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Carter Holt Harvey announces September results

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.


For further information please contact:
Bridget Abernethy - Corporate Affairs Or:
Jim Whineray – Investor Relations
Email: Email:


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.

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.

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

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



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’ 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 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’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.


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.


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.


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.


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.


Sir Wilson J Whineray

Christopher P Liddell
Chief Executive Officer

17 October 2001

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