STT: Another year of deceptive profits and economic unviability

 

Sustainable Timber Tasmania's (STT) 24/25 Annual Report attempts to project an image of strategic progress and financial health, proudly declaring "eight years of consecutive profitable results." However, a rigorous, critical examination of the financial statements, viewed through the lens of industry realities and basic economic principles, reveals a far harsher truth: STT's reported profitability is an accounting construct, propped up by non-cash revaluations and heavily reliant on a substantial government grant for unavoidable public land management duties,  and crucially, benefits from the undisclosed, massive subsidy of free access to public land and its timber resource. This deceptive facade of success not only masks a core operation that is economically unviable but also obscures the ongoing accrual of significant, unquantified societal and environmental liabilities that would largely cease if native forest logging operations were to stop.

1.Fabricated profits: A revaluation ruse and the illusion of success

The headline achievement touted by STT – net profit after tax surging from $0.3 million in 2024 to $5.8 million in 2025 – is not a testament to commercial prowess, but rather the result of accounting gymnastics. The most egregious driver of this paper profit is the $7.5 million biological asset valuation increment (Note C1). This figure represents a non-cash estimate of the increase in the fair value of STT's standing timber; it is not cash from timber sales. To report a profit that is nearly $2 million less than this single, subjective, non-cash revaluation immediately exposes the profound disconnect between STT's reported earnings and its actual economic performance. As most accountants will say – beware of entities that rely on book entries to make profits,

Further compounding this illusion is the $1.4 million reversal of prior period expected credit losses (Note B1e). While this adjustment technically improves reported profit, it is another non-cash write-back of previous provisions, contributing nothing in the way of new revenue or cash from operations.

Without these two non-cash injections, totalling almost $9 million, STT would have plunged deep into financial losses for the year. This undiluted picture would undeniably expose the fragile nature of its "profitability." The assertion of "profitable results" under such circumstances is, at best, a disingenuous misrepresentation, designed to obscure the reality of a commercially struggling enterprise.

The very foundation of STT's biological asset valuation, so critical to its paper profits, is deeply problematic. Note C1 states that the valuation is derived from a net present value (NPV) calculation based on "the net of the future cash inflows and outflows associated with forest production activities." Yet, critically, this calculation omits two fundamental and inescapable economic costs essential for realising the timber's value and maintaining a productive forest estate: the substantial capital expenditure (capex) for access roads and the long-term costs of re-establishing harvested areas.

STT values its native forest as if they are a single rotation horticultural crop rather than a perpetual eco-system. Roading (e.g., $12 million in property plant and equipment (PPE) additions in 2025, Note D4) and re-establishment (a $7 million provision in 2025, Note C2) are not peripheral expenses; they are indispensable enablers of timber harvesting and the maintenance of future crops. By segregating these costs as separate balance sheet items or provisions and not fully integrating them as direct outflows within the biological asset's NPV calculation, STT artificially inflates the "net harvest proceeds" and, consequently, the fair value of its forest estate.

From a strict accounting standard interpretation of "costs to sell," STT's exclusion of the full capex for roads and regeneration from the "net harvest proceeds" calculation for its biological assets may be defensible.

However, from a true economic, commercial, and sustainability perspective, it is highly problematic and misrepresents the underlying viability. Including these indispensable "enabling costs" (roading) and "lifecycle costs" (regeneration) when calculating "net harvest proceeds" is essential to gauge the genuine economic value of the standing timber and the true profitability of a sustainable native forest logging operation.

From an honest economic perspective, one cannot realise the value of a forest without first building the roads to access the timber and then re-investing to ensure future crops. The current methodology allows for an inflated biological asset value and a misleading "increment" each year which if positive ensures STT is” profitable”.

This valuation approach stands in stark contrast to the sobering reality acknowledged by peers in the Australian forestry sector. For instance, the Forestry Corporation of NSW (FCNSW), operating a native forest business of similar scale, has fully impaired its native forest assets. This means FCNSW has deemed its native forest operations incapable of generating sufficient future economic benefits to justify their carrying value, effectively writing them down to zero. This action by a comparable government-owned entity is a colossal red flag for STT. FCNSW’s treatment of its native forests could hardly have escaped the attention of STT as the Chair is also a Board member of FCNSW.

STT's current valuation, therefore, appears to be a dangerous anomaly, reflecting an overly optimistic or structurally flawed assessment that defies the economic logic increasingly embraced by the only other state-owned native forester still operating.

If STT were to adopt a similarly rigorous, economically comprehensive valuation – one that explicitly includes all necessary roading capex and re-establishment costs into its NPV models – it is highly probable that its native forest biological assets would also face significant impairment. We’ll have a more detailed look at this below but first we need to mention a few other aspects of STT’s situation.

