QUIET ACHIEVER, THE

PPI, Jan 2008 by Ryan, Robert

Away from the headlines, New Zealand is getting on with the business of making pulp and paper

NEW ZEALAND IS not the first country that comes to mind for pulp and paper industry experts and managers around the world. They are more likely to be interested in technology advances made in Europe, world-class mills in Brazil and the vast markets of China and India.

Nevertheless New Zealand is making an important contribution to the worldwide pulp and paper industry. Firstly, New Zealand has a substantial virgin fiber resource made up of 1.8 million hectares of plantation forests - most of which is radiata pine. Secondly, the nation has a strong papermaking history, and efficiently run mills that produce 1.7 million tonnes/yr of pulp plus 1 million tonnes/yr of paper and board. And thirdly, "God's little acre", as locals like to call this isolated corner of the southern hemisphere, is playing a key role in serving the fiber-hungry nations of North Asia.

And last but not least, a prominent New Zealand entrepreneur has demonstrated that Carter Holt Harvey (CHH) - the large forest products company divested by me world's leading papermaker on the basis of its failure to meet the required 9% return on investment hurdle - is not only viable, but tiiat it has a bright future as well.

TOP PAPERMAKER

Carter Holt Harvey is New Zealand's largest papermaker, and one of the nation's largest companies. For many years, this century-old firm had interests in forestry, panels, pulp and papermaking.

In August 2005, in one of the largest deals in New Zealand corporate history, the ownership of CHH changed hands when International Paper sold its 50.5% stake to Rank Holdings, an investment vehicle owned by the entrepreneur Graeme Hart, New Zealand's richest man (the deal followed IP's May 2004 sell-off of CHH's tissue-making assets in Australia and New Zealand to SCA).

The $NZ1.65 billion ($1.14 billion) CHH deal caused a sensation in New Zealand, as it saw the world's leading papermaker sell off its majority stake in a top forest products producer to a wealthy entrepreneur with no background in the industry. After buying IP's stake, Hart later went on to gradually buy up the rest of Carter Holt Harvey, for a total outlay of $NZ3.3 billion, and then delisted me company from the stock exchange.

At the time that Rank bought into Carter Holt Harvey, it was New Zealand's largest plantation forest company, with 330,000 ha of forests. Soon after the takeover, Graeme Hart began to gradually sell off forestry assets. He has reaped at least $NZ1.5 billion from the sale of most of these forestry assets. More recently, Hart has offered CHH's Australia and New Zealand-based wood products business for sale. This transaction is expected to be complete soon, and generate at least $NZ2 billion for Rank.

These large deals will clearly allow Hart to recoup the $NZ3.3 billion that he outlaid for the purchase of CHH, while leaving the company's papermaking assets in his hands. So an outside observer could conclude that Hart is merely a corporate raider who buys up ailing companies to be carved up and sold off.

But Hart does not fit the corporate raider profile, because Rank Group has been expanding its packaging empire. In the middle of this year, it acquired a majority stake in Swiss packaging group SIG for $2 billion. This followed his December 2006 acquisition of the struggling beverage packaging business, Evergreen Packaging, from International Paper for $413 million. These moves indicate that Hart is following a global, diversified, vertically-integrated strategy for me company. "He is taking Carter Holt Harvey in a value-added direction," says one New Zealand pulp and paper industry insider. "He is pursuing a diversification strategy," says another New Zealand industry watcher.

INNOVATIVE KINLEITH

Kinleith, Carter Holt Harvey's flagship mill located in Tokoroa in the North Island, is a major producer of kraftliner and softwood kraft pulp. The mill has 327,000 tonnes/yr of kraftliner capacity on a single 6.3 m wide machine, plus 270,000 tonnes/yr of softwood kraft pulp. The mill is a major export player - it exports 70% of its kraftliner and softwood kraft pulp output The mill could play a role in Hart's global strategy as softwood kraft pulp supplier to the downstream beverage packaging business.

The Kinleith mill is also pioneer in maintenance management. In 2002, following a review of its maintenance options, the management of CHH Kinleith decided to outsource responsibilities for this task, and it chose ABB Maintenance Services as its partner (see p. 19).

CHH has also taken this successful maintenance partnership model to the Tasman mill, which is also located in the North Island, in the town of Kawerau. Carter Holt Harvey operates a 270,000-tonne/yr bleached pulp line at Tasman. Unusually, the Tasman mill site is shared with newsprint producer Norske Skog Australasia.

Apart from the Tasman and Kinleith mills, CHH has two other mills in the North Island: a 70,000-tonne/yr wastepaper-based medium mill at Penrose in Auckland, and a 90,000-tonne/yr cartonboard mill at Whakatane.