Carter Holt parades Oz wizardry

By PAM GRAHAM

More Australians wipe their behinds with tissue paper made by Carter Holt Harvey than by anyone else.

New Zealand's second-largest listed company says its products are used by almost everyone across the Tasman.

Australians buy 500 rolls of Sorbent toilet tissue every minute, according to promotional material that also depicts a brick Australian home with a wooden frame, floor and mouldings.

But Carter Holt does not sell itself as well as it sells its products, and its share price does not reflect the value of its assets.

Investors spurn the company because it is exposed to pulp, paper and log prices that require a crystal ball to predict.

With $2.97 billion of its $7 billion of assets tied up in forests that are producing low returns and with workers at the Kinleith pulp mill on strike, the company, which has one of the longest histories in New Zealand business, is selling its Australian story to investors.

The other selling point is a joint venture with parent International Paper in China that aims to increase sales fivefold to $1 billion a year in five years.

That goal is still being pursued, but the track record in Australia is already in.

Businesses purchased bit by bit since the mid 1990s were valued at $1.4 billion in the latest accounts and employ 4000 staff.

Two of the company's six executives who report directly to chief executive Peter Springford are based in Australia, and every second profit will now be presented there.

The foray started with the purchase of Melbourne-based Raleigh Paper, since sold, and the Australian tissue business of London-based Bowater.

Carter Holt bought wood processor Forwood from the South Australian Government and joined International Paper to buy packaging businesses from United States-based Riverwood.

It bought CSR's panels business in 2000, followed by Brown & Dureau's sawmills in Victoria and the Starwood medium-density fibreboard plant in Tasmania last year.

Carter Holt now has $900 million of wood products businesses in Australia at sites in Oberon, Mytleford, Mt Gambier, Morwell, Tumut, Gympie and Bell Bay.

It is Australia's No 1 wood processor with 23 per cent of the timber market, 60 per cent of the particle board market, 60 per cent of the flooring and mouldings market and 30 per cent of the plywood market. It is equal No 1 in medium-density fibreboard.

Last month, its huge facility at Oberon, a small town about an hour from the last tourist town in the Blue Mountains west of Sydney, was showcased to analysts, fund managers and the media.

At the plant, contracted logs, mostly from state forests, are cut into structural timber and wood chips are turned into flooring panels or are broken down for medium-density fibre board and mouldings.

The assets at Oberon were bought from CSR and the sawmill is operated in a joint venture with Boral, called Highland Pine.

The pitch was that the assets were bought cheap, were spruced up and running well.

Carter Holt is now cautious about new investment because it could make more money in the bank than on some of its existing assets.

One of the realisations analysts took from the day out was that hurdles for investment had been raised further.

The company has about $200 million available each year, but about $60 million goes on existing assets.

The Oberon story was well-received by the visitors. It was the first time Carter Holt had taken analysts through Australian assets since 1997.

The sawmill will process 725,000 million cubic metres of logs a year after winning a tender for 175,000 million cubic metres of logs last month, making it one of the biggest sawmills in Australia. There was no stockpile in the yard.

A $12 million upgrade over the next two years is on top of $30 million spent last year.

The neighbouring flooring plant is 43 years old, but the company says it is efficient and the size of the sector is expanding by displacing concrete, which has gone up in price.

The medium-density fibreboard plant - a nightmare to get right - operates in a sector where supply exceeds demand, so product has to be exported.

But the plant has two lines, works 24 hours a day 365 days a year, and is now producing thinner board that has better margins.

It uses Japanese company Hokushin and Sierra Pine in the United States for marketing and distribution.

Craig Smith, a divisional branch secretary of the Construction, Forestry, Mining and Energy Union said the union kept a close eye on Carter Holt and was watching the current strike at Kinleith.

The agreements covering Oberon were in line with industry standards but the company was probably "the worst of the bunch" on niggling issues.

An agreement at Oberon comes up for renegotiation in the middle of the year.

Marketing of products in Australia is handled by Paul O'Connor and a team at the Woodlogic business based at St Leonards, Sydney.

The aim is to present one face to customers like Bunnings Warehouse.

Carter Holt has not opted for greenfields developments in Australia.

Its purchase of the Bell Bay medium-density fibreboard plant in Tasmania is typical of its approach.

The plant was a standalone with a foreign owner, and Carter Holt could run it with its other businesses using existing knowledge and marketing channels.

Carter Holt has a full listing on the Australian stock exchange, where it ranks about 50th, but it does not make it into the benchmark index because its shares do not trade frequently enough.