2.The cash flow abyss: A business on life support

Beyond the contrived profits and potentially inflated asset values, STT's cash flow statement reveals the undeniable truth of its economic non-viability. Net cash from operations, the lifeblood of any self-sustaining enterprise, plummeted by over 73% year-on-year, from $6.5 million in 2024 to a paltry $1.8 million in 2025. This abysmal performance not only represents a devastating decline but also a spectacular failure to meet STT's own, modest target of $3.5 million for operating cash flow.

This meagre operating cash flow is the most damning indictment of STT's commercial health. It unequivocally demonstrates that its core business, despite its reported "profit," cannot generate sufficient cash to fund its ongoing operations. Such a severe cash generation problem indicates fundamental structural issues within the business model, where revenues (which themselves declined for forest products, Note B1a) are inadequate to cover cash operating expenses.

This cash deficit necessitated cash injections, from running down its investments and receiving CSO funding from the government.

The redemption of $7.5 million in term deposits (Note D6, D1b) was most welcome during the year. In 2017, as STT faced challenges repaying its debts and covering ongoing losses, it sold about half of its hardwood plantations for approximately $60 million. Borrowings were repaid; the government grabbed some as a dividend and the remainder salted away to fund expected losses over the medium term. In a year or two they will be gone. This year’s term deposit redemption was a necessary draw-down to compensate for the lack of operating cash flow and to pay for capex such as PPE, roading and regen expenses. This boost is a clear indicator of financial stress highlighting an inability to fund itself from its actual commercial activities.

STT's reported "profitability" relies heavily on a $12 million annual payment from the government. This payment, called the Community Service Obligations (CSO) grant (Note B1a), is specifically given for essential tasks like "Land management" ($8m), "Fuel reduction" ($2m), and "Fire prevention" ($2m).

Here is the critical point - these are vital public services. Someone – whether STT, the Parks and Wildlife Service, or another government agency – will still have to perform and pay for these duties even if no trees are logged. They are basic responsibilities for looking after vast areas of public land to keep them safe, healthy, and accessible for everyone.

The CSO grant acts like a critical financial lifeline. It stops STT's overall accounts from showing even bigger losses, effectively masking the truth, that native forest logging, on its own, is a catastrophic financial failure.

The CSO payment is not commercial revenue, it’s a grant for managing forest land. This is fine even if it helps prop up its logging business. But there’s a tendency for foresters to climb aboard their high horses when trying to downplay the proposition that the CSO is a subsidy. It’s not worth spending too much time arguing the point about an amount which has to be paid regardless, whether it's a grant for managing land or a reimbursement of expenses. Much more significant is the fact that STT gets rent free use of Crown land and the accompanying right to harvest standing timber.

3.Rent free public land

There’s a lot of incorrect claims made about subsidies to STT. The biggest subsidy is the one most overlooked, and that is its rent-free use of public land. It’s worth trying to understand.

 STT "does not hold freehold title over the majority of PTPZ land but is deemed to control the land pursuant to the Forest Management Act 2013" (Note C1). STT does not pay explicit rent or lease fees for this extensive public land, nor for the standing timber it harvests. This represents a profound and unquantified hidden public subsidy.

For any true economic assessment of STT's native forest logging business – particularly when calculating "net harvest proceeds" and the "forest value" (biological assets) – an imputed rent on the land and timber is absolutely essential. This imputed cost would reflect the fair market value of using a valuable public asset (the land) and the resource it contains (the timber), representing the opportunity cost to the Crown. The current practice of discounting the PTPZ land value to nil effectively treats the massive land base and its timber as a free gift from the public, artificially inflating "net proceeds" and, consequently, the biological asset's fair value. Failure to account for this imputed rent critically misstates STT's true economic viability.

If STT is genuinely intended to operate as a commercial entity (a Government Business Enterprise GBE), it should mimic the behaviour of private forestry operators who either purchase land (incurring capital costs and holding costs) or lease it, and they pay for timber harvesting rights. Not doing so provides STT with a significant, implicit subsidy.

From an economic perspective, the land is a vital factor of production. Using it incurs an economic cost (an opportunity cost), even if no cash changes hands. Ignoring this cost distorts the true profitability of the timber harvesting operation.

Explicit rent/lease payments would make the true costs and returns of STT's operations far more transparent. It would clearly delineate what part of STT's "profitability" comes from market operations versus what derives from free access to a public resource.

The Crown, as the ultimate owner of the land, should ideally receive a fair market return on this valuable asset, regardless of the GBE structure. STT can’t afford to pay a lease, hence there’s a significant hidden subsidy which masks the true cost of native forest logging.

Nevertheless there is nothing to stop STT from including an imputed rent when valuing its forest estate.

Imputed rent is a non-cash, economic cost that represents the fair market value of using an asset (the land and right to harvest standing timber) that STT controls but for which it does not make an explicit cash payment.

