Carbon credit sales provided boost for City Forests. Photo
City Forests has made a killing in New Zealand's
emissions trading scheme, from a windfall sale of New Zealand
carbon units for more than $20 each, while the open market
trading price is currently $4.
Gains from foreign exchange hedging and carbon credit sales
combined to add a $7 million boost to City Forests annual
results, for the financial year to June.
City Forests chief executive Grant Dodson said the carbon
sales made during the year were on earlier forward purchase
contracts, meaning the companies concerned were locked into
purchasing them, despite the trading price being at $4.
''They were sold at the peak of the market,'' Mr Dodson.
''They [credits] started out at $1.17 but have since moved up
to about $4,'' he said.
Carbon credit sales started in February 2010, when City
Forests boosted its bottom line by $3 million after signing
its inaugural carbon-credit deal, with an unidentified New
During the past financial year to June, City Forests sold its
New Zealand-unit carbon credits to a trading bank and oil
company, gleaning $6 million, Mr Dodson said.
This year's record $14.6 million profit for the company was
in part due to it making a ''series'' of credit sales at the
top of the market, Mr Dodson said.
While predicting another record dividend for owner the
Dunedin City Council next year, of $4.6 million, Mr Dodson
said the company was not planning to sell any credits this
''We're not budgeting for carbon sales, because the price is
so depressed at the moment,'' he said.
All New Zealand exporters have been hard hit by the strength
of the kiwi against the weakened US dollar in recent years,
but hedging, or buying forward contracts of US dollars, can
soften the blow of the high exchange rate.
However, the dollar's volatility can work against companies,
which can be left hundreds of thousands of dollars out of
pocket if the exchange rate trends opposite to expectations.
City Forests chairman Ross Liddell said yesterday that for
each of the past seven years, about $1 million had been made
from foreign exchange gains.
''We're the only [council-owned] company bringing in any
substantial earnings in foreign exchange for the council,''
Mr Liddell said.
Mr Liddell has been focused on arranging the hedging
contracts, and has about 50% cover on earnings for the year
ahead, while for the second and third years out that declines
to less than 50% cover.
Mr Dodson said City Forests ''was not speculating on foreign
exchange'' for an earnings boost, but looking to manage
costs. There ''always remained some element of risk''.
Mr Liddell has ''triggers'' set to purchase US dollars when
its value dips to a predetermined level, which offsets losses
when the exchange rate is higher, later.
He said when the dollar last dipped to around US77c in recent
weeks, City Forests purchased about $400,000 of forward
''At the end of seven years, we have made substantial gains
on foreign exchange,'' he said.
For each of those years, hedging has on average added about
$1 million, Mr Liddell said.