Tuesday, 29 December 2015

Gunns' liquidator talks tough?

The Mercury reported here that Gunns’ liquidator, PPB Advisory,” has summonsed auditors Leigh Franklin and David Lumley of KPMG’s Hobart office to a public examination under the Corporations Act in the Supreme Court of Victoria early next year.”


“............PPB Advisory liquidator Daniel Bryant wants to examine KPMG about its review of Gunns’ 2008 financial statements, the audit of Auspine to June 2009 and all financial models relating to the audits of Gunns group’s financial statements between June 30, 2009, and June 30, 2011.

Liquidators have asked for documents about the $2.5 billion Bell Bay pulp mill, land valuations, biological assets and receivables in relation to the managed investment schemes.

The 2011 documents sought include the Bell Bay pulp mill project financial model dated June 2011, pulp mill cost summary dated May 31 and the pulp mill capitalised cost summary.

A public examination is an investigative process used by liquidators to search for assets, inquire into potential claims, discover any offences and provide some sense of resolution to creditors.”

At issue is trying to determine the date of insolvency.

Tuesday, 22 December 2015

Poker machines: Super profits or a new way?

(An abridged version of this blog was published in The Mercury here)
The odds on Federal Hotels retaining an exclusive license to conduct gaming operations in Tasmania after 2023 lengthened considerably after the Tasmanian Hospitality Association (THA) publicly aired a rift with its hitherto close ally and largest member.

It was reported here that THA members wanted a bigger share of the spoils from gaming losses that currently go mainly to the exclusive license holder.

What exactly are the spoils up for grabs?

Sunday, 6 December 2015

Will Minister Harriss outlast FT?

Resources Minister Paul Harriss’ performance at Forestry Tasmania’s scrutiny hearing last Friday will do little to muffle  calls for his removal.

It was a shocker.

A bad day was assured when Mr Harris’ opening address referred to 470,000 tonnes of peelers being supplied to Ta Ann for 2014/15.


The actual figure was 144,000 tonnes just below the contracted amount.

How could a Minister get it so wrong? How could a Minister with the lightest load in Cabinet make such a mistake reading from a prepared statement?

The Minister again talked about the massive turn around in ‘comprehensive income’ from a loss of $43 million in 2013/14 to a profit of $31.7 million, shown elsewhere to be a mirage.

 A few minutes later Chairman Annells corrected the record:

It shows a remarkable turnaround........ from the board's point of view, it is interesting,....... but does it have any real significance?  None whatsoever.”

Wednesday, 2 December 2015

Federal Hotels nonsense

Greg Farrell is at pains to emphasise Federal Group's contribution to the Tasmanian economy.

His desperation is starting to show.

He was reported as telling staff at a recent Xmas function that “overall, payments from our company account for eight percent of all State Government revenue. These payments have allowed Tasmanian Governments over that period to invest in major services for the Tasmanian community such as hospitals, schools and roads.”

When you’ve got a captive audience and you’re supplying free grog, you can get away with anything.

The figure’s not 8%. It’s closer to 1%.

Wednesday, 28 October 2015

Has FT turned the corner?

A bit of lipstick makes no difference.

It’s still a pig.

Resources Minister Harriss’ media release that accompanied FT’s 2015 Annual Return was a pathetic attempt to gloss over the reality of FT’s situation.

The cardinal rule when assessing the financials of an insolvent entity is to skip the income statement and focus instead on the cash flow statement detailing what comes in and goes out the door.

The 2015 cash flow statement reveals things are worse.

Monday, 26 October 2015

Federal Hotels' predicament

Federal Hotels’ disappointing 2015 financials lodged last week with ASIC highlights its current predicament coinciding with the shock horror realisation that its exclusive gaming license may not continue into perpetuity under existing generous terms and conditions.

Net operating profit after tax was $20 million, down from $21 million in the previous year.

The profit soon disappeared with banks grabbing $9 million and shareholders $15 million.

Notwithstanding that Federal Hotels have $100 million worth of capital expenditure projects on the drawing board including redeveloping Wrest Point and Launceston Country Club casinos plus a new hotel at Port Arthur the shareholders appetite for dividends continued unabated, a craving that has seen $162 million vanish from company coffers in the past 10 years.

We now hear that Federal Hotels will put a handbrake on investment in Tasmania if it does not get certainty over a gaming license in the State.

Friday, 4 September 2015

Federal Hotels and the public interest

Nobody knows better than MONA owner David Walsh about making money at a casino. Establishing his own casino, however, requires Federal Hotels to agree – as it has exclusive rights to conduct casino operations, as well as gaming machines and keno, in Tasmania until at least 2023.

In 2014 player losses from Federal’s gambling operations were $231 million. It retained $162 million (70 per cent), the State Government got $55 million (24 per cent), with $14 million (6 per cent) going to pubs and clubs.

