Investor Update, Winter 2020
New Zealand’s primary industries are doing relatively well in the Covid-19 conditions compared to all other sectors of our economy.
There is no denying the pandemic is affecting our lives in large ways and small. But your forestry investment is in good shape even under the current conditions.
On behalf of Forest Enterprises’ directors and staff, I’m pleased to bring you our latest investor update.
Bert Hughes, CEO
3 August 2020
In this update:
- Forest Enterprises a finalist in Wellington Gold Awards 2020
- Forestry investment attractive post-Covid
- Log traders and forestry advisers Bill passed
- Sustainability credentials for Forest Enterprises
- Record attendance at Covid-19 investor webinars
- How much carbon does your forest absorb?
- Updates from Wairarapa, Gisborne and Hawkes Bay
- Changes to this year’s reporting timeframes
- Have your details changed?
- Log prices in context
- Frequently Asked Questions
- Forestry Bulletin, Winter 2020
Forest Enterprises a finalist in Wellington Gold Awards 2020
We are delighted to announce Forest Enterprises has been selected as a finalist in Supporting Gold for the 2020 Wellington Gold Awards.
The Wellington Gold Awards celebrates excellence and enterprise of businesses in the greater Wellington region. Supporting Gold specifically recognises stand-out professional services and infrastructure providers.
“This is welcome recognition for the Forest Enterprises team. They’ve worked hard to achieve results for our forestry investors, contractors and business partners”, says CEO Bert Hughes.
“Covid-19 had its challenges this year. But we had invested in our talented team, uncompromising standards and strong relationships. This made our business resilient.”
The 25 judges saw a 33% increase in the number of entries over 2019, which they see as a reflection of Wellington’s business optimism. Forest Enterprises is proud to be a finalist.
The full list of 2020 finalists was in the Dominion Post on Tuesday 4 August. Winners will be announced on 17 September.
Forestry investment attractive post-Covid
Investors are reevaluating their portfolios in the wake of the pandemic. New investors have been turning to our forestry investments as a hedge against volatility in markets and fluctuations in the value of other investments.
Existing clients are reinvesting in our second rotation forests for their children and grandchildren, making Forest Enterprises one of very few investment companies with an intergenerational focus.
Invest in a new issue Forest Enterprises investment from $10,651 and earn 9.33% projected gross IRR*.
For a copy of our latest Product Disclosure Statements, click below to visit our web page or contact Marketing Manager Nikki Coulmann.
* Minimum investment is $10,651 for 200 shares plus annual calls; projected gross IRR 9.33% at harvest. The issuer of shares in Ngatawhai Group Forest Investment is the manager Forest Enterprises Limited, and the offeror is Forest Enterprises Growth Limited (a related party of the manager).
Log traders and forestry advisers Bill passed
The Forests (Regulation of Log Traders and Forestry Advisors) Amendment Bill passed its third reading in Parliament on 22 July and is now awaiting Royal Assent.
The purpose of the Bill is to strengthen New Zealand’s domestic forestry supply chain and to ensure positive outcomes for climate change from the forestry and wood processing sectors. This is driven by the Government’s forecasts that smaller forestry owners will provide 40% of New Zealand’s annual harvest in the next ten years. The Bill has protections for those forestry owners.
The Bill requires ‘Log Traders’ and ‘Forestry Advisors’ to be registered to operate in the New Zealand market. Log traders are defined in the Bill as entities who are involved in buying, selling, and processing logs in New Zealand. Forest Enterprises Growth Limited is a Log Trader under this definition. Forestry advisors include those who provide forestry adviser services listed in the Bill, make reports or inspections relating to forests, or act on behalf of someone selling or purchasing forest products.
Log Traders and Forestry Advisors will be required to comply with any conditions of their registration, along with their new regulatory obligations. These obligations include new rules in relation to both trade and forestry practice standards and a code of ethics. The specific details of the trade and forestry standards, application fees, registration conditions and general obligations will be set out in Regulations yet to be passed.
At the Select Committee stage, there was initially concern from many businesses in the forestry industry, including Forest Enterprises, that the rules relating to trade and forestry practice standards would dictate the price of logs being traded, and who they could be sold to. In response to this concern, the Bill now provides that those rules “cannot impose any condition or requirements that is properly a matter for commercial agreement between the parties”.
Forestry reform bill passed by parliament – RNZ, 24 July 2020
Log Traders & Forestry Advisers Registration Bill passed by Parliament – beehive.govt.nz, 23 July 2020
Sustainability credentials for Forest Enterprises
In December 2019, Forest Enterprises was appointed the manager of forestry estates in Wairarapa, Hawkes Bay and Southland owned by a global forestry investment fund. Most of our client’s estate is Forest Stewardship Council® certified (FSC® C131650) and Forest Enterprises’ management practices must be in accordance with FSC® standards of responsible forestry.
For Forest Enterprises’ forestry team, the Covid-19 lockdown coincided with an annual FSC® forest management certification audit.
The robust audit went ahead as scheduled, relying on Zoom for meetings and staff interviews and our excellent document management systems for file sharing. For obvious reasons, field work was excluded. Forest Enterprises’ forest management plans, environmental standards, Standard Operating Procedures and fire plan were reviewed at length and in detail, and were found to meet the high standards of the FSC®.
Record attendance at Covid-19 investor webinars
Hundreds of our investors joined the online investor updates we held via Zoom on 3 April and 22 May during the Covid-19 restrictions.
