Vic Forests: The aftermath

 

Vic Forests’ disaster brings to mind the familiar Hemingway quote: “How did you go bankrupt?"

“Two ways. Gradually, then suddenly.”

The 2021/22 bottom line of $54 million was followed by a $61 million loss in 2022/23, according to Vic Forests’ recently tabled Annual Report.

However a close reading of the financials reveals the picture was far worse.

Grants from the Victorian government to meet compensation payments, to customers for non-supply and to contractors for being sidelined, were included as revenue thereby making the picture look vastly better.

Government funds to Vic Forest comprised three main groups:

·        Operating grants for plantation and nursery establishment, grants to cover the costs of non-commercial activities, revenue from sales of goods and services to other State government entities.

·        Grants to cover compensation payments.

·        Loans.

To see the real extent of the cost to Victorian taxpayers a little re-working of the profit and loss statements are required.

This is the restated P&L before and after compensation payments:

 

Vic Forests P&L Statement  $m
	2022/23	2021/22
Revenue
Sale of forest products	17.9	88.4
Other income from Vic Government	15.2	19.0
Other income third parties	2.1	0.2
	35.2	107.6
Expenses
Harvest cartage & other production exp	19.2	71.7
Employee benefits expenses	21.5	20.3
Roading expenses	7.3	6.4
Regeneration expenses	3.2	3.2
Amortisation and depreciation expenses	4.1	9.9
Legal expenses	5.0	10.5
Other operating expenses	11.2	11.1
	71.4	133.1
Operating loss before compensation payments	-36.2	-25.6
Compensation payments	150.3	13.6
Net loss after compensation payments	-186.5	-39.2

 

The loss before compensation payments in 2022/23 was $36.2 million (21/22 loss $25.6 million).

As can be seen this includes operating revenue from the Victorian government of $15.2 million ($19.0 million in 2022/23). The breakup of these amounts is:

 

	2022/23	2021/22
Other income from Vic Government
Plantation and establishment grants	0.9	2.0
Grants for non-commercial services	10.5	12.6
Other income for goods and services	3.8	4.4
	15.2	19.0

 

After compensation payments of $150.3 in 2022/23 ($13.6 million in 2021/22) the loss in 2022/23 was $186.5 million ($39.2 million in 2021/22).

However even these amounts don’t tell the full story. There is further compensation of $55.6 million expected to be paid.

The operating losses needed to be financed and that required more funds from the Victorian Governments this time via loans. Total government assistance to Vic Forests over the two years 2021/22 and 2022/23 is best shown in the following table:

Funds from Vic government $m
	2022/23	2021/22
Grants for compensation payments	149.0	6.3
Loans	20.0	32.8
Total for 21/22 & 22/23	169.0	39.1
Plus estimated future compensation		55.6
Total bailout funds from Vic Govt		263.7

 

In two years Vic Forests cost Victorian taxpayers $263.7 million yet was still able to say it “is proud to be recognised as a credible, successful, and dynamic native forestry business that provides a sustainable contribution to Victoria.”[1]

 

 

 

 

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[1] Vic Forests Annual Report 2022/23 page 6.