Earnings from casino tables are a small proportion of earnings from gambling. Table gaming losses for the two casinos of $8.5 million were split $5 million to Federal and $3.5 mainly licence fees to the Government.

Federal told the Public Accounts Committee in 2003 the deal would help underwrite “a significant investment strategy in Tasmania”.

For a while, with its expanded regional coverage, Federal helped promote the Tasmanian brand and it was possible, with a long bow, to argue the spin-offs of the exclusive licence were flowing. Its advertisements promoted Tasmania, indistinguishable at times from those of Tourism Tasmania.

The exclusive licence required the building of a premium resort at Coles Bay. The original proposal for a 160-room complex was cut back by over 80 per cent and delivered five years late.

Federal also bought accommodation businesses at Freycinet and Cradle Mountain and developed Strahan, but then spent far more acquiring the 9/11 chain of pubs and bottleshops and two high-turnover North-West gaming machine pubs.

Abandoning the West Coast Wilderness Railway and selling regional tourism businesses, apart from the mandated Saffire at Coles Bay and a few improvements at Henry Jones Art Hotel in Hobart, Federal has nothing to show but more bottleshops and gaming machine venues, and a winding back of capital expenditure and advertising as it benefits from rising occupancy rates due to the success of Mr Walsh.

Monday, 10 August 2015

Carbon accounting & FT profitability

As FT contemplates its future, a future free of government subsidies, its rolling 3 year production plan for native forest harvesting has been posted on line.

Almost all the planned coupes are small in size and disparate in location inevitably increasing the extraction costs of timber, thereby making a return to profitability even less likely.

Notably included in the current 3 year plan is the clear felling of a 51 hectare coupe FD 053A at Lapoinya in NW Tasmania.

FT privately suggests harvesting the coupe will be a profitable operation. This is a rare occurrence for FT which, on average loses $20 for every tonne of timber harvested or $250k in cash terms for a coupe this size.

It is therefore a little surprising FT bypassed the opportunity to showcase its profitability and sustainability bona fides and release a little more info about a alleged profitable operation, one that needs to be replicated across many coupes if FT is to survive the current insolvency period currently overseen by the head of Treasury as a newly appointed director of FT.

The Friends of Lapoinya Action Group (FLAG) has engaged with FT with a view to fully understand what is planned. However the perfunctory community consultations have raised more questions than answers.

As part an overall economic assessment of the coupe FLAG undertook a carbon audit to ascertain likely carbon losses from a clear fell operation.

Thursday, 9 July 2015

Ta Ann's exceptional year

2014 was an exceptional year for Ta Ann Tasmania Pty Limited (TAT).

It will  likely be the only time TAT gets to pay Australian income tax.

TAT’s belated annual report for the 2014 calendar year was lodged late in June, two months after TAT’s parent Ta Ann Holdings Berhad P/L filed its return.

TAT’s tax bill for 2014 was only $450,000 so it won’t break the bank.

It’s not only Google and Apple who resort to accounting tricks.TAT too managed to shift almost all the taxable income resulting from recent government handouts of $33.3 million back to Malaysia, the home jurisdiction of the Group.

Tuesday, 16 June 2015

FT's coming of age?

In a few weeks Forestry Tasmania will celebrate its 21st birthday.

It’s likely to be a subdued coming-of-age bash as the future looks murky. That it has lasted this long may be the only reason for merriment for some.

Liabilities now exceed assets. It can’t pay its way. If it was liquidated, the Tasmanian Government would be faced with a shortfall it would meet by taking over the unfunded superannuation liability.

Adjusting for the way we now value trees, $566 million in net assets were transferred in 1994 to establish Forestry Tasmania. Since then Forestry Tasmania has received $340 million in cash grants from governments and has spent $400 million on new assets, roads and plantations.

Roughly $140 million of grants have been for operating, funds to reimburse community service obligations, and funding to cover recent trading deficits.

The balance of $200 million of grants has been to establish plantations to build an asset base to provide future revenue.

About $20 million is yet to be spent as intended, the cash went to pay other expenses.

Despite all the grants, net assets are now zero.

Saturday, 30 May 2015

State budget luck

THE sudden turnaround in the state’s fiscal fortunes as revealed in Treasurer Peter Gutwein’s Budget this week has everyone wondering.

Is it good management or good luck?

Only one more deficit, in 2015-2016, before we return to surplus in 2016-2017. Can this be true?

It depends on how one calculates a deficit. If one does so on a cash basis as the Federal Government does, then Tasmania will be in deficit for the next two years at least.

To most observers it is misleading to proclaim a surplus when cash outlays exceed cash receipts. That’s what Mr Gutwein has done. Cash outlays are 2 per cent more in 2015-2016 and 1 per cent more in 2016-2017.

