Seedling firm eyes good growth ahead

Government policies concerning climate change and land use are helping drive sales from ArborGen's nursery at Edendale. Photo: Supplied

“STRONG momentum and supportive tail winds” have created an optimistic outlook for the New Zealand operation of a global genetics seedling company.

United States-headquartered ArborGen is the largest supplier of tree seedlings in the world, selling 400 million a year worldwide.

Its New Zealand operation comprises six nurseries, two seed orchards, a Ministry for Primary Industries-accredited Level 3 post-entry quarantine facility and tissue laboratory.

The quarantine facility was used for importing seeds and plants to meet biosecurity requirements.

It also has about 3000 radiata pine varietals across 90 trial sites.

In 2014, the company bought a nursery in Edendale which was started by the now defunct New Zealand Forest Service.

It grows and sells about 6 million seedlings and cuttings annually to forest estate owners in Otago and Southland. The NZX-listed company also has operations in Brazil and Australia.

In its recent full-year results, the company posted a $US3.2 million profit ($NZ 4.5 million) for the 12 months ended March 31, up from a $US2.7 million loss the previous year.

After three years of constrained supply and an increase of its genetically enhanced seedlings (known as MCP seed) available, seedling production was offering a substantial margin growth, chief executive Andrew Baum said.

The company was expecting a further rise in availability of its MCP seed in the coming year, Mr Baum said.

ArborGen believed it had a 40% market share in New Zealand, supplying mainly corporate forestry companies.

Its New Zealand and Australia general manager Greg Mann said New Zealand’s forestry sector was in an “up-cycle” at present.

That was being driven by factors including the replanting of forests that were established in the last planting boom in the late 1980s and a drive regarding new plantings.

“Government policies like OneBillion Trees, land-use change, planting out low-productivity sloping sheep and beef land, Government responses around climate change and improvements to water and soil quality are all helping.

“There are a lot of things that are driving demand at the moment,” Mr Mann said.

He believed the challenge for the New Zealand business during the next decade would be meeting supply and demand challenges.

“The total New Zealand market for seedlings over the last 10 years has varied around 45 [million] and 145 million units in any given year.”

Mr Mann believed the New Zealand market was performing at the upper end of that scale and would be for the “next few years”.

Mr Mann believed Covid-19 might have come at a good time, with the crop established and preparations under way for harvest.

“It wasn’t as if we were in the middle of harvest and had to stop everything,” he said.

However, it cost the business a month’s delay to harvest season after the industry was not initially deemed an essential service.

The pandemic did not affect sales as the business normally had 80% to 90% of its seedlings sold to forestry companies prior to harvest.

After lockdown was lifted in New Zealand, sawmills in the US were still not operational which led to a strong demand for New Zealand wood.

“That meant harvesting ramped up really quickly and which in turn meant demand for seedlings was strong.

“It was just a timing thing because we locked down at a different point in time, so there was sufficient time here [New Zealand] for the forest owners to harvest and ensure they could plant seedlings as well,” Mr Mann said.

Last month, the company released an “optimistic” guidance heading into the 2022 financial year.

Following that, its share price shot up by 19.9% to its highest price seen in two years.

The company expected earnings before interest, tax, depreciation, and amortisation for FY22 to be between $US13 million and $US14.5 million.