media release
Carter Holt Harvey announces September results
Carter Holt Harvey today announced net earnings for the September quarter of $15 million – compared with a loss
of $34 million in the previous June quarter.
The company has reported a net loss after tax of $19 million for the six months from March to September, compared with a
net profit of $176 million for the same period last year. Net sales were a record $2,054 million, up 7% on the same
period last year.
Carter Holt Harvey CEO Chris Liddell described the most recent quarter as a tough one for the company with low prices
and higher energy costs impacting the company performance.
“Most challenging for us over the last two quarters have been prices for logs, pulp and linerboard. These all reached
cyclical lows over the last six months compared with top of the cycle prices for pulp and linerboard in the same period
last year.
“For the Pulp and Paper business alone this price slump is estimated to have cost $96 million over the last six months.
In addition, higher energy charges have added $14 million to our costs for the six-months.
“Despite the disappointing results, September was our best month this year and we anticipate further improvements in the
next quarter. This is based on more robust construction markets in Australia and New Zealand and seasonal improvements
in our Packaging, Tissue and Distribution businesses.
However, Mr Liddell remained cautious about the outlook.
“Because of the difficult global trading environment and the unstable USA economy, the company needs to focus on
managing those things it can control – increasing margins and decreasing costs, working capital and other operational
efficiencies.
ENDS
For further information please contact:
Bridget Abernethy - Corporate Affairs Or:
Jim Whineray – Investor Relations
Email: bridget.abernethy@chh.co.nz Email: jim.whineray@chh.co.nz
FINANCIAL RESULTS
FOR SECOND QUARTER AND SIX MONTHS ENDED
30 SEPTEMBER 2001
The Board of Directors of Carter Holt Harvey Limited advises shareholders that net earnings for the September quarter
were $15 million compared with a loss of $34 million in the previous June quarter and net earnings of $86 million for
the same quarter a year earlier. Net sales for the quarter were $1,082 million compared with $972 million in the June
quarter and $969 million in the corresponding quarter last year.
Given the loss of $34 million in the first quarter, the company recorded a net loss after tax of $19 million for the six
months compared with a net profit of $176 million last year. Net sales for the six months were a record $2,054 million,
compared with $1,920 million in the same period last year. The earnings figures include a non-cash restructuring charge
for asset write-offs of $29 million made in the first quarter. A one-time tax credit of $40 million has been recognised
in the second quarter, arising from the reversal of a prior period general tax provision now no longer required. Higher
energy charges are estimated to have added $14 million to costs for the six months compared with last year.
Performance:
The business environment was extremely challenging throughout the first two quarters. Log, pulp and linerboard prices
all reached cyclical lows during the period compared with top of cycle prices for pulp and linerboard achieved last
year. Price loss and mix are estimated to have reduced earnings by $135 million, with the Pulp and Paper business alone
accounting for $96 million over the comparative six month periods. The Australian construction market, which peaked in
the June quarter last year, was weak at the start of this financial year but strengthened steadily throughout the
period.
In the September quarter, operating earnings for Forests, Wood Products and Tissue groups were ahead of the June
quarter. In New Zealand, residential construction markets became more active in the September quarter. Very low export
prices and higher energy costs adversely impacted the Pulp and Paper business, while Packaging’s lower result reflected
the normal seasonal effect on its customer base.
Innovation:
The internal transformation that saw the existing business structure of six large business groups reconstructed into 33
entities came into effect on 1 April 2001. This reorganisation is now well bedded in despite the difficult trading
conditions and will provide benefits in the medium term.
Market Leadership:
Results for the six months includes contributions from the Tasman pulp mill and Morwell sawmill, which were acquired in
the June quarter. Both investments made a positive contribution before interest and tax in the six months. These
investments consolidate the company’s leading position in the Australasian timber and softwood pulp markets.
For more information on Carter Holt Harvey, visit the company’s website www.chh.com.
CONSOLIDATED STATEMENT OF EARNINGS
This statement has not been audited.
All figures are in millions of New Zealand dollars.
Six Months Six Months
Ended Ended
30 Sept 2001 30 Sept 2000 % Change
Net sales $2,054 $1,920 +7
Operating earnings before interest and tax 47 232 -80
Income from associated companies 5 5 -
Restructuring and non-recurring items (29) (15) -93
Earnings before interest and tax 23 222 -90
Net interest (81) (46) -76
Surplus before tax (58) 176 -133
Tax expense/(credit) (40) - -
Minority interests (1) - -
Net Earnings $(19) $176 -111
BUSINESS GROUP REPORTS
FORESTS
Forests recorded earnings before interest and tax (EBIT) of $14 million for the six months ended 30 September 2001
compared with $90 million for the same period last year. Sales were $329 million compared with $301 million last year.
