VicForests financial report come fairy-tale 2012-13

Tuesday, June 11, 2013

Another creatively written Annual Report for VicForests (2012-13) was presented to parliament in mid-October and it verges more towards fantasy than a serious commercial look at their performance.

Steve Meacher from Healesville Environment Watch has done an analysis of the report and also compared it with their stated Corporate Plan in 2011, with the actual performance in the following year. It shows that they did not make the expected income from sales even though the reported amount was cleverly boosted by late payments from sales in previous years (see below). Here’s Steve’s take on it all…

No Dividend paid for six years

The first thing that stands out is that, for the sixth year running, no Dividend has been paid (Note 25 in their AR). This is the sum payable to the people of Victoria for the privilege of being allowed to log in publicly owned forests.

I note that VicForests has flagged a proposal to pay $250,000 during the current financial year but there is no guarantee it will be paid. In the 2011 Annual Report they made a similar proposal to pay $1.26 million in October 2011. It was never paid.

Even if they ultimately pay the $250,000 dollars it is a paltry sum. The report prepared for Treasury by URS in 2011 suggested the dividend should be around 15% - 20% of Equity. On current figures, that translates to a dividend between $6.6m and $8.8m. A quarter of a million, if it is ever paid, doesn't come close.

In contrast, Forestry South Australia, which manages publicly owned plantations, paid a dividend (2011/12) to the SA government of $14 million, on a similar volume of timber produced (1.33 million cubic metres, compared to VicForests' 1.27).

Claimed Profit not based on transactions in the financial year

VicForests is claiming that its profit of $0.8 million marks a 'significant achievement'.

In fact it appears that the profit is not due to improved operating performance during the financial year but to the payment of an outstanding debt, following settlement of a trade dispute. This payment is shown as income during the current year even though it relates to previous years. We don't know exactly how much it is but it is reflected in the accounts as a decrease in Trade receivables (Note 6), which has dropped $11 million. It's reasonable to surmise that without the income relating to late payment for sales in earlier years, this year's result would be a loss of several million dollars.

Falling Equity

Overall, in spite of the claimed profit, I note that the Total Equity of VicForests has fallen by $1.6 million (3.6%). This is because the late payment that boosted the profit had already been declared as a "Receivable" asset and therefore contributed to Equity in previous years. Falling Equity is not an indication of a healthy corporation.

Handback of regenerated coupes

Once again, there appear to be serious inconsistencies in the reporting of coupe regeneration.

The 2011 and 2012 reports noted that 3824 hectares had been submitted for transfer and, when the process was completed, would be expected to reduce "Biological timber assets" by $6.3 million.

The 2013 report states (Note 8) that DEPI has accepted 23,546.8 ha of forests, resulting in a reduction in value of standing timber of $2,455,000. So six times the area of forest has been returned at less than half the previously claimed total value. This is weakly explained by the lack of records of coupe regeneration expenses prior to July 2009.

VicForests’ report is on line here -"