16 September 2013
The Dunedin City Council will reap a record $4.4 million dividend for the year to June from its ownership of City Forests.
Aside from an after-tax profit of $14.6 million (also a record) and the $4.4 million dividend, City Forests has paid off $10.6 million or a third of its debt.
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.
Chief executive Grant Dodson said the company harvested about 160,000 cu m in 2006 -- a figure that had more than doubled to 302,000 cu m during the past year. He is confident the company will again surpass 300,000 cu m this financial year.
Chairman Ross 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).
City Forests has 20,000 ha of land, with 16,114 ha in forest. Forty five per cent of its logs are sold domestically, to Otago or Southland sawmillers who are mainly exporters of the higher appearance grade timber. Fify five per cent of its logs go to South Korea, where they 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.
Source: Story by Simon Hartley, Otago Daily Times. To read the full story, click here.