Sealaska’s 2015 annual report shows net income of $12 million

Anthony Mallott, president and CEO of Sealaska, speaks about the Native corporation's finances that will be announced in their 2015 annual report during an interview on Monday.

Anthony Mallott, president and CEO of Sealaska, speaks about the Native corporation's finances that will be announced in their 2015 annual report during an interview on Monday.

Stability in motion — that’s the message Sealaska President and CEO Anthony Mallott wants to get across to its nearly 22,000 shareholders in its 2015 annual report that came out this morning.

Outside of money made through ANCSA Section 7(i) and investments, Southeast’s regional Native corporation has steadily improved its income since 2012, with the exception of a $73 million loss in 2013.

Section 7(i) of ANCSA requires each of Alaska’s 12 regional Native corporations to share 70 percent of their natural resources development income with the other corporations. Each year, that money is pooled and distributed back to the corporations on a per-capita basis.

Mallott wants 7(i) and investments to be cash flow on top of what Sealaska businesses create, although he said during an interview Monday, “It’s an artificial construct because our net income is our net income. It was 12 million in 2015.”

Starting in a more than $20 million hole without 7(i) and investments, Mallott said Sealaska operations improved between 2012 and 2015 by almost $9.5 million. Sealaska is projecting an additional $7.5 million in 2016, closing the breakeven gap by just under $5 million. They hope to get to zero by 2017.

So while he and Sealaska board of directors want shareholders to know they’ve created steadiness, Mallott admitted, “we’re not where we want to be.”

The reality, Mallott said, is that income from Sealaska operations is not covering the full corporation’s cost structure, and he doesn’t want 7(i) and investments income to continually cover the gap.

“We’re not at the point of profitability before 7(i) and investment income. It’s the number one short-term goal — getting to the zero. It’s the breaking point. It’s when everything opens up to get past that conversation of Sealaska is just losing money again. We have to get past that conversation,” Mallott said.

Mallott said the additional operations income stem from a strategic plan put in place in 2012.

“The losses in 2013 — at that point in time — those were all fairly set in stone. Those were contracts that were awarded prior to 2013 and just the losses realized from those contracts occurred in 2013. We had to deal with that. We had to show those were one-off losses while also moving forward with the strategic plan,” he said.

Part of the strategic plan meant getting rid of businesses that didn’t offer enough cash flow, like its plastics business Nypro Kánaak in 2013, and improving on existing businesses by finding efficiencies. Mallott said service businesses like Sealaska Environmental Services and Managed Business Solutions improved income. Mallott said at this point, Sealaska operations are making money, not losing money.

Sealaska has also significantly shrunk its workforce. In 2012, the corporation had 1,100 employees. At the end of 2015, it had about 280.

Mallott said Sealaska’s natural resources businesses are making money with Sealaska Timber being the main income generator. It harvested 28 million board feet of timber in 2015, mostly on the 70,000 acres of land Sealaska received in the December 2014 lands bill.

“Going into 2016 they’re a big part of our improvement,” Mallott said.

The ongoing plan is to log between 40 and 50 million board feet a year, clear cutting on 1,500 acres annually. Historically, Sealaska averaged 100 million board feet a year.

“The reason it’s at 40 to 50 is because we want to extend our old growth harvest to the point that our second growth can become a sustainable industry. We need a 15 to 20 year time period to make that happen. We don’t think second growth will be viable without a local work force. Local work force won’t be created unless we’re consistently harvesting,” Mallott said.

In total, Mallott said Sealaska owns about 1.6 percent of the forests in Southeast Alaska. He said less than 30 percent of that has been clear-cut.

Mallott said Sealaska Timber has 18 employees and contracts another 120, but he said its timber program helps to support an industry of up to 600 employees.

Mallott said all the improvements in business operations are making up for the declines in 7(i) and investments. From about $25 million in 7(i) incomes in 2015, Sealaska is projecting a decline by more than $10 million in 2016 mostly due to commodity prices for zinc and oil. Mallott said Sealaska saw this coming.

“That proved this impetus to go with this artificial structure. We need our operations to cover our whole entire cost structure. We are lucky that the year that we are facing that significant decline in 7(i), we’ve created enough operating improvements to allow us to not be so negatively affected,” he said.

The annual report shows less than $10 million from 7(i) income in 2017, 2018 and 2019.

Looking into the future, Mallott said Sealaska wants to invest in “relevant” industries, like natural foods, government services with a focus on energy and services.

He said the corporation is extremely close to acquiring two new businesses.

• Contact reporter Lisa Phu at 523-2246 and lisa.phu@juneauempire.com.

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