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Dear Shareholder Evergreen is pleased to report another half year of improving profits generated by a moderate increase in our harvesting volumes. In addition we have made steady progress towards our growth objectives through our recent acquisition. This has increased the size of our stocked estate by over one sixth. Over the last six months, log demand has stabilised at levels at which the company can achieve continued profit growth. Prices are still below historical trend levels for many log grades, but the company has received satisfactory returns by providing a targeted source of wood to both domestic customers and overseas markets. The market outlook in a number of Asian economies has improved and we are now well placed to step up production, should log prices increase (see harvest profile graphs below). The company is keen to proactively seek markets for its wood, and the establishment of a subsidiary procurement and marketing venture is a logical business progression.
Operating Result A surplus of $2.1 million was recorded for the six month period ended 31 December 1999. This surplus is in line with expectations, and is considerably higher than the corresponding period last year.
Financial Outlook The Board expects to record another satisfactory result on similar volume for the next six months, if log prices remain at current levels.
Acquisition and Growth In October last year, the company acquired 3,204 stocked hectares of established forests for $20.93 million from Carter Holt Harvey Forests Limited. The harvest profile of the acquisition complements the companyís existing estate (see harvest profile graph below), and our East Coast holdings are now 9,531 stocked hectares. Harvesting of these new forests is expected to begin in about five years. The purchase incorporates flexible funding provisions (mainly five-year, zero coupon vendor finance on normal commercial terms).
Harvesting and Marketing Evergreen has been directly involved in the development of an export market for high quality pruned logs to Korea. Previously, the New Zealand forest industry mainly supplied the Asian region with lower value industrial grade logs. However, as the supply of tropical hardwood from natural forests continues to decrease, Asian sawmills and manufacturers have switched to using alternative species of wood, such as radiata pine, for their premium products. It is particularly encouraging to note the growing acceptance of New Zealand radiata pine in Korean plywood and furniture manufacturing industries. The largest export destination for Evergreen sawlogs is Korea, with India and the Philippines being significant markets. Japan is the destination for the companyís pulp logs (which are exported as wood chips). The company continues to maintain a strong focus on market development, and in February 2000 announced an investment in a procurement and marketing subsidiary called Forestry New Zealand Limited. The new venture enables the company to leverage off its independent, uncommitted resource in order to access new customers, broaden the range of markets we supply and strengthen our existing customer relationships. It provides Evergreen with a secondary income stream from log trading activities, and also brings additional log marketing expertise to the company.
Capital and Board Structure During the half year, the company raised $6.4 million through the placement of a further 6.1 million convertible notes to mainly U.S. institutional and accredited investors. The notes have the same terms and conditions as the notes issued in the offer to shareholders of ten-year zero coupon convertible notes in early 1999. There are now 131.4 million ordinary shares and 28.5 million convertible notes on issue. At our Annual General Meeting in October 1999, Robbie Dyce, a founding director of the company, retired. Subsequently, John Parker, formerly Senior Vice President at Xylem Investments, Inc., left Xylem and has resigned from the Board. We would like to thank both Robbie and John for their contribution to the company. In December 1999 the Board appointed Roy McCluskey, Vice President of Investments at Xylem Investments, Inc., as a director. Mr. McCluskey has an AB Economics from Stanford University, and brings investment analysis and strategic consulting experience to the Board.
Outlook The acquisition of the forest properties on the East Coast represents another significant step forward for Evergreen. It is consistent with our commitment to grow the company in a way which enhances the existing estate in terms of value, geographic location and age class profile. At a wider level, recovery in both the domestic economy and the main export markets for New Zealand wood products is continuing. New Zealand radiata pine is a versatile, environmentally-friendly product that can command attractive prices for wood grades of high quality. Your Board is committed to growing and marketing quality wood products and will continue to invest to achieve this goal.
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