A lifeline for struggling tissue and personal products maker Asaleo Care with the news it will sell will sell its low margin Australian consumer tissue business sending the shares surging 46% to, 91 cents and the close.
Asaleo revealed the planned sale in a statement to the ASX yesterday. It said Solaris Paper had agreed to pay $180 million for the business which would allow Asaleo to focus on more profitable divisions like personal care.
And up went the shares, peaking at just over 96 cents before easing off. the close of 91 cents is still a long way from the high for the past year of $1.673.
The sale to Solaris Paper, which includes well-known brands such as Sorbent toilet and facial tissues, Handee Ultra paper towels, and Deeko serviettes and disposable tableware, is expected to be completed in the March quarter of next year
Solaris Paper already owns toilet paper brand Emporia and tissue company Livi.
Asaleo said the sale will result” in a book profit on sale of between $15-20 million.’
But that book profit isn’t the attraction; it’s ridding itself of a capital-consuming low-profit margin business that has no future in Asaleo’s ownership.
Asaleo said it will retain its Consumer Tissue business in New Zealand, including Purex toilet tissue, Sorbent toilet and facial tissue and Handee towel. It will also retain its Consumer Tissue business in Fiji and Pacific Islands, which distributes the Orchid and Viti brands for toilet, towel and facial tissue, and serviettes.
Solaris Paper is an Australian operated company that distributes high-quality toilet and tissue paper products throughout the Australasia region to both the Retail and Away From Home markets.
They have a converting facility in Sydney and are part of a global organisation vertically integrated from the manufacture of pulp through to the conversion of finished tissue products.
On announcing the sale, Asaleo Care Chairman, Harry Boon, said: “The decision to divest the Australian Consumer Tissue business flows from the comprehensive strategic review initiated by the Company in the first half 2018. This transaction represents a win-win, with significant strategic value for both companies, and positions both well for future growth. The sale will enable us to concentrate on our core, higher margin and less capital-intensive businesses in Personal Care and B2B, and continue to innovate and invest in our brands for long-term growth.”
“Proceeds from the sale will significantly strengthen the Group’s balance sheet, reduce net debt and improve the Company’s leverage ratio. Following completion of the transaction, the Company’s leverage ratio is expected to be at the bottom of our target range of 1.5 x to 2.5x,” said CEO Sid Takla said in yesterday’s statement.”
Asaleo also announced that it had secured in principle agreement for a 5-year extension to its Trade Mark and Technology Licensing Agreement (TMTLA) with Essity to 2027. “The TMTLA provides technology, marketing and sales rights for the Tork and Tena brands, and a pipeline to world-leading research, development and innovation for all of our brands. Tork is the world’s number one professional hygiene brand and TENA is the global leader in products for incontinence.”
Asaleo said it “will continue to be a market leader in Personal Care and Professional Hygiene across Australasia. It will also retain its cost competitive consumer tissue business in New Zealand and the Pacific Islands. Over half of future revenue will be generated from the B2B channel which has grown strongly over recent years and where Asaleo Care is the market-leader in Australasia.”
“Cash generation will also be stronger as the Australian Consumer Tissue business has historically consumed some 30% of the Group’s capital spending. This will support continued investment in Personal Care and Professional Hygiene in Australasia, with its highly recognisable brands of Libra, TENA, and Tork.”