Strategic Priority 3 - Diversify toward income assets

Objective

Investment into income-generating assets and divestment from mature long-term growth assets, enabling larger and more consistent distributions.

Why this is a priority

Diversifying our investment portfolio means we are reducing risk. At the same time, we can use our resources to attend to environmental, social and governance goals.

Our whenua is used primarily for agriculture but returns can be variable. Optimising how we use our whenua and investing in a range of dependable cash-generating assets will drive better economic outcomes and build intergenerational resilience for Ātihau and our nearly 10,000 shareholders.

Key highlights

Ātihau has a recent history of diversification within the farming sector to increase cash returns, grow cash-generating assets and lift profit. We have invested in Te Hou Farms Limited Partnership and diversified production through beehives and mānuka, forestry and carbon farming.

We have also investigated farming alternatives, including product processing, tourism, property development and energy generation.

Forestry

An important workstream this year has been the Papahau Forest Partnership joint venture. Gaining access to trees across the Mangawhero River will be costly because the existing bridge on the Matahiwi track cannot carry trucks filled with logs. Without a solution, potential harvest costs could increase by several million dollars.

An alternative crossing has been costed by civil engineers at between $1.2 million and $2 million. Discussions are underway with NZ Transport Agency Waka Kotahi, Ruapehu District Council and our joint venture partner Rangitikei LP, and expressions of interest are being sought for the design and build of a new bridge. We expect to agree on a solution by the end of the calendar year.

Rangitikei LP has completed initial harvest planning and suggests a two-year lead-in time to full harvest.

Our forestry activity is expanding. Ātihau has identified more than 1400 hectares of land suited to forests. Of this, 200 hectares will be planted at Waipuna by the end of winter in 2024.

At Ohorea, 47 hectares of forestry has been replanted and 50 hectares of new forestry has been established at Waipuna. The remaining 1280 hectares of new forestry will be established over the next three years, subject to board approval and resource consents.

Carbon

Carbon sales have been made “little and often” to minimise the impact of fluctuations in Emissions Trading Scheme (ETS) pricing. A total of 44,000 carbon units were sold, bringing to an end the fixed price opportunity created through the establishment of a forestry trust last year.

Te Hou Farms Partnership

A new dairy shed and milking block at Te Hou Farms is allowing for faster milking and lifting production per cow. Te Hou Farms also adopted a recommendation in an independent review to optimise the dairy unit and boost productivity by the addition of winter milking.

Housing

Potential investment in building housing in Ohakune is also on hold

following the release of Ruapehu District Council’s long-term plan to 2034. The Ātihau block being considered is not zoned for housing. A spatial review (i.e. zoning changes) was not included in the council’s proposed 10-year plan and Ātihau is not prepared to consider other planning provisions for the block at this time because of cost.

Ruapehu Alpine Lifts Limited

Interest payments on the Ruapehu Alpine Lifts Limited (RAL) bond have been delayed following RAL being placed into liquidation in June 2023. Turoa skifield has been sold but there is no buyer yet for Whakapapa, and receivers continue to operate parts of the business. The interest is likely to be paid retrospectively as part of a sales and purchase agreement.

Strategy in action

The right tree in the right place for the right purpose – a mantra that sums up our approach to diversifying Ātihau earnings through forestry and carbon.

We set diversification as a longterm strategy to diversify earnings and bring stable returns for more than 9600 shareholders. With shareholder numbers growing by 2 percent each year and forecast to reach 12,000 within 10 years, the aim is to lift cash returns in order to provide bigger and more consistent dividends and to support the education and wellbeing of our shareholder whānau.

To fund diversification, the need to establish a funding reserve was identified. That fund is being created by two high-value investments: trees for timber and carbon credits.

Ātihau has worked steadily on expanding planting programmes for both production forestry and sequestering carbon to sell as carbon credits.

Ātihau chief executive Andrew Beijeman says the first step was to develop a carbon model.

“The aim was to identify the carbon opportunities available in mānuka and exotic forestry over the next 20 years, and how much we could expect to sell each year.”

“Although the model was mainly based on existing forestry in the ETS, we overlaid opportunities for additional planting.”

NZ Forest Managers Limited is working to support the planning of new forests.

“It’s about understanding what trees should be planted in new forestry and where. That work isn’t completed yet, but we’re very close.”

More than 1400 hectares of land on Papahaua, Waipuna and Ohorea has been tagged as suited to either rotational or permanent carbon forests.

Preparation for planting requires a significant lead-in time. It includes developing pest control plans and bush margin spraying.

Beijeman says a close watch has been required to control pests at Waipuna and other areas earmarked for planting where large numbers of deer are present.

Newly planted trees at Waipuna suffered significant pest damage, mainly in smaller areas next to another farm. Tree survival will be reviewed over winter, and replanting may be needed. Other foresters are experiencing similar challenges from pest invasion into plantings on boundaries, Beijeman says.

Electric fencing has been installed at Waipuna to keep deer out of the forestry block, but further control measures may be needed across the forestry to ensure plantings are successful.