It reflects the opportunity cost – what the land and timber could earn if used in their next best alternative. One alternative may include carbon sequestration and part of the ’earnings’ may include avoided costs of native forest logging. Of which there are many.

If the fundamental input of "land and resource access" is treated as free, the "net proceeds" are artificially inflated. Including an imputed rent would reflect the actual economic cost of securing the resource.

The current practice of discounting the PTPZ land value to nil (Note C1) effectively treats the massive land base and the timber it holds as a free gift from the public. This is a substantial, hidden public subsidy. Imputing a rent would reveal the scale of this subsidy.

If STT's native forest biological assets are to be valued at "fair value less costs to sell" (as per AASB 141), then the cost of the resource itself is undeniably a cost. Without it, the "fair value" is overstated.

FCNSW's full impairment of native forest assets likely stems from a valuation methodology that takes a far more comprehensive view of economic costs, including the cost of accessing and utilising the resource. STT's failure to impute a rent further differentiates its valuation from peers adopting more rigorous economic assessments.

When key inputs are treated as free, it creates a perverse incentive and distorts decision-making. Operations that appear "profitable" when land and timber are free might quickly become uneconomic when their true costs are accounted for.

 

4.The unaccounted toll: Non-timber losses and the myth of compensatory economic activity

If we are to talk about the public goods delivered by native forest operation, it would be remiss to forget about the negatives. Beyond the self-serving financial ledger, native forest operations incur profound non-timber losses that represent real, often irreversible, costs to the environment and society. These include:

• Logging releases vast quantities of stored carbon, diminishes the forest's long-term sequestration capacity, disturbs soil carbon stores and contributes adversely to climate change.
• Native forest logging directly destroys and fragments unique habitats, leading to species displacement, population declines, and a reduction in Tasmania's irreplaceable biodiversity.
• Logging can degrade water quality through increased erosion, sedimentation, and chemical runoff, impacting aquatic ecosystems and human water supplies, incurring future treatment costs for communities.
• Scarred landscapes diminish tourism potential, recreational opportunities, and erase cultural heritage values, particularly for indigenous communities.

The oft-repeated industry claim that "flow-on economic activity" from native forest logging compensates for these extensive losses is, in the context of modern native forestry economics, largely a disproved myth. Most spending generates economic activity. Who benefits and who bears the costs is a separate issue.

Independent economic analyses increasingly demonstrate that if native forest operations were to cease, the unrecorded non-timber losses would also largely cease. The remaining forests would continue to sequester carbon, habitats would begin to recover, water quality would improve, and the landscapes would restore their natural beauty. This cessation of damage represents a massive suite of avoided costs and gained benefits for society – cleaner air and water, preserved biodiversity, enhanced climate resilience, and protected cultural sites – all of which are currently unmonetised in STT's financial statements but have immense intrinsic and economic value.

Furthermore native forest logging, especially for lower-value pulpwood which comprises the majority, provides dwindling direct jobs and often operates at a financial loss even before accounting for externalities. FCNSW's impairment underscores this harsh reality. Anyone who believes that chronic losses weren’t the primary reason for VicForests cessation is dreaming.

Many environmental and social costs are priceless and impossible to truly offset with localised, short-term economic gains. The true costs are borne by the broader public, effectively serving as an unquantified subsidy to the logging industry.

Intact native forests offer more sustainable and growing economic opportunities in eco-tourism, carbon sequestration, and maintaining high-quality water resources – benefits that are often destroyed or severely compromised by logging. Furthermore, there is no doubt plantations produce superior wood fibre, the major product from almost all native forest operations, at a rate five or six types faster than native forests.

The "flow-on effects" from native forest economic activity are therefore not a compensatory mechanism, but rather a deceptive argument that attempts to justify operations that impose significant, unquantified burdens on society and the environment while struggling for basic commercial viability.

5. Valuing a single crop vs. a perpetual native forest

When valuing native forests, it’s raison d’etre, STT relies on a strict interpretation of accounting standard AASB 141 Agriculture, particularly its focus on "fair value less costs to sell" of the biological asset. This may be valid when valuing a single, discrete crop (like a plantation rotation) but becomes problematic and potentially inappropriate when trying to value a perpetual asset like a native forest ecosystem intended for ongoing, sustainable timber production.

Here's why:

For a single crop like a plantation, you plant, grow, harvest, and replant. Each rotation is a distinct "crop." The "costs to sell" a particular crop might reasonably exclude the capex for long-lived roads (which serve multiple rotations) and the regeneration costs for the next crop. You're valuing the current stand of trees ready for harvest.

However, a native forest, especially one managed for "perpetual" timber production (even if selective), is fundamentally different:

·        It's an ecosystem with intrinsic ecological, biodiversity, and hydrological values that are not "harvested" or "sold" in the same way as timber.

