12 April, 2006

ARTICLE: Timber group invests heavily to stay at the cutting edge

Philip Hopkins
April 10 2006

The coloured laser beams quickly hone in on the timber slab as it moves along the conveyor, pinpointing accurately how best to cut the wood.

Vince Erasmus looks on with approval. The South African, who has just joined timber group Integrated Tree Cropping as chief executive, is a firm believer in the role of new technology in giving a competitive edge. Previously, an operator would have judged manually the best way to cut the timber, but lasers do it better.

Neville Smith Timber, a division of ITC, uses the laser equipment at its processing plant at Heyfield in Victoria, along with a new piece of technology that was pioneered for the aerospace industry.

The $400,000 investment applies the technique of ultrasonic void detection to solid timber — the first time this has been done in the world.

"With ultrasonics, we're now able to affectively see inside each solid piece of timber that comes through the mill and pick up discontinuities in the wood," Erasmus said. "The technology allows us to detect tiny internal faults that are invisible to the eye."

Those faults make the timber unsuitable for appearance-grade products, but fine for structural use such as joints, lintels and bearers.

In South Africa, Erasmus was executive manager of Hans Merensky Timber, the country's largest sawmilling group and an operator of extensive eucalypt and pine plantations with a turnover of $210 million.

ITC, a listed subsidiary of Futuris Corporation, is of similar ilk; it manages more than 140,000 hectares of hardwood plantations, and through Neville Smith, is the largest hardwood timber processor in Australia.

Neville Smith's main timber mills are at Heyfield in central Gippsland, but it also has operations in Seymour, Tasmania and southern NSW. Neville Smith, acquired by ITC 20 months ago, has the capacity to process more than 250,000 cubic metres of native hardwood, all sourced from regrowth forests.

On an inspection tour at Heyfield, Erasmus said timber processing was going through a tough period. "Internationally, supply now exceeds demand for hardwood products and demand is not that good," he said. "It's difficult to sell products at the right price."

Erasmus said hardwood processing was volume driven, but customers were getting increasingly choosy, so timber quality was paramount.

Hence the new investments at Neville Smith. Erasmus said that, apart from the check scanner, ITC was buying a reconditioner kiln to dry timber more slowly and to a higher standard. A finger jointer will also be acquired to turn offcuts that would be normally woodchipped or made into sawdust into a new, higher-value product. ITC is also putting a greater emphasis on sales and marketing, having hired seven sales staff. ITC has been Perth-based, but Erasmus is seeking a house in Melbourne, signalling ITC's intention to locate itself on the east coast.

Erasmus said there was capacity for growth in the Australian timber market through high-quality niche products.

About 18 per cent of Neville Smith's products are exported, and Erasmus signalled interest in forging a partnership with a Chinese manufacturer. "China is an opportunity for us, given Australia's relative proximity to China and the cheaper shipping rates compared with other countries," he said.

ITC has launched a campaign to market its products as "GoodWood", emphasising the timber is harvested from regrowth native forests, not old growth or tropical forests, and highlighting its advantages as a storer of carbon in the age of climate change.

Erasmus said ITC intended to gain Forest Stewardship Council certification for its native hardwood products. ITC has already gained FSC approval for its plantation management. FSC is allied to WWF and is supported by green groups.

Bell Potter Securities, in a research paper, noted ITC's negative cash flow despite the company's profit of $6.3 million in the first half of 2005-06.

Analyst Ian Gibson said the result was below expectations, but was entirely due to the processing division. "With respect to processing, we believe that the operating performance has bottomed … when the recovery does come, the Neville Smith Group will be stronger."

But uncertainty about the tax treatment of managed investment schemes and the housing market may weigh on the share price, causing it to trade below Bell Potter's assessed value of $1.67, Gibson said.

ITC's share price closed at $1.09 on Friday.

Original article

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