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Your Directors are pleased to report a significant improvement in profit for the year to 30 June 2000. A firming of prices particularly in the Asian markets has resulted in an increase in harvest levels. This yearís surplus of $5.152 million is a product of that increased harvest activity. Evergreen will continue with its policy of regulating its harvest volumes according to log and lumber prices in both the domestic and offshore markets. Under present market conditions it is the Boardís expectation that a further significant increase in harvest levels and profitability can be anticipated for the year to 30 June 2001.
INVESTMENTS Evergreenís investment objectives are two-fold. We will continue investing in the development of our existing forests. We will also grow our forest estate through acquisitions which are complementary, maintain shareholder value, and enhance overall productivity of our holdings. A further $7.541 million (including funding costs) has been invested in development forests during the year to June 2000. Evergreen maintains its view that investment to produce high quality clearwood product is, and will continue to be, justified on more favourable sites. We have increased our stake in Nuhaka Forestry Fund from 21 to 25 percent and have made a direct investment in Forestry New Zealand Limited, a 70 percent-owned procurement and marketing subsidiary. Forestry New Zealand Limited provides Evergreen with opportunities to optimise the value of its own product and to gain a better understanding of international marketing dynamics. The investment creates an opportunity for a supplementary revenue stream at a time when sustained and increased levels of harvest activity are expected. As mentioned in the interim report to 31 December 1999, the acquisition of 3,204 stocked hectares of established forests late last year represented significant growth for the company. These forests, which were acquired from Carter Holt Harvey Forests Limited for $20.93 million, have a complementary age class profile and are well located relative to Evergreenís existing East Coast properties.
FUNDING The completion of our zero coupon convertible note issuance was also referred to in the interim report to shareholders. A further 6.1 million March 2009 zero coupon notes were issued during the year and the proceeds
MARKET CONDITIONS Yields on forestry products have generally been firm over the last year. We have seen an increase in the price for unpruned sawlogs in most export markets with prices for pruned and domestic sawlogs remaining stable. South Korea has re-emerged as an important market for New Zealand suppliers and the prospect of an improved understanding between South and North Korea may well lead to an extension of opportunities to support the modernisation and restoration of infrastructure and accommodation needs in that market. The continuing emergence of China and India as significant potential markets for New Zealand-produced product is encouraging. While some volatility in terms of market competition and political stability remain, there is justification for a more optimistic outlook by New Zealand-based timber industry participants. The New Zealand economy has favoured exporters and is likely to continue to do so for the balance of this calendar year. The low value of the Kiwi dollar has supported log and lumber prices. However there has been widespread negative comment on the impact of the new employment legislative and regulatory environment.
TIMBER RESOURCE Evergreenís strategy has been to target its investment in more mature stands to create opportunities for earlier cash flows. The proportion of our forests 20 years and older by value remains high and the proportion of forests 25 years and older by value is significant (refer charts). We are therefore well placed to benefit from favourable movement in log prices which we expect will occur as the global effect of the elimination of tropical hardwoods and indigenous supply impacts, particularly on such countries as India and China.
SHAREHOLDER RETURNS The strategy of managing our harvest according to market conditions and targeting investment in more mature forests has resulted in an improvement in Evergreenís profitability and operating cashflow. It is your Directorsí view that further improvement in earnings can be anticipated given stable market conditions. Evergreenís net surpluses for the past two financial years have been applied to investing in our development forests and expanding our portfolio of mature and semi-mature forests. We believe this will pay off with increased earnings and cash flows in the current year and beyond. Our earnings per share of 3.9c for the year just ended represents a substantial result, but it is far less than the potential in future years based upon our maturing forests.
OUTLOOK Investment in forestry is essentially long term. In this respect it is at the opposite end of the scale to technology stocks where extraordinary levels of investor interest have been evident over the last year. It is gratifying to see the re-emergence of interest in more stable "old economy" stocks. Plantation forestry will re-emerge as a component for those seeking to match portfolios with objectives of balance and sustainability. New Zealand has a natural advantage in the production of timber products from plantation forests. An increase in wood product acceptability and the range of wood applications, together with the environmental benefits of afforestation are, and will continue to be, important considerations. Evergreenís small executive team has again contributed with its customary skill and determination.
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