mr lan Donald, estimating it caused earnings to fall sCanl6 million (SNZ23 million). But Mr Fletcher still sees good earnings in the future. He said the productivity of New Zealand operations has improved dramatically, U.S. housing starts have bottomed, newsprint prices are near their lows, the Canadian dollar will fall and pulp prices will hold for another 12 to 18 months. Fletcher said a threeyear plan to reduce the

debt to equity ratio to 55:45 from the current 59.5:40.5 should be completed by the end of 1989, months ahead of schedule. FCL went on a $2 billion buying spree in 1988. The New Zealand Government’s privatisation programme will see FCL considering the possibility of acquiring 540,000 hectares of State forests, Rural Banking and Finance Corp and parts of Electricorp of New Zealand. FCL also has not given up on acquiring New Zealand Steel with a consortium if Helenus Corp fails to win anti-trust approval to buy the steelmaker. Internationally, FCL may be looking to expand its building materials business. “We’ve been investi-

gating offshore, but we haven't yet reached a conclusion,” Mr Fletcher said. FCL’s 10 per cent holding in Australia’s CSR is certain to change. “It’s not a long-term position. It could lead to a larger stake, or to other relationships, or a selling. Ten per cent for the next 10 years is an unlikely scenario.”