Fletcher Challenge Forests Trading Profitably

STOCK EXCHANGE LISTINGS: NEW ZEALAND, AUSTRALIA, NEW YORK (FFS).

Fletcher Challenge Forests Trading Profitably In Tough Global Conditions

Fletcher Challenge Forests today announced that it traded profitably through the first four months of its financial year.

Shareholders at the company’s Annual Shareholders Meeting in Auckland today were told that the company has recorded earnings before interest and tax, excluding foreign exchange movements and non-recurring items, of $18 million for the first four months, July to October, based on unaudited management accounts.

Net earnings after tax to the end of October, also excluding foreign exchange movements and non-recurring items, were $7 million.

Fletcher Challenge Forests’ Chief Executive, Terry McFadgen, said the solid performance was achieved through:

- Aggressive cost control, with the target of $15 million savings in overheads set on separation already largely achieved.

- Improved operational efficiencies at the processing plants.

- Improved working capital control and lower interest costs. Net debt is now $300 million, down from $323 million at 30 June.

- A continued aggressive drive in global markets, based on product innovation, expansion into new markets, and improved marketing capacity.

Both the Chairman, Sir Dryden Spring, and Mr McFadgen, stressed the total commitment of Board and management to further improving the company’s operating performance and realising its full potential.

Sir Dryden told the meeting that tough decisions on financial restructuring, announced in August, have given the company a sustainable, realistic and transparent financial footing. A comprehensive strategic review had confirmed significant operational and strategic advantages on which business strategies are now focussed.

The maturing harvest profile of the company’s forest assets will deliver increased volume and value of wood, in the next decade, that should more than double operating earnings from the forest based on current prices.

Even without any improvement in the current prices, that maturing asset alone can earn the cost of capital, medium term.

There is capacity for still future cost improvement throughout the business and in global marketing.

Discussing market trends, Terry McFadgen said that whilst the short term outlook was clouded by risks and uncertainties arising from the events of September 11, and the recessionary conditions in both the USA and Japan, medium term trends were pointing to an improvement in prices. There is likely to be significantly increased demand for wood in the Asia/Pacific region; some major competitors will be impacted by unsustainable forest harvest practices; new initiatives are possible in terms of consolidated export marketing and greater economies of scale. The success of added value customer strategies in markets such as the US has confirmed the potential of more aggressive and sophisticated product innovation and marketing.

Shareholders were told the company is not yet experiencing major negative impacts in the global markets post September 11. However, trends are being closely watched and the company is taking a balanced approach going forward.

Commenting on the pending sale of the Central North Island Forest Partnership, Mr McFadgen stressed that while the asset is a desirable adjunct to the company’s own forests, it is not critical to operations.

Fletcher Challenge Forests will be rigorous in assessing the value of the asset and will only be a participant in the final purchase if it is value enhancing for shareholders.

The company will continue to develop its optimal strategic framework whatever the outcome of the Central North Island Forest Partnership.

Forward Looking Statements: There are statements included in this release which are “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995, and they are included herein in reliance upon the safe harbours created by that Act. As forward-looking statements are predictive in nature, they are subject to a number of risks and uncertainties relating to Fletcher Challenge Forests, its operations, the markets in which it competes and other factors (some of which are beyond the control of Fletcher Challenge Forests). As a result of the foregoing, actual results and conditions may differ materially from those expressed or implied by such statements.

In particular Fletcher Challenge Forests’ operations and results are significantly influenced by the level of building and export activity in the various sectors of the Australasian, Asian and North American economies in which it competes. Fluctuations in industrial output, commercial and residential construction activity, public sector spending on infrastructure, relative exchange rates, and interest rates in each market, can have a substantial impact on Fletcher Challenge Forests’ results of operations and financial condition. Other risks include competitor product development and pricing, and losses due to fire, adverse weather or biological factors.

Fletcher Challenge Forests owns or manages almost 300,000 hectares of fast growing environmentally certified forest, and ten sawmilling and re-manufacturing facilities, all in the Central North Island of New Zealand. Fletcher Challenge Forests markets solid wood products to all major markets in the Pacific Rim and North America.

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