September quarter earnings were $12 million better than the previous quarter. The key highlights for the quarter were
record export log sales of 636,000 tonnes in the quarter and an improvement in export prices in the Korean market.
Korean K grade logs averaged US$35 per tonne FOB, US$5 more than in the June quarter. However, lower demand from
Japanese customers saw Japan A grade logs average US$51 per tonne FOB, down US$3 on the prior quarter. Also, stronger
construction markets in Australia and New Zealand during the quarter resulted in increased domestic demand for logs.
Local sales were 1.2 million tonnes, 8% more than in the previous quarter. Additionally, stumpage sales totalling 72,000
tonnes were made in the quarter.
Three main factors caused Forest’s drop in EBIT for the six month period. Firstly, the company made a decision to reduce
sales volumes during a period when its principal markets were at cyclical low points. Secondly, low export log prices,
which were below levels experienced at the time of the Asian economic crisis in 1998. Thirdly, earnings were adversely
affected by inventory-related issues in the Fibre Solutions business which were addressed in the June quarter. Having
resolved the inventory issues and made management changes, Forests recorded an improved EBIT for the September quarter
of $13 million.
Total sales for the six month period were 3.0 million tonnes, 20% down on last year. Domestic sales volumes were lower
than last year due to reduced demand from domestic sawmills faced with slow markets in both New Zealand and in
Australia. Export log sales were a record 1.24 million tonnes for the six months, up 57% on the same period last year.
The main increases were a near doubling of sales to the Korean market and a 45% increase in sales to other markets such
as China and India. Recent growth in the China market and the current weak Japanese market suggests that China will
overtake Japan as the company’s second market after Korea. However, weak prices continued throughout the six months with
Japan A grade logs averaging US$53 per tonne FOB, 13% lower than last year. Korean K grade logs were 21% lower than last
year, averaging US$33 per tonne FOB over the six months.
Despite the slow domestic market Fibre Solutions and Forest Resources worked together to reduce inventory levels. By the
end of September, inventory had reduced from 438,000 tonnes at the start of the financial year to 250,000 tonnes at the
end of September. The reduction in inventory also had additional benefits in reducing log degradation, harvesting costs,
and rehandling/distribution costs, which all improved in the September quarter.
WOOD PRODUCTS
Wood Products’ EBIT for the period under review was $15 million compared with $56 million for the same period a year
earlier. Sales were $682 million compared with $651 million achieved last year.
Results for the Wood Products group show the impact of the Australasian construction cycle. Building activity was
relatively weak at the start of the financial year and it was not until June 2001 that the level of residential
construction activity showed a discernible improvement. Wood Products’ September quarter result of $11 million was the
second consecutive increase in quarterly earnings.
In Australia, lower interest rates and the government’s A$14,000 first home owner’s grant sparked housing construction
following the GST-induced slump in the second half of last year. Australian dwelling approvals have shown month-on-month
increases in each of the last six months with the most recent August figure at a similar level to approvals recorded
prior to the GST imposition last year. In New Zealand, residential construction activity has been slower to respond to
lower interest rates although August dwelling approvals were at the highest level for more than a year.
Lower prices due to the weak Australasian residential construction markets in the first half of the calendar year
adversely impacted the timber and plywood business. In Australia, timber prices peaked in the September quarter last
year and average timber realisations (including changes in mix) were 19% lower for this six month period compared to
last year. With the recent recovery in the Australian construction market a price increase averaging 5% was successfully
implemented in August and a further 5% average price increase goes into effect in October. Timber production, at 620,000
cubic metres for the six months, was up 9% on last year but this increase largely reflects additional volume from the
Morwell, Victoria, sawmill acquired in April 2001. The Morwell sawmill has performed well since its acquisition,
achieving a cash flow return on investment (CFROI) of 14%. The strong level of housing approvals is expected to drive
demand through the summer period. In New Zealand, demand was strong in rural and provincial areas but relatively weak in
main centres. However, construction activity has started to improve in line with the seasonal lift. A price increase,
ranging up to 10%, has been announced in New Zealand, effective November 2001.
Panels’ result for the six months was impacted by the weaker Australian construction market, higher resin prices, and
lower export sales volumes of higher margin thin medium density fibreboard (MDF) to Japan. However, the construction
cycle is now rebounding strongly with sales in the September quarter 15% ahead of the June quarter. A price increase in
August was successful in recovering increases in input costs. Forward orders are strong and the December quarter is
expected to show further earnings improvement.
The operating performance of the new Marsden Point laminated veneer lumber (LVL) mill continues to improve each month.
