Strong international log demand will see City Forests owner the Dunedin City Council reap a record NZ$4.4 million dividend for the year to June. Source: Otage Daily Times
Aside from an after-tax profit of NZ$14.6 million (also a record) and the NZ$4.4 million dividend, City Forests has paid off a third of its debt, resulting mainly from acquisition of forests at Opio and in the Silverpeaks.
Debt was slashed this financial year by NZ$10.6 million, from about NZ $32.6 million to NZ $22 million.
Over 23 years, the council has received NZ$28 million in dividends, including the latest contribution.
With its forests now fully mature, and confident in its ability to sustainably cut and sell about 300,000 cubic metres of logs a year, City Forests is set to move from being the poor cousin in the stable of council-controlled companies, to a consistent dividend provider.
However, low log prices in the past, the global financial crisis and ill-timed building of a sawmill near Milton have also been problematic for City Forests, which attracted criticism and also scrutiny on its rate of return on the overall forestry asset.
The 107- year-old City Forests is about to deliver its full, audited annual report to council, but following a request from the ODT on operations, supplied an update yesterday.
Chief executive Grant Dodson and chairman Ross Liddell said while South Korea was its main export market, for the past three years international prices had been driven by China’s A-grade price.
Dodson said that had been as much as US$160 per cubic metre, delivered, to a low of US$120. At present it was about US$145.
Similarly, shipping transport costs had come off highs Dodson said. He said in in 2006 the company harvested about 160,000 cubic metres, but that had more than doubled to 302,000 cubic metres during the past year.
While City Forests has budgeted for a 291,000 cubic metres cut this financial year, Dodson is confident the company will again surpass 300,000 cubic metres.
”We’re in a position where 1/30th [of all forest holdings] are cuttable every year. We can now sustain that cut,” Liddell said.
The pair predicts the council next year will receive another record dividend, of NZ$4.6 million.
With the forests maturing, cutting can be altered to smooth out the peaks and troughs, without much impact on budgets.
City Forests has been criticised in the past for its low return on assets, but with forests maturing, Dodson said the since City Forests became a full trading company for the council, its asset values had risen almost 160%, from NZ$25.7 million to NZ$66.3 million.
Combining the latest valuation and NZ$28 million in total dividends, Dodson said the total NZ$94.3 million represented a 467% return on shareholder equity. It provided an annualised after tax return of 6.9% (or 9.6% before tax).