Forest Enterprises Directors talked through our company’s response to the lockdown as staff continued to work full time from home, the impact on your forestry investment due to the global response to the pandemic, and their observations on the log markets. We later updated investors on our forestry and harvest management activities once Gisborne and Wairarapa operations resumed after the 5-week hiatus.
Attendees gave us very positive feedback, appreciating the timeliness of the updates, the opportunity to ask questions of the Directors and management, and see us ‘face to face’. Encouraged by this response, we will be holding the MIS Annual Meetings online in the future.
The sessions were recorded and you can watch them on YouTube at this link:
How much carbon does your forest absorb?
One hectare of production forestry managed by Forest Enterprises sequesters 934 tonnes of CO2e (carbon dioxide equivalent) from the atmosphere during its 26-year lifetime.
That’s an average of around 35.9 tonnes of CO2e per hectare per year.
As a Forest Enterprises investor, you are contributing to this environmental benefit.
A minimum investment in our Ngatawhai Group Forest Investment is about 2 hectares, which sequesters an average of 71 tonnes of CO2e per hectare per year until harvest age 26. That’s TEN TIMES the average annual emissions of a 3-person kiwi household (7.1 tonnes CO2e per year), according to Toitū Envirocare Household Emissions Calculator.
With the additional forests now under our management in Wairarapa, we are projecting to manage the harvest of 650,000 tonnes this calendar year, double what we’ve managed in recent years.
The log storage facility at Waingawa has nearly doubled in size and capacity thanks to nearly $8million of investment by KiwiRail and CentrePort for improvements. Forest Enterprises has access to around 70% of the log storage and transport capacity in the region.
Planting is well underway in our Wairarapa investment forests. We have a total of 375,000 trees to replant this winter.
Investors will be pleased to learn we have no environmental issues to report from the rainfall experienced in Gisborne earlier this month.
Some public roads were affected and closed, which temporarily impacted our forest access. Inspections by our Gisborne team showed only small-scale repairs and maintenance will be required for some harvest infrastructure. Inspections are ongoing in our non-harvesting forests.
The winter planting season starts this week in Gisborne, targeting a replant of 455,000 trees.
Due to Covid-19, the forest visits for Ashcroft Pine, Hartley, Dunsirk and Winslow Forests were postponed until this November 2020. Investors in these forests can expect their updated invitations later this month.
Hawkes Bay Update
When it comes to our Hawkes Bay forests, “no news is good news” as the saying goes.
Harvest is still a few years away. Forest auditor Forme completed the Hawkes Bay forest audits last month and they are in great shape.
Forest visits will be held this November 2020 for Esk Valley, Glenross and Hampton Forests. Investors can expect their invitations later this month.
Standford Forest’s latest forest visit was held last November.
Changes to this year’s reporting timeframes
Due to the nationwide Covid-19 business restrictions, the Financial Markets Authority granted a two-month extension on the reporting deadlines for Managed Investment Schemes and other financial products.
Forest Enterprises staff continued to work diligently on the end of year annual reporting and tax processes, but were nevertheless delayed as the Auditor and Supervisor were operating in the same restrictive environment.
We have since circulated to all investors their 31 March 2020 Tax Details Statement (9 June), and to relevant investors the December 2019 annual investment reports (17 July).
We utilised the extension for around half of our March balance date investments. Therefore the March 2020 annual investment reports will be sent in two tranches – the first will be circulated later this week, and the second will follow in due course.
If you have any queries about your annual investment reports, please contact Customer Services Manager Sean Roberts by email [email protected] or by phone on +64 6 370 6368.
Have your details changed?
Forestry is a long term investment, so its likely that your situation will change over the years. As a licensed investment manager, we have an obligation to ensure all your details on our share register are current.
If have you changed your email address, phone numbers or moved house, please contact us with your new contact details.
Similarly, please contact us if your investment is held by a company, partnership or trust and the underlying officers have changed.
Send an email to [email protected] or phone +64 6 370 6360.
Log prices in context
Forest Enterprises uses the latest 36 months of log prices as a series to estimate future cashflows from your harvest and therefore investment returns. This is an industry convention which smooths the often uncertain path of log prices over time.
Today, it’s worth taking a look back over a longer series. It becomes clear that we’ve enjoyed a long run of rising price which is unusual compared with a view looking further back.
The longer-term view shows a steep recent fall, but also shows that we are, in all likelihood, at a level which is better than many periods, particularly before late 2015 when the rising trend became normalised. The following graph tracks Forest Enterprises’ log prices from October 2008 to June 2020.
We would love to see prices return to recent levels. While we do expect that to occur, realistically we are at the mercy of market forces.
The good news is that, in general, timberland or forest investment has performed well recently, and has currently slowed down a little as the world economy deals with the Covid-19 pandemic. While not a New Zealand example, the following graph from a US index tracker illustrates generic timberland (forest investment) returns as compared to other assets.
Forest Enterprises’ Log Market Analysis will now be produced quarterly. If you’d like to receive this regularly by email, please contact us.
Latest Forestry News: Bulletin, Winter 2020
Now available is the latest edition of the Bulletin, a three times per year publication from the New Zealand Forest Owners Association. The NZFOA is the peak body for Forest Enterprises and our managed investments.
Winter 2020 issue: COVID-19, the impact of the Log Traders Bill, how forestry can save the economy, biosecurity news, exports to China, and innovations in research and development.
Read and download your copy at this link:
Forest Enterprises is the business name of Forest Enterprises Growth Limited and its subsidiary Forest Enterprises Limited. Forest Enterprises Limited is licensed under the Financial Markets Conduct Act 2013 to manage Managed Investment Schemes (excluding managed funds) which are primarily invested in forestry assets.
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