Installation of the log peeler is on time and budget and is due to be completed in March 2002. LVL sales volumes
recovered in the second quarter, 27% higher than the June quarter, due to increased levels of housing activity in
Australia. In the September quarter, a new product, “Hychord”, was launched that targets the frame and truss market.
PULP, PAPER AND TISSUE
Pulp, Paper and Tissue recorded EBIT of $6 million for the six months to September 2001 compared with $79 million earned
in the same period last year. Sales for the period were $808 million compared with $710 million last year. Pulp, Paper
and Tissue’s EBIT and sales figures for the current period include results of the Tasman pulp mill, acquired on 30 April
2001.
The Pulp and Paper business was substantially impacted by the decline in prices for export pulp and linerboard for the
period. Lower net prices are estimated to have reduced EBIT by $96 million in the six months to September 2001 compared
with the same period last year. Additionally, higher energy costs, arising from low hydro lake storage levels, are
estimated to have added $10 million to costs compared with the same period last year. In August, a fire on PM6 resulted
in the paper machine being out of production for eight days while repairs were made. The cost to the company was $1
million net of insurance. During September, annual recovery boiler maintenance resulted in No 6 paper machine (PM6)
being down for 16 days.
Slowing global economic activity resulted in a decrease in consumption of most paper grades over the last twelve months,
thereby reducing demand for market kraft pulp. Although pulp producers reduced some capacity and operating rates fell,
overall producer inventory levels rose and prices declined. In the six month period, Kinleith mill’s bleached kraft pulp
(BKP) averaged US$386 per tonne, down US$314 per tonne or 45% on last year. Prices dropped further in the September
quarter with export BKP averaging US$372 per tonne, US$28 per tonne or 7% lower than in the June quarter. Tasman pulp
mill, acquired in the June quarter, also suffered from declining pulp prices. Tasman’s customer base is mainly
Australian, and the mill produces a range of specialty pulps rather than predominantly bleached kraft pulp made at
Kinleith. Nevertheless, prices received for Tasman’s pulp, linked to Northern Bleached Softwood Kraft (NBSK) pulp,
averaged US$485 per tonne for the financial year to date and US$457 in the September quarter. Despite poor pricing
Tasman mill has achieved a CFROI of 18% since its acquisition. In the latest quarter, Tasman produced 66,000 tonnes of
pulp and set a weekly production record of 5,750 tonnes in September. Tasman’s annual maintenance shut, lasting nine
days, is scheduled for November.
Weaker Asian markets for packaging, reflecting slowing American and European consumer markets, impacted on linerboard
pricing. Production discipline from North American suppliers helped slow the decline in linerboard prices in the United
States but Asian markets were exposed to excess global supply. Pricing for Kinleith’s Asian export linerboard averaged
US$383 per tonne in the six months to September, US$122 per tonne or 24% lower than the same period last year. September
quarter prices averaged US$370 per tonne, 7% lower than the previous quarter. In the six months to September, Kinleith
produced 136,000 of containerboard and 122,000 tonnes of pulp, 2% lower than last year. Kinleith’s inventory levels
declined by 30,000 tonnes from the end of June due to strong pulp sales to China and PM6’s production outages.
Despite near record production of 37,300 tonnes for the half year at Penrose recycled medium mill, earnings declined by
$6 million due to lower export prices. Average export prices were US$140 or 38% per tonne less than last year. Whakatane
cartonboard mill achieved its best ever six month production of 42,400 tonnes and one of its best ever sales
performances in the period. These were the main reasons for the mill’s $2 million increase in EBIT.
Tissue achieved a 20% increase in operating EBIT for the six months due to increased sales volumes, higher prices and
lower pulp costs. In Australia, the success of a major consumer promotion, “Mega”, for Tissue’s leading brand Sorbent,
assisted volume growth in the period. The business benefited from price increases made in the March quarter of 3-5% for
Purex toilet tissue and Sorbent facial and toilet tissue, while prices for Treasures baby diapers were twice raised by
3% in the six month period. These price increases helped restore margins after cost increases for pulp and other inputs
had eroded margins last year. In New Zealand, market share in all categories remained strong, however, higher
electricity charges added $3 million to costs in the six months, due to concerns over hydro lake storage levels. In the
September quarter, Tissue’s operating EBIT was 40% higher than the June quarter as pulp costs declined further and a
focus on cost control in all areas of the business. Also in the September quarter an overseas based competitor withdrew
from the Australian market.
PACKAGING
Packaging’s EBIT for the most recent six months was $7 million compared with a break even contribution for the same
period last year. Sales for the period were $269 million compared with $247 million made last year.
