UTAS' 2022 Financials: Is UTAS still on track?

 (This is a note prepared for the Legislative Council's Inquiry into the Provisions of the University of Tasmania Act 1992)

Introduction

The recent tabling of UTAS’ 2022 Annual Report is an opportune time to have a close look at UTAS’ current situation.

Rather than just a snapshot of one year’s financials, a few past years will provide a better basis to form a view of how UTAS has arrived at where it is now, and what this means for the future.

The following note is based on UTAS’ financial statements since 2015. It is not a management accounting exercise looking at costs, revenues and student numbers etc, for that is outside the Committee’s Terms of Reference, rather an explanation of UTAS’ overall financial situation.

Executive summary

UTAS’ net profits are very volatile.

Stripping away capital grants and investment income however leaves a more sedate picture.

Unfortunately, all that’s left are losses, losses from the core activities of teaching and research, and losses caused by a relentless pattern of what UTAS describes as restructuring costs.  

It’s not so much that UTAS’s buildings may no longer be suitable, but its current financial model is not fit for purpose.

The gobsmacking reality which UTAS has kept hidden, is that deficits from core activities have been funded by investment income, which inevitably will fall as investments are redeemed to fund the Hobart CDB move.

If as UTAS has suggested, the prize at the end of the day is only $200 million once the Sandy Bay assets are monetised (as consultants term it) and the development costs in the Hobart CDB paid for, how will deficits from UTAS’ core activities be funded?

UTAS borrowings

 

This is an additional submission to the Legislative Council’s Inquiry into the Provisions of the University of Tasmania Act 1992 supplementing submission # 93, evidence given on 12^th December 2022 and a further submission made 19^th December 2022.

The supplementary submission was prompted by the lack of transparency and scrutiny surrounding UTAS’ borrowing arrangements as it pushes on with its move into the centre of Hobart.

The discussion is widened to include the raising of funds other than by traditional borrowings and whether Sec 7(2) of UTAS’ governing Act which requires the Treasurer’s approval to borrow, needs to be broadened to include other borrowing-like arrangements.

This is followed by comments on other arrangements that impact of UTAS’ financial position.

UTAS: The need to redefine who are members

 

This was an additional submission made on 19^th December 2022 to the Legislative Council’s Inquiry into the Provisions of the University of Tasmania Act 1992, supplementing submission #93 and evidence given on 12^th December 2022, all of which are available on the committee’s website.

The supplementary submission was prompted by the lack of a coherent discussion as to who are UTAS’ members, to whom should UTAS report and what role should members have in selecting board members (the University Council).

The need for the exact legal status of UTAS to be clarified was highlighted by Premier Rockcliff’s October 2022 assertion that UTAS was a private company and Vice Chancellor Black’s recent contention at the May 4^th 2023 hearing that UTAS is an instrumentality of the State.

Hopefully the Committee will be able to address this crucial issue. Most people are unaware if they're members of UTAS. Being a member does bestow any particular rights or obligations to receive information and very little by way a right to determine who should be elected to Council.

VicForests: The ongoing disaster

 

The 2021/22 VicForests’ loss of $54 million was a disaster. In one fell swoop VicForests’ equity of $45 million funded by the gift of trees from the Crown, was totally wiped out.

To end up with a loss of $54 million after timber sales of $80 million is a staggering achievement. 955,000 cubic metres of timber were sold at an average price of $85 per m3. The cash loss was a mind boggling $58 per m3.

The stumpage value of harvested timber (sales less harvesting and haulage costs) slumped to less than 4 per cent of revenue or $3.1 million. The stumpage value was $3 per m3. On a per hectare basis this is less than the costs to regenerate. Regeneration costs were $3.2 million. A government lifeline was needed to pay employee costs ($20.3 million), roading costs ($6.4 million) and overheads of $21.6 million. 

Harvesting 80-year-old trees for a stumpage value of $3 per m3 is the height of absurdity especially when it is accompanied by all the unrecorded non-timber losses.

Plantations grow at least four to five faster than native forests. This makes clear-felling native forests to essentially create the same woodchip product as plantations little more than State sponsored vandalism.

VicForests’ equity at June 2022 was negative $3 million. But for a letter of comfort from the Treasurer, VicForests would have been forced to cease trading.

The VicForests' model: A brief explainer

 

VicForests’ major assets are the trees that have been transferred from the Crown and are available to be harvested until 2030, the current end date for logging native forests in Victoria. There are a few plantations on its books, but these are of little significance.

The underlying forest land does not appear in VicForests’ books, only the trees.

When the trees were transferred to VicForests they were recorded as having a value equal to estimated future net harvest proceeds. The contribution/gift by the Crown represented the Crown’s equity in VicForests.

In theory, in a perfect world, when trees are harvested and sold, the net proceeds will be the same as the value on VicForests’ books. The book value of the asset will be realised. The book value of the trees will become an offsetting expense. Hence net profits from harvesting and sale will be zero.  VicForests will therefore be left with cash equal to the net proceeds, some of which will be used to regenerate felled forests, with the balance to be paid to the government as a return on its investment in VicForests. Regenerated forests once established are then transferred back to the Crown. That was the plan.

Pokies in transition

 

Licenses to allow pubs and clubs to own and operate electronic gaming machines (EGMs) passed through Parliament in October/November of 2021 after the Labor party abandoned its brief flirtation with a principles based policy approach.

It was a watershed moment for the gambling industry. Years of funding and lobbying the government were finally about to yield a jumbo jackpot with net profits from EGMs estimated to rise by an average of 50 per cent for EGM pubs.

Federal Hotels lost its monopoly ownership of EGMs but was compensated by the slashing of taxes on EGMs at its two casinos and the knowledge that its twelve Vantage pubs with EGMs were about to be become even more lucrative. Federal was also considered as the front runner in the process to select a Licensed Monitoring Operator (LMO) to replace its own Network Gaming which has been running the monopoly network.

However subsequent events have put a dampener on the industry’s euphoria. Federal failed to win the LMO tender. Maxgaming a wholly owned subsidiary of the listed gambling behemoth Tabcorp was awarded the job in August 2022.

 Shortly thereafter the government announced the introduction of mandatory pre commitment cards as a way to limit player losses as part of a revised harm reduction strategy.

The outrage from pub owners was predictable. For years they have been telling us that problem gamblers were only 0.4 per cent of the population and the bleeding hearts in the welfare lobby just wanted to rob the overwhelming majority of a bit of harmless fun.

Private mutterings are now telling a different tale. Without obsessives playing the machines, bottom lines will be severely impacted. Federal Hotels in its 2022 Annual Report issued late October 2022 confessed it was unable to assess the impact “at this point in time”.

This is a far cry from a year earlier when Federal Hotels was able to independently value eleven of its twelve Vantage pubs as part of a sale and leaseback arrangement with various associated parties. This was disclosed in it 2022 Annual Report.

Basslink for Sale Chapter Four

 

The APA Group have long been interested in acquiring the Basslink interconnector.

With the release of APA’s financials for the 21/22 year on Wednesday 24^th August, we now have a rough idea of what APA thinks the cable is worth.