·         "Sustainable" native forest management implies a continuous, intergenerational commitment to the health and renewal of the entire ecosystem, not just the current timber yield.

·         Roads don't just access the "current crop"; they access the forest. Regeneration isn't just for the "next crop"; it's part of the ongoing health and productivity of the ecosystem.

Theres a big difference between the value of a crop of trees in a native forest and the forest as a whole which STT's reporting conveniently and deliberately obscures.

AASB 141 (as interpreted by STT) focuses on the market value of the standing timber that can be harvested in the near term, minus direct harvest and haulage costs. This approach treats the native forest as if it were a "stock" of wood, similar to a commodity, without fully embedding the long-term, systemic costs of its replenishment or the value of the ecosystem it's part of. It fails to adequately capture the perpetual nature or the unique ecological characteristics of native forests.

The more appropriate economic view for a perpetual asset is to value the forest as a whole encompassing the value of the land, the standing timber, the biodiversity, the water catchment functions, the carbon sequestration capacity, recreational and aesthetic values, and its role as a perpetual ecosystem.

For a native forest managed for sustainable timber production, the value should ideally reflect the net present value of all future economic benefits (timber, carbon, tourism, water) minus all future economic costs (harvesting, processing, regeneration, roading, environmental mitigation, land management) over a very long time horizon, including the imputed rent on the land.

 It is essential to recognise that harvesting timber from a native forest is an extractive activity that occurs within, and impacts, a complex, living system whose value far exceeds just the wood it contains. That is something STT fails to do.

Given its mandate as responsible for managing 821,000 hectares of land and being a GBE committed to sustainable management, STT should, if it is to continue as a native forest logger, ideally be valuing the economic value of the native forest as a perpetual, multi-benefit ecosystem from which timber is sustainably extracted.

This means STT's valuation methodology should:

·        Move beyond "single crop" mentality and recognise the perpetual nature of the asset and the continuous cycle of costs and benefits.

·        Include all lifecycle economic costs where roading capex (allocated appropriately over its useful life and the resource it accesses) and regeneration costs (as integral to the next cycle's initiation) become essential.

·        Acknowledge the economic cost of using the Crown land by including imputed rent.

·        While monetizing all non-timber values is challenging, the chosen valuation should at least acknowledge the opportunity costs of logging (e.g., lost carbon sequestration, reduced biodiversity) when compared to alternative uses. The FCNSW impairment highlights that these unquantified losses, when considered, can render the timber value negligible.

·        As a GBE, its valuation should reflect a broader public mandate ideally aligning with delivering a net public benefit, not just maximizing timber value in isolation.

STT's current valuation approach, by strictly interpreting AASB 141 to value a "crop of trees" and discounting the land to nil, is economically misleading and inappropriate for a perpetual asset like a native forest ecosystem. It effectively commodifies a complex system, allowing it to declare "profits" from harvesting a resource while externalizing significant costs and failing to account for the true economic value of the underlying land and the ecosystem it manages. This practice artificially inflates the perceived value of its native forest "biological assets" and profoundly misstates the economic viability of its native forest logging operations.

6.With economic unviability future bailouts are inevitable

STT’s 24/25 Annual Report is a masterclass in presenting an illusion of financial health. Stripped bare of its non-cash revaluation increments, its reliance on government reimbursement for essential public land management, and its need to liquidate its own financial reserves, the enterprise is revealed as profoundly economically unviable. Its core commercial activity struggles in a challenging market, failing to generate sufficient cash from operations to sustain itself.

STT remains fundamentally reliant on substantial public funds to cover essential operating costs and needs to run down its term deposits to stay afloat. When viewed alongside the full impairment of comparable native forest operations elsewhere in Australia, and the undeniable fact that ongoing logging accrues significant non-timber losses that would cease if operations stopped, STT's claims of profitability appear not just misleading, but a dangerous denial of economic and environmental reality.

Furthermore, if STT's assets were valued not merely as discrete crops but as a perpetual native forest ecosystem – inherently demanding the inclusion of all lifecycle economic costs and an imputed rent for public land and timber – the entity's chronic operating cash shortfall would stand as irrefutable evidence. The continuous need to liquidate investments, such as the $7.5 million drawn down in 24/25, would then clearly confirm that STT is not a sustainable, profitable enterprise as it claims, but rather one systematically consuming its cash reserves to offset persistent operational deficits.

Without a radical restructuring of its operations, a transparent and economically honest valuation of its assets, or, more realistically, continued and almost certainly escalating government intervention, STT is financially incapable of standing on its own two feet. Further "bailouts" from the Tasmanian taxpayer are not merely a possibility; they are an inevitable consequence of maintaining this financially unviable operation, which continues to impose significant, unrecorded costs on Tasmania's environment and its future.