CHH cuts size of kiwi hedge cushion

By PAM GRAHAM

Carter Holt Harvey has $160 million of protection against the rising New Zealand dollar this year, if it stays at current levels.

But next year it will have just $60 million.

CHH has hedged all its foreign earnings this year at an average 44USc, giving it a $160 million benefit if the currency stays around 56USc.

When the New Zealand dollar rises, foreign earnings convert back at the lower, hedged, rate.

CHH hedges its foreign earnings 12 months out and will not know the average rate for 2004 until the fourth quarter of this year.

But assuming an average rate of 51USc, the company would be $100 million worse off next year, said chief financial officer Jonathan Mason.

"We're working at getting a chunk of that back on costs," he said.

"Also, historically a strong New Zealand and Australian dollar has been positively correlated with higher commodity prices.

"You never want to bet on it, but our best earnings were in years when the New Zealand dollar was strongest."

Mason said that last year the Australian and New Zealand dollars were stronger than other currencies and this year it had been more a case of US dollar weakness against all currencies.

"If the US dollar weakens against all currencies we could be in the best of situations, because we will have strengthening commodity prices and still get good profits from hedges."

The company was working hard to offset the looming impact of the higher currency by controlling costs, he said, but the $100 million was a moving number.

"Externally we mention it for good governance. Internally we mention it because we don't want to reach the end of the year and not have worked to have offset it."

The long-term average for the New Zealand dollar against the greenback is between 53USc and 58USc. The cross against the Australian dollar, 91Ac yesterday, was above the long-term average of between 82Ac and 85Ac. That hurts because the company is a net exporter to Australia.