Libby Middlebrook
Between the Lines
Radiata pine trees must be looking a lot greener from Carter Holt Harvey's window this week.
Reporting yesterday its first profit rise in three years, it deserves much credit for weathering a ferocious collapse of its markets.
It emerges a far stronger company thanks to its Genesis programme
for reducing costs and enhancing its operations.
The next phase - rebuilding profits - will be just as hard. Plunging from their peak of $453 million in 1996, they measure now a measly 4.5 per cent return on capital.
Carter Holt will get some help from the commodity cycle with prices for pulp and paper expected to improve by 8 per cent to $US650 per tonne next year.
Volume is also picking up across Asia with the exception of Japan which was the company's largest customer before the Asian crisis. Further brisk growth in Australia is also on the cards.
But to move its business to a higher and perhaps more stable plane, the company needs to develop new processing facilities and export markets for an enormous glut of wood which will come into production over the next two decades.
The New Zealand Forest Owners Association estimates that the amount of wood available for production in New Zealand will rise from 20 million cubic metres next year to 27 million cubic metres by 2020.
Carter Holt has already started to prepare itself with a $300 million upgrade programme at its Kinleith pulp and paper mill.
The company also confirmed plans yesterday to build a $132 million laminated veneer lumber mill in Whangarei, a significant commitment to the future of the added-value wood products industry in New Zealand.
The mill, which will be completed by 2003, will produce up to 80,000 cubic metres of product a year, generating an anticipated internal rate of return of around 20 per cent.
The company has been saying in recent days that it fears an adverse impact if the next Government is formed by Labour it says a return to old style ACC and union power will add costs that upset the investment calculations. These fears may be overstated. The wall of wood coming into production represents a fabulous resource to be exploited.
Forest Owners Association chief executive Rob McLagan believes further investment in forestry processing will come from offshore, depending on the outcome of the next round of World Trade Organisation negotiations starting this month. He said foreign companies are bound to invest in added-value processing facilities in New Zealand if the cost of tariffs on processed wood products in Asia were reduced from current levels of 35 to 55 per cent.
As encouraging as these external influences may be, the fact remains all the hard yards ahead are Carter Holt's. Its record over recent years suggests it will make them.