Strong international log demand will see City Forests owner the Dunedin City Council reap a record $4.4 million dividend for the year to June.
Aside from an after-tax profit of $14.6 million (also a record) and the $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 $10.6 million, from about $32.6 million to $22 million.
Over 23 years, the council has received $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 300,000cu m 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.
Mr Dodson said that had been as much as $US160 per cubic metre, delivered, to a low of $US120. At present it was about $US145.
Similarly, shipping transport costs had come off highs of $US40-$US50 per cu m, to about $US30, Mr Dodson said.
He said in in 2006 the company harvested about 160,000 cu m, but that had more than doubled to 302,000 cu m during the past year.
While City Forests has budgeted for a 291,000 cu m cut this financial year, Mr Dodson is confident the company will again surpass 300,000 cu m.
Mr Liddell said ''We're in a position where 1/30th [of all forest holdings] are cuttable every year. We can now sustain that cut''.
The pair predict the council will next year receive another record dividend, of $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, Mr Dodson said the since City Forests became a full trading company for the council, its asset values had risen almost 160%, from $25.7 million to $66.3 million.
Combining the latest valuation and $28 million in total dividends, Mr Dodson said the total $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).
At a glance
• City Forests has 20,000ha of land, with 16,114ha in forest. Cleared land is replanted within two years. Most forests are radiata pine, harvested between 26 and 32 years old, and a small amount of Douglas fir, harvested at about 40 years old.
• 45% of logs are sold domestically, to Otago or Southland sawmillers who are mainly exporters of the higher ''appearance grade'' timber; used for finishing timber and weatherboard, as opposed to structural/framing timber.55% of logs go to South Korea, where the lower-grade logs are used as mainly formwork for concreting, packaging and cable drums.
Domestic sales expected to move to 50% this year, not for Canterbury rebuild, but to supply sawmillers exporting mainly to the US.
• Growing number of ''wharf-gate'' sales, in Dunedin, where local buyers purchase to export to China.
• City Forests employs 11 staff. Year round it has about 70-80 contractors at work.
