Year in Review
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OVERVIEW
On 1 April 2010, Eastland Group Limited (the Company) was formally established as the parent company of all the businesses within the Group, despite Eastland Group being used as the over arching brand for a number of years. It is therefore pleasing to be able to provide the first annual report and audited accounts for the Company.
The year ended 31 March 2011 was one that saw a record profit for the Company, and the validation of the strategy that has been developed and implemented over the past few years.
”EASTLAND PORT HAS CONTINUED TO GROW AND FLOURISH, DRIVEN BY INCREASING DEMAND FOR NEW ZEALAND RADIATA PINE IN ASIA.”
RETROSPECTIVE PERFORMANCE
In the year ending 31 March 2002, the investment consisted solely of Eastland Network Limited which had assets of $83 million. A decade later this business has been transformed into a pan-regional entity called Eastland Group Limited with $345 million in total assets.
The Company is now heavily focused on both logistics and energy, and it is these sectors where the majority of the investment is held.
During this same period of time, the business has been able to continually create value for the shareholder.
The opening equity in the year ending 31 March 2002 was $39 million. In the intervening years this has grown to $162 million, as well as cumulative dividends of $30 million being paid.
Likewise, using an Economic Value Added (EVA) methodology demonstrates that Eastland Group Limited has been able to, on average, meet or exceed its Weighted Average Cost of Capital.
FINANCIAL PERFORMANCE
Eastland Group’s earnings for the year ending 31 March 2011 were a record net profit after tax of $8 million compared with $5.6 million the previous year.
This is a very strong result from a company that is now reaping the benefits of some sound strategy development and implementation over the past few years, despite the challenging financial environment.
Revenue for the Group was also up on the previous year from $61.9 million in 2010, to $72.9 million in the 2011 year, which resulted in the operational earnings (EBITDA) for the business growing considerably in the same period from $22.5 million to $31.3 million.
The operational result for all sectors and businesses was improved on the previous year.
DIVIDENDS
Dividend distributions to Eastland Group’s 100% shareholder, the Eastland Community Trust (ECT), were $4.2 million for the financial year, which was up from $4 million from the previous year.
In addition capital note interest of $2.6 million was paid to ECT.
STRATEGIC INTENT
Eastland Group is a Gisborne based national company, investing in and managing a targeted portfolio of businesses, with a focus on the energy and logistics sectors, in addition to holding some key regional assets, all of which must be capable of delivering value to its shareholders, customers and stakeholders. The performance compared to budget reflects the fact that New Zealand, and in particular provincial New Zealand have weathered the Global Financial Crisis very well, with the forestry sector in particular, showing extremely strong growth.
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EASTLAND PORT
Eastland Port has continued to grow and flourish, driven by increasing demand for New Zealand radiata pine in Asia.
Export log volumes in 2005 from Eastland Port were 350,000 Jas/tonnes, while in the year just gone they were 1,500,000.
These massive increases in volume have put the Port’s infrastructure under pressure and has lead to development projects such as the Matawhero log yard and port log yard asphalting being accelerated.
GENERATION
The period saw the first full year’s contribution by the geothermal power station in Kawerau, which was acquired by the Company early in the 2010 calendar year. By year end the Company was well advanced on shoring up the future supply of geothermal fluid, which will allow this station to deliver to name plate capacity.
The execution of the Te Ahi O Maui Project Development Agreement to develop geothermal power stations on 170 hectares of land (also in Kawerau) during the year has set the Company up well for continued expansion into projects that utilise this exciting sustainable energy resource.
As well as geothermal, the Company has been actively looking at other sustainable energy projects - both local hydro- electric and biomass fuelled projects are high on the Company’s list of priority projects.
ELECTRICITY DISTRIBUTION
The electricity distribution business remains Eastland Group’s single largest investment. As a regulated business, it is beholden on the organisation to have an in-depth understanding of the regulation and the regulatory environment that it operates in.
Under the previous regulatory period, Eastland Network, after looking at the return on investment it was getting, made an intentional decision to raise prices and breach the price path threshold. This was not a decision taken lightly but in an organisation with significant planned capital investment, it is important
that this investment is rewarded with an appropriate return. Recent announcements from the Commerce Commission would suggest that the approach taken by Eastland Network was both appropriate and justified.
PROPERTY
Eastland Group owns a portfolio of commercial property, all of which is held to support the strategic or operational needs of the businesses within the Group.
The Commercial Property arm of the Key Regional Assets Sector continues to retain quality tenants achieving an occupancy rate of greater than 95%.
GISBORNE AIRPORT
Gisborne Airport had another successful year, passenger numbers increased from 128,171 in 2010 to 134,600 in 2011.
The airport faces some significant capital expenditure to maintain and develop the airport infrastructure so it continues to be fit for purpose.
A focus in the coming year will be to renegotiate landing fees and other aeronautical related charges to ensure that Eastland Group’s investment in Gisborne Airport is rewarded with a reasonable rate of return.
EASTLAND GROUP ASPIRES TO BE THE EMPLOYER OF CHOICE IN THE REGION.
AVIATION
Eastland Group has been focused on initiatives to restructure these businesses and to make them operate more effectively, reducing inventory and costs and improving margins.
By year end these initiatives were having a positive effect, with total assets employed having reduced to $12 million (2010: $19 million), and the operational earnings improving significantly on the previous year. While this work is ongoing, there is reason to be optimistic in respect of the ability of these businesses to make a greater contribution to the earnings of the Group as the economy rebounds.
FUNDING
Eastland Group has taken a commercial but prudent approach to its level of debt. Having increased gearing over the past few years, the level of debt now in place is viewed as appropriate. This does, however, present issues about how to fund any future growth.
Due to good capital investment disciplines and strong operating cash flows, the Company was able to manage bank debt effectively, with these facilities drawn down to $97 million at year end compared to $99 million the previous year.
The Company has a number of exciting projects planned, which will augment its existing energy and logistics investments, and these will require additional funding.
Eastland Group is currently working with its shareholder (ECT) to look at the most appropriate way of funding the future growth of the Company.
PEOPLE
Eastland Group aspires to be the employer of choice in the region and while other organisations claim to have difficulty recruiting people to Gisborne, the Company has brought together a high quality management team that is extremely capable. While not everyone wants to live in a provincial city, there are those that see the balance between lifestyle and professional opportunity that Gisborne and Eastland Group offer as something that would be very difficult to find elsewhere.
Finally, we would like to thank the board of directors, senior management and staff for their contribution throughout the year. We recognise all staff as a valued asset to Eastland Group.
During the year, director Trevor Taylor retired and was replaced by John Rae.
The board and management would like to express their thanks to Mr Taylor who, as well as being the chairman of the Audit and Finance Committee for many years, made huge contribution to the success of Eastland Group.