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Fletcher Forests says discussing new CNI management structure


Friday 29th November 2002

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Fletcher Forests said today it was in discussion with the receivers of Central North Island Forest Partnership (CNI) over a new management structure.

The announcement comes a day after Carter Holt Harvey and the CNI receiver said they were working to set up a company that would sell and transport logs to export markets and ultimately develop New Zealand wood standards and brands.

Fletcher Forests chief executive Terry McFadgen said his company liked the concept but was waiting for details before pledging its export logs.

He said the exact shape of the new structure had not yet been determined, but the broad approach was to establish an independent management company for CNI which would contract selected services back to Fletcher Forests and other external service providers.

"One of the objectives is to ensure that the synergies and scale benefits arising from the co-ordinated operation of the CNI and FCF forest estates are preserved for the benefit of both parties."

Fletcher Forests recently announced it was no long pursuing ownership of CNI having failed twice to get agreement on its formerly half-owned asset.

He added that there were a number of other potential benefits with this approach, including its likely permanence through any change of CNI ownership.

The structure would be simpler and give more flexibility.

While the financial impacts of the proposed new arrangements would not be able to be determined until the final structure was agreed, the cost to Forests is expected to be at the bottom end of the $10-$20 million per annum range previously indicated. That is before any allowance for the benefits arising from the joint export marketing entity currently under discussion with Carter Holt and the receiver.

"Any new management arrangements will take some time to resolve and put in place, and would involve a structured transition, Mr McFadgen said.

The Carter Holt-CNI entity, with a working name of Export Co, could initially handle about 40 percent of log exports, and more if Fletcher joined in.

The attempt to co-ordinate marketing on a grand scale for the first time comes amid a debate about industry consolidation to maximise returns from forests before the "wall of wood" arrives.

The idea is to cut marketing and transport costs and ultimately improve prices.

Carter Holt chief executive Chris Liddell rejected the suggestion that a "Fonterra" for forests was being born.

"I'm not sure what is meant by Fonterra-style. In essence, we are trying to pool our resources and get benefits and share the benefits," he said. That was a private sector model.

The new entity would never be a single seller for New Zealand, "but I like to think it could sell on behalf of a large proportion of the industry".

The creation of a New Zealand brand is being considered.

Carter Holt was leading the initiative by pledging all of its log exports to the entity but said it did not want to be seen as controlling it.

"The beauty of this is people can still buy and sell their own forests. This gives them some benefits in the marketing without a lot of costs," Mr Liddell said.

CNI receiver Michael Stiassny said the development was separate to the sale of the forests.

A buyer of the forests can withdraw from the arrangement. The new entity has nothing to do with management of forests or domestic sales of logs.

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