Kinleith on road to respectable returns

Layoffs and restructuring at Carter Holt Harvey Kinleith pulp and paper mill would enable the mill to achieve competitive returns over the next three years, a Kinleith executive said yesterday.

"The proposed structure of the mill and other plans underway will get us closer to our target of a competitive rate of return on funds employed," said Brice Landman, chief executive of the Kinleith mill.

He said the average return on funds used was around 5 per cent over the past 10 years, which was not enough compared with the mill's cost of capital.

"Bigger mills in Russia and Chile also means we have to move fast to be competitive because we export a lot to the Asian markets," Landman said.

Carter Holt is New Zealand's largest forestry products company.

It is 50.1 per cent owned by the world's largest paper company, International Paper of the United States.

The company has struggled through the past year with stiff competition and commodity cycle lows for its logs and pulp and paper products.

In March, the company said the Kinleith mill needed urgent repairs to stay competitive.

Landman said the mill wanted to move closer to a 12 per cent rate of return set by Carter Holt.

In aiming for this target, the company fired the first shot in March when it announced that the 770 Kinleith workforce would be cut by more than half. That process was set in motion when Landman said on Monday that its workforce would be cut down to 389, compared with an original plan of 370.

But 190 jobs will be available when Carter Holt finalises its site maintenance contract with ABB.

Landman said the agreement was expected to be completed in the next few months, and by September, the Kinleith mill would be operating under the new cost-savings structure.

He said the company understood the difficulties faced by employees who would be losing their jobs as a result of the restructuring.

But he said the situation could get worse if action wasn't taken to improve the performance of the mill.

Landman said anyone was welcome to challenge the company's decision to implement the cost-savings structure, but added that the mill was confident it had undertaken the best move in the interest of the mill, workers and shareholders of Carter Holt.

At least one union is considering a legal challenge to the company's decision to cut workers.

Andrew Little, national secretary of the Engineering, Printing and Manufacturing Union, said his union believed the company might have breached good faith obligations as defined by the country's Employment Relations Act.

The union is against the proposed contracting out of some site maintenance work to ABB.

Landman said the contracting out would save Carter Holt $12 million a year from a total saving of up to $30 million annually from the new structure.