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Evergreen has recorded satisfactory profit improvements over the past year and is well placed for further profit growth. The planned and scheduled management of existing properties has continued. The companyís forests are in good health and are exhibiting strong growth characteristics. Two important investments were completed during the year. First, the purchase of two East Coast properties with near-term harvest capability provides a basis for sustainable early cash flows. Secondly, the companyís strategic involvement in marketing through its investment in Forestry New Zealand Limited will enhance our ability to maximise value recovery from our own forests as well as providing a secondary income source from log trading activities. The key challenge for New Zealandís forestry exporters is to optimise the use of all our resource in the main markets available to us. This is only likely to occur where there is a focus on quality and meeting customer product and supply-time expectations. Evergreen continues to expand its activities in this area and the financial results to date are an accurate reflection of continued improvement in company performance and market conditions. There is also a new and rapidly increasing interest in wood sourced from forests where environmental sustainability has been verified by an internationally recognised certification process. This is an exciting opportunity for New Zealandís plantation-based forest industry.
LAND AND FOREST HOLDINGS
OPERATIONS During the Asian downturn, the company moderated its production and built reserves of mature and semi-mature standing timber. This year market conditions have improved and production increased to 141,458 m3 (1999: 82,337 m3). In addition, the Nuhaka forest (in which Evergreen holds a 25 percent stake) commenced harvesting operations during the year. Forest acquisitions have improved the companyís near-term harvest profile and increased the net stocked area under ownership from 18,192 hectares in 1999 to 21,006 hectares as at 30 June 2000. The largest market for Evergreen sawlogs continues to be Korea, with substantial demand also from India and Japan. In Korea, pruned log customers have specific tastes and require knot-free clearwood of the highest quality to produce defect-free veneer and high value appearance grade home and furniture products.
FORESTRY NEW ZEALAND LIMITED Evergreen has continued to maintain a strong focus on market development, and earlier this year announced an investment in a procurement and marketing subsidiary, Forestry New Zealand Limited. Evergreenís underlying strategy as a pure play resource owner is to maximise value recovery by varying harvest levels in response to market conditions. However it is also desirable to develop and maintain relationships with important customers both in New Zealand and overseas. Evergreenís procurement activities through Forestry New Zealand increase its flexibility to maintain supply throughout the business cycle.
FOREST VALUATION The company engaged Jaakko Pöyry Consulting (Asia-Pacific) Limited ("JPC") to independently assess the market value of Evergreenís forest assets as at 30 June 2000. The latest valuation equates to an asset backing of $0.86 per undiluted ordinary share. We are pleased that despite our increased harvesting during the year ended 30 June 2000, our investment activities and the natural biological growth of our forests have maintained net asset value per share. The JPC valuation discounts projected future pre-tax cash flows by nine percent real, assuming a recovery to trend line log prices by 2005, and zero real log price growth thereafter. The net asset value matrix below tests sensitivity across a range of discount rates and real price growth assumptions. Further valuation information is presented on page 10.
MARKET VALUE
NET ASSET VALUE AS AT 30 JUNE 2000 Effect in $NZ per share of different price growth and discount rate assumptions
1. Per annum, over the ten-year period 2005 to 2015. 2. Pre-tax, real.
Source: 2000 valuation reports. Figures include projected share of Nuhaka harvest.
ENVIRONMENTAL PROFILE The theme of the feature article in this yearís annual report is the environmental profile of New Zealandís plantation forests. This discussion follows-on from past years, where we analysed the potential for plantations to become an increasingly important component of the worldís wood supply. There is widespread concern that past overcutting of natural forests to meet the demand for wood has had negative environmental consequences. Wood from tree farms, in particular high quality timber from New Zealandís radiata pine plantations, is a potentially important alternative source of supply. The demand for wood from environmentally-friendly sources is growing. Large retail distributors like There are a number of well-known systems in operation, including Forest Stewardship Council (FSC) certification, developed to monitor the sustainable management of natural forests. Management in this context typically involves sustainability through the selective harvesting of a representative number of trees throughout the forest. This concept is less relevant to plantation forest operations where trees have been specifically planted with the intention of harvest at maturity, much like any other commercial crop. For this reason, Evergreen actively supports current initiatives by the New Zealand forest industry (through the New Zealand Forest Industry Council) to develop an independent VEP (Verification of Environmental Performance) certification system, and the related efforts to promote mutual recognition of New Zealandís VEP system by other certification bodies throughout the world.
INTERNET WEBSITE This report, previous reports and other relevant material can be accessed on the companyís website www.evergreen.co.nz. The website, which has been substantially upgraded, includes a provision for shareholder feedback and provides links to other forestry-related internet websites.
SUMMARY The longer-term outlook for the forest industry remains positive. The past overcutting of tropical rainforests throughout Asia and elsewhere, along with the declining permissible cut in countries such as India and China, will limit future supply from natural forests. Economic development, which will drive per capita consumption, and population growth will inevitably mean greater demand for wood products. Forestry is a sensible component of any well-balanced investment portfolio. At present there is an opportunity through Evergreen to invest at a substantial discount to underlying asset value. In addition, by investing in plantation forestry, shareholders are supporting an industry that has contributed and will continue to contribute positively to the environment.
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