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We had a deep dive into VicForests' annual reports. And came up dirty. This is what we found out.
VicForests is less of a business, more of a job creation scheme for rural Victoria. It hardly makes any money, despite being given a free resource in our public forests.
A PricewaterhouseCoopers report from 2016 concluded that VicForests 'has demonstrated lower net profit margins than the Australian forestry sector and industry average, and considerably lower profit margins than select forestry internationally'. (p.13)
Let's have a look. Its after tax profit for the last few years is as follows. All figures come from their annual reports:
2019: $1,953, 000
2018: $1,218,000
2017: $3,170,000 LOSS! OUCH!
2016: $3,424,000
2015: $4,677,000
2014: $3,411,000
2018: $1,218,000
2017: $3,170,000 LOSS! OUCH!
2016: $3,424,000
2015: $4,677,000
2014: $3,411,000
Why such small profits? The PwC report of 2016 suggested VicForests 'does not charge appropriate commercial harvest and haulage rates', which is VicForests'Â largest expense (p.17). Remember, they get access to our forests for free.
The 2017 loss (OUCH!) is blamed on a revaluation of the 'biological asset', with a forecast reduction in revenue owing to a decrease in high grade ash sawlog available for sale. Not enough wood, I guess.
What else can be to blame for these low numbers? Oh yes, legal bills. In 2019, the annual report mentioned 'increased litigation costs'. The 2018 annual report also refers to 'increased litigation costs'.
In 2016 we had 'increased legal expenses'. I'm beginning to think legal expenses are a feature, not a bug of the VicForests' business model. A model described more broadly as 'patently nuts' in The Australian Financial Review in 2014.
It gets nuttier. Counted as income is a payment from the government called 'reimbursement of foregone revenue and expenditure incurred for the Leadbeater's Possum recovery program'. Basically, VicForests is being paid for NOT destroying habitat.
It's a nice little earner. Here are the figures:
2019: $11,077,000
2018: $5,544,000
2017: $4,850,000
2016: $2,953,000
2015: $1,550,000
2019: $11,077,000
2018: $5,544,000
2017: $4,850,000
2016: $2,953,000
2015: $1,550,000
Whilst the 2019 figure is double that of 2018, we believe the $5m from the previous year was returned to Treasury. Nevertheless, without these payments, VicForests' miniscule profits would be even worse, tipping into loss last year. It rarely returns a dividend to government.
What to make of these yearly payments? The government says it is not a subsidy! So don't call it one! Wikipedia says a subsidy is a financial support used with the aim of promoting an economic or social policy. If employment in rural areas is that policy, then it's a subsidy.
It gets worse. With VicForests, you never really hit rock bottom. The government throws money at other sectors of the industry to keep it afloat. Such as $10m to upgrade the Maryvale Pulp Mill. Or $650,000 into a hardwood mill at Heyfield. You get the picture.
In 2013, the then government, struggling to get the owners of the Maryvale Pulp Mill to pay back a $10m debt, decided to actually REDUCE the cost of logs. Thanks Peter Walsh!
This corporate socialism is what you get when propping up an unsustainable industry
This corporate socialism is what you get when propping up an unsustainable industry
VicForests have access to a cheap $30m loan from the government, through the Treasury Corporation. As noted by PwC back in 2016, it also gets grants for its euphemistically named 'fire salvage' efforts. Which might explain why it is so eager to log in the aftermath of the fires.
So, that is VicForests. Afloat on a sea of government support (NOT SUBSIDIES!), with the end result being the destruction of Victoria's forests, worsening our climate crisis, and driving threatened species to extinction. What a great deal for Victoria's taxpayers!
Next week: a thread on Leadbeater's Possum and the Greater Glider, and how VicForests intend to deal with these arboreal pests, once and for all.