Packaging’s result was highlighted by a turn around in the New Zealand corrugated box, paper bag and carton businesses.
Cost control and price increases were the main reasons for the improvement. Corrugated box’s sales revenue was 11%
higher and EBIT up 64% for the year to September due to a general price increase made in October last year and strong
demand in the meat and kiwifruit segments in the first quarter. The drop in EBIT in the September quarter, traditionally
the low point for the year, reflects the seasonal nature of the New Zealand business’s customer base. Paper bag also
improved their performance for the six months with sales up 16% and EBIT $2 million more than for the same period last
year. Improved operating efficiency and price increases to recover higher costs were achieved. Export sales continue to
build with orders from South America and trial orders to South Africa and the United States. Following last year’s
record dairy production, orders are expected to be slightly behind this year due to drier-than-usual spring weather
conditions.
The Australian packaging businesses, comprising of corrugated box and carton, recorded an improved result for the six
months. While results are not yet satisfactory the business has made definite progress towards sustainable
profitability. In the period, EBIT was favourably impacted by price rises initiated at the start of the calendar year
for both the corrugated box and carton businesses. Volume increases due to industrial action at a competitor’s business
and lower staff levels contributed to the improvement in the corrugated box business. Additionally, both businesses are
now seeing operating performance improvement resulting from better work practices and targeted capital expenditure.
Corrugated box have completed a project to increase the productivity of their two corrugators, while carton have, since
the start of the calendar year, installed two Roland presses to help them grow with key customers.
DISTRIBUTION
The Distribution group achieved EBIT of $5 million for the six months compared with $4 million for the same period last
year. Sales were $237 million compared with $226 million made in the same period a year earlier.
Carters, the company’s building products distribution business, continued their recent trend of improving earnings due
to increased sales and cost savings. Construction activity was strong in rural and provincial New Zealand but the major
metropolitan centres were more difficult. The improving level of housing consents together with the normal seasonal
uplift should see a strong finish to the year for Carters.
BJ Ball Papers, the company’s New Zealand paper distribution business, achieved similar operating EBIT for the six
months as for the same period last year. Increased sales volumes were driven by lower margin indent business. Raleigh
Paper’s result for the September quarter was similar to the previous quarter. Both paper distribution businesses expect
improved earnings in the next quarter as they move into what is their seasonally strongest quarter.
ASSOCIATED COMPANIES
Income from associated companies for the first six months of the financial year was $5 million, the same amount as
earned in the corresponding period last year.
Sancella Pty Limited (Sancella), the company’s 50% owned investment in the Australasian feminine hygiene and adult
incontinence market, had a 6% reduction in EBIT for the six month period compared with last year. A weaker Australian
dollar resulted in higher costs for imported materials. An 11% increase in incontinence product sales offset declines in
feminine hygiene sales. In the September quarter, EBIT increased by 13% on the preceding quarter due to cost savings
measures and volume increases for both the feminine hygiene and adult incontinence segments.
On 31 March 2001, Carter Holt Harvey and International Paper (IP) each took a 25% stake in Pacific Millennium Paper
Group (PMPG), a China based pulp and paper distribution company. Over the six month period we have established a joint
distribution strategy for China between CHH, IP and PMPG. By the end of the period, the joint venture was distributing
up to 1,000 tonnes per month of Kinleith mill’s linerboard through Northern China, a market where the company was not
represented prior to the formation of the joint venture.
OUTLOOK
Prices for the company’s key products – export logs, softwood pulp and linerboard are all at or near cyclical lows.
Improvement in these prices will largely be dependent on the rate of recovery of the United States economy and the flow
on to Asian economies dependent upon American markets. In contrast, improving construction markets, particularly in
Australia, are expected to remain firm into next year due to the normal seasonal upswing and lower interest rates.
The global economic outlook has deteriorated over the quarter. The expected recovery in the United States economy, which
had been slowing prior to the tragic terrorist attacks on 11 September, now seems likely to be delayed.
Operating earnings for the final quarter are expected to improve on the September quarter due to stronger regional
construction markets, seasonal factors and lower energy costs. Despite this, the company remains cautious as to the
timing of a recovery for the global economy.
In response to the uncertain global economy and the difficult operating environment the company is focusing on managing
key controllable factors such as costs, working capital and operational efficiencies.
DIVIDEND
Given the company’s change of balance date to December, the Directors will consider a single dividend payment at the end
of the financial year, reflecting the company’s total performance for the year and the outlook at that time.
CARTER HOLT HARVEY LIMITED
Sir Wilson J Whineray
Chairman
Christopher P Liddell
Chief Executive Officer
17 October 2001