Carter Holt pledges to win Kinleith dispute as profits triple

By PAM GRAHAM

Carter Holt Harvey yesterday reported a tripling in first-quarter profit and pledged to do whatever it takes to win the five-week-old industrial dispute at Kinleith.

The "solid start to the year" was achieved across all of the businesses and with the help of currency hedges that reduced the impact of the high New Zealand dollar.

The net profit of $51 million in the three months to March 31 was up from $17 million last year and operating earnings were 51 per cent higher at $77 million. Operating revenue fell 4.9 per cent to $920 million.

Still, the return on investment of 7.4 per cent remained below the 11 per cent cost of capital.

Chief executive Peter Springford promised "more of the same" from the company that owns more forests than anyone else in New Zealand and supplies more toilet tissue and structural timber than anyone else in Australia.

But the focus was on the Kinleith pulp and paper mill in the central North Island.

Springford had no progress to report in the dispute - about rights to promotion, pay and firefighting services - that cost $7 million last month. The most important issue to the company is the right to choose which workers it promotes.

The losses could reduce to $4 million a month, equal to $150,000 a day, if the firm moved to full plant preservation mode, Springford said.

"Quite frankly we are there for as long as it takes," he said.

Would Carter Holt Harvey walk away from Kinleith?

"That's not on the agenda to date. We still think there is a good bunch of workers there. They have to get with their union advisers and come to a reconciliation that the world has changed.

"I'd hate to think we'd have to walk away from it but we're certainly willing to walk away in a temporary fashion."

The pulp and paper business earned $16 million before interest and tax in the first quarter, which was a turnaround from the $1 million loss in the same period last year. The Kinleith pulp export price averaged US$424 per tonne in the quarter, up 4 per cent, and Asian linerboard prices were up US$32 per tonne. Production at Kinleith was at near-record levels before the strike.

All Carter Holt's divisions reported profits in the first quarter. At the ebit (earnings before interest and tax) level the wood products division contributed $19 million, tissue $12 million, packaging $6 million and forests $24 million.

The strike hit the forest division which did not sell 90,000 tonnes of pulp logs to the mill, wiping $1 million from its ebit.

The company has been promoting the success of its wood products and tissue businesses in Australia where it now presents every second quarterly result.

Springford, who took over from Chris Liddell in December, said a project aimed at improving productivity was his initiative. It would eventually benchmark 10 of the company's 26 different businesses against their best international competitors with the help of McKinsey and another consultant.

"When we did the first three we were pretty favourably surprised with what we found. We did Box Hill tissue, Tasman Pulp & Paper and one of the smaller forestry businesses as a test. It's not about cutting costs all over the place, it's about getting more out of what we have got.

"It shouldn't be a signal [to workers] that we're after them, it should be a signal that we're looking for a strong future for the business and what we're after is more productivity."

The firm has joined the receiver of the Central North Island Forest Partnership to form a company to export logs and wood chips with a view to saving on shipping costs and developing markets.

Rising oil prices and reduced shipping capacity in the region saw freight costs escalate in the first quarter.

"The increased freight costs and strengthening New Zealand dollar resulted in exporters diverting log volumes into the domestic market rather than the export market. This, together with a lower mix of pruned logs, affected domestic pricing, which was down 6 per cent on the previous quarter," said Springford.

The other issue in his intray was a rise in the average spot price for electricity in March to 16c a KWh from 5c last year. Carter Holt Harvey uses 1240GW/H of electricity a year but has reduced its exposure to the spot market to 16 per cent by hedging and using its own power plant.

"The impact of the higher electricity prices this quarter was $3 million compared to the previous quarter," said Springford.