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Carter Holt opens Pandora's tissue box

Duncan Bridgeman

Friday 21st November 2003

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Carter Holt Harvey chief executive Peter Springfield opened up a can of worms this week when announcing plans to explore selling the company's tissue business.

The decision, he said, would see the company focus on "core organisational capabilities," particularly in the areas of wood-fibre processing and marketing.

But Springfield's statement raises an obvious question: what are non-core assets for a company with a market value of $3.2 billion that has interests in forestry, wood products, pulp and paper and manufacturing as well as packaging, information technology and venture capital?

Non-core assets are normally described as non-essential to a company's main business. Yet Carter Holt Tissue, with leading brands such as Treasures and Sorbent, has been one of the company's highest-earning businesses since it was bought from John Spencer's Caxton Pulp & Paper in 1989 for $300 million.

With annual earnings of about $100 million, the division is now estimated to be worth between $620 million and $700 million.

Critics question why the company would consider selling a solid performing asset when other parts of the business are struggling.

"They keep chopping and changing on things," corporate forestry consultant Steve Strand said.

"I would suggest that calling Tissue non-core is just an excuse for needing some quick cash."

Carter Holt Harvey chief financial officer Jonathan Mason said yesterday the proposal was not black and white and the company was only exploring its options.

"This has been a great performing asset and we've added a lot of value to it. But if you look at the customers of tissue, the technology of making tissue, it's fundamentally different from other fibre assets ­ it's a fast moving consumer good, that requires a lot of retail advertising."

Strand disagreed: "Tissue is hardly a fast moving good. Maybe in terms of other types of pulp and paper, but I still wouldn't consider it to be a fast moving business.

"How many different types of tissue do they make? They make facial tissues and sanitary products and I think that's about it."

A forestry consultant specialising in economic and accounting issues, Steve Croskery, said there was no industry standard for classifying company assets as core or non-core.

Generally the steps down the processing chain and the marketing chain varied between companies and their philosophies, he said.

However, most companies working in cyclical economic environments tended to use vertical integration to control distribution of their products. That allowed a company to control its margins more effectively and therefore maximise output under difficult conditions.

Fletcher Building chief executive Ralph Waters told last week's annual meeting that vertical integration, including control of most of the distribution of the company's products, was one reason Building's returns on investment were so high.

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