Lean mean mill to earn its keep in hostile world

By CHRIS DANIELS forestry reporter

Big job cuts at Carter Holt Harvey's Kinleith Mill are needed to make it internationally competitive, says chief executive Chris Liddell.

The new staffing structure plan, announced yesterday, he said, would ensure the mill had a good future - at least in the short term.

Carter Holt, the country's second-biggest listed company, intends laying off 403 of its 772 staff at the Tokoroa mill, which makes pulp and liner board for packaging.

The job cuts will be offset by 190 positions with a new maintenance contractor at the plant.

The Kinleith Mill, which earns $500 million in overseas revenue each year, had not been paying its way, Liddell said.

It had made an average return on investment of only five per cent over the past five years.

"That is not enough to justify reinvestment and creates concerns not only about growth, but also long-term sustainability," he said.

Despite specifying the number of jobs it wants to cut, Carter Holt management said it was using "consultation on restructuring", and outlined a three-to-four-month consultation process due to begin with site unions.

Frances Loo, forestry analyst at UBS Warburg, said yesterday's announcement was significant for Carter Holt Harvey.

"Even if you get higher prices and better earnings, making a profit is not enough. You have to make a sufficient economic return for there to be reinvestment."

International pulp prices were still very low, "bouncing around the bottom" of the cycle, said Loo.

"These plans are very much designed to say 'look, we can't rely on these markets, they're volatile, they're weak'.

"It's all about trying to put in place internal initiatives to improve earnings power so you're not the hostage of an uncertain and volatile commodity market."

Pulp prices were notoriously volatile, so no company would want to bet a mill's future on where prices would go.

Liddell, who is in the United States, said in a conference call to analysts and journalists that new low-cost competition had "raised the bar". Some of it was technology-based, some came from low-wage countries, such as Russia.

The restructuring, and normal improvements, would put the mill on a good footing.

The mill was running well after its recent $300 million modernisation, and the planned staffing cuts were part of the modernisation.

There were no plans to increase mill production, but the average tonnage per employee would need to grow after the layoffs.

Carter Holt's pulp mills, Kinleith and Tasman, at Kawarau, had a good future over the next few years, Liddell said.

Kinleith was not under any short- term threat of closing but, in the long term, he wanted the mill to grow, not waste away.

Asked about the huge increase in the amount of wood coming on to market in the next few years, Liddell said it could make financial sense to process some of it overseas.

But this would be his less-preferred option.

Carter Holt already employed 11,000 people in Australia and New Zealand.

"All things being equal, we'd like to continue processing in this part of the world," he said.

"I believe that New Zealand has a future in the pulp and liner board production market globally.

Because of the amount of wood becoming available, some would go to Asian markets as pulp and liner board."

"It won't all be structural lumber and, hopefully, it won't all be in logs."

In January, when announcing a December quarter profit of $25 million, Liddell said the company, which had previously gone down the path of innovation and growth, was planning to now "pull harder on the costs lever".