Smelter upgrade sees Comalco's profit soar

By BRIAN FALLOW

WELLINGTON - Comalco New Zealand's net profit climbed 85 per cent to $87.9 million last year and the company credits the improvement mainly to smelter efficiencies rather than a weaker dollar or firmer aluminium prices.

A $464 million upgrade completed three years ago enabled the smelter to produce 3 per cent more metal last year and use 1 per cent less of the crucial input, electricity, per tonne to do it.

Even though over 90 per cent of the smelter's output is exported, managing director Kerry McDonald said the weaker New Zealand dollar had a less significant impact on earnings than the company's cost-cutting and revenue enhancing initiatives.

And although the metal price has been firming for the past year, the average for the 1999 year was only marginally higher than for 1998.

World demand for aluminium increased 6 per cent last year and that "looks sustainable at this stage," Mr McDonald said.

The fact that some idle smelting capacity around the world had been restarted was probably positive in keeping prices at healthy but stable levels, rather than spiking, he said.

The $87.9 million tax-paid profit for calendar 1999 represents a return on average shareholders' funds of 21 per cent, which boosted the average for the past five years to 11.8 per cent.

Australian parent company, Comalco Ltd, is taking a dividend of $111.5 million, up from $5.9 million in 1998. Previously there had been a dividend freeze for 10 years as cash was accumulated to pay for the smelter upgrade, he said Since its upgrade the Tiwai Point smelter is one of the most efficient of its type - but that is the type being built 30 years ago.

Mr McDonald said Tiwai's performance made questions about the smelter's life expectancy irrelevant in the near future.

"There is nothing we are looking at in the existing business which says, that will cause the smelter to close in 10 or 15 years time."

Continuous performance improvements remained critical because the power supply contracts renegotiated in 1993 built in upward steps and ramps in price.

Time lost to workplace injury and illness fell to 22 days last year from 76 days in 1998 and 482 days in 1997, Mr McDonald said. In 1987 the figure was over 1500 days. He is also "quite concerned" about the foreshadowed changes to industrial relations law, such as repealing of the Employment Contracts Act.

"I think it will have potentially adverse implications for productivity growth in New Zealand as a whole."