Massive deals leave group a lot smaller

A109 Light Utility Helicopter flight with mayor Gisborne City from the air in November 2023.

Opinion

Fresh from selling Eastland Network on March 31, 2023 for $260 million — receiving net proceeds of $257.7m, $90m of which went to owner Trust Tairawhiti and the rest to reducing bank debt — Eastland Group has raised more than $250m selling a 50 percent interest in its renewable energy business, Eastland Generation.

These are massive deals that leave the district’s corporate titan a lot smaller and less influential in the regional economy. It is essentially a holding company now for Gisborne’s port, a half stake in a quality renewable energy business with good growth potential, and the operator of Gisborne Airport.

This was recognised in restructuring that took place around the time of the network sale, shrinking the group’s executive team and introducing finance and administration functions so Eastland Port and Eastland Generation now operate largely as standalone businesses.

While all this was going on, Eastland Group was facing huge headwinds across its businesses due to the severe weather events, the port being hit by post-Covid supply chain issues in China, and full hydro dams keeping power prices down, reducing earnings from its three geothermal power plants in eastern Bay of Plenty.

The group recorded a profit of $92m for the year to March 2023 because of the network sale, but made an operating loss of $6.3m — including $5m of one-off items, such as writing off the value of an exploratory well.

A normalised operating loss of just over $1m was a dreadful result for a company that until then had a 20-year record of solid growth and, normally, rising profitability.

Somewhat embarrassingly, the group’s wage bill swelled to $14.47m in the year to March, up from $12.51m the previous year — related to redundancies and incentives. The top earner was paid $1.15m and seven other staff received more than $500,000. The newly down-sized Eastland Group can’t afford these sort of salaries, so there might be some more shaking out yet to come.

The group’s new partner in Eastland Generation, subject to Overseas Investment Office approval, is Japanese construction and engineering firm Obayashi Corporation.

Eastland Generation is largely a geothermal energy business — 59MW total generation now, with 49MW and 35MW projects in development — looking to also develop smaller scale solar and wind farms.

An enterprise valuation “in excess of $500m” seems good for both parties. Essentially Eastland Group had to find a partner with deep pockets to be able to deliver the projects it was developing; that it comes with relevant expertise is a big plus.