With the State Government operating a cash in/cash out operation, it’s the only sensible prudent way to assess our situation. Thereafter cash surpluses are predicted.

But with each successive year the reliability of the forward estimates diminishes exponentially.

Even with blue sky forward estimates, the Government’s actual cash position only improves by $90 million over the next four years.

Thursday, 14 May 2015

Failing to find path to credibility

Prime Minister Menzies was never pilloried for running seventeen successive deficits and risking burdening my generation with onerous amounts of debt.

Times changed and deficits became taboo.

The latest budget shows deficits are here to stay. Even the uncertain projections of later years reveal deficits.

The talk is now of having a creditable path to a surplus.

Arguably the more pressing need is to find a credible path to credibility.

Never has there been such a radical shift from one budget to the next, from fixing a debt and deficit disaster to living with a wing and a prayer twelve months later.

The Budget is predominantly a political reaction not an economic plan.

Monday, 11 May 2015

MIS post mortem

In response to an invitation by the Senate Economics Committee chaired by Sam Dastyari (with members including Nick Xenophon Bill Heffernan and Peter Whish-Wilson) to make a submission to their inquiry looking at forestry MISs the following brief overview of what happened during the MIS debacle was submitted.

Problems with MIS have been written about for a few years but with the dust almost settled following insolvency of the three MIS companies which operated in Tasmania  (Gunns FEA and Great Southern) which represented about 50% of the total national MIS  scene, it was important to explain that the aftermath is of Hiroshima proportions and needs remedial action lest travesties reoccur in the future..



1.      Motivation and drivers

2.     How much was lost?

3.     Reasons for failure-the product

4.     Reasons for failure-the model

5.     ATO’s role

6.     ASIC’s role

7.     Yields

8.     Overview of past MISs

9.     Is div 394 the answer?

10.  What now?

Appendix: MIS wind up notes for Great Southern, Gunns and FEA

Terms of reference


Wednesday, 29 April 2015

FT closer to closure

The ministerial statement on the future of Forestry Tasmania today was an announcement of the appointment of a de facto Administrator.

Expressions of interest are to be invited for some of FT’s assets, mainly the hardwood plantations, which hopefully will be enough to cover the costs of Administration.

FT will then almost certainly be wound up.

It was always going to be this way. The talk about transitioning to other, in this case, private operators, is simply a restatement of what happens when companies are wound up.

Minister Harriss is pretending that selling assets in Administration will save FT from Liquidation.

How often do Administrators forestall liquidation and manage to return a company to normal trading without equity injection or a significant compromise with its creditors?

None spring to mind.

Sunday, 29 March 2015

Americans buy FEA

FEA’s Receivers Deloitte has at last found a buyer for FEA’s land and trees.

Resources Management Services LLC (RMS) a forestry investment manager from Alabama paid $125.5 million for land belonging to FEA and trees belonging to FEA’s MIS growers.

The sale price confirms that forest assets have continued to plummet in value. The sale price is a disaster for everyone waiting for a distribution, the secured and unsecured creditors and the growers.

The insolvency practitioners stand the best chance of getting paid in full.

Sunday, 8 March 2015

Intergenerational nonsense

The fear of burdening our grandchildren with debt, we are forever being told, is the reason why there is a need to return to a budget surplus.

Few argue with the proposition, most only quibble about the speed to reach a surplus.

But not since the days of the flat earthers have so many unquestionably swallowed such nonsense.

Clearly if the Jones borrow long term from the Smiths, the younger members of the latter family may suffer a reduced standard of living by having to repay the debt, compared to the older members who received the benefits of the loan.

That certainly applies where the older members simply consumed the benefits.

It is less obvious when the benefits are of an enduring nature. Borrowing to build the Sydney Harbour Bridge would have few detractors on this score, especially given hindsight.

To extrapolate a family situation to the whole economy is however, complete nonsense, another example of the fallacy of composition, not unfamiliar in economics.

Friday, 6 March 2015

Things that can't last......

Things that can’t last forever usually don’t.

This morning’s Examiner reported on a leaked email from Forestry Tasmania (FT) Chairman to FT staff responding “to mounting concerns that the cash-strapped company may be dissolved and folded into a government department.”

In that event a radical transformation will occur.

Sunday, 15 February 2015

Has FT found the way?

Forestry Tasmania’s (FT) controversial small native forest coupe in the Flowerdale river catchment area at Lapoinya in NW Tasmania is one of its better coupes. FT is adamant clearfelling will be a profitable exercise.

After a relentless pattern over the years of failing to cover even $1 in staff wages from its operations this looks like a real live test case to establish which exactly of FT’s operations are profitable, if any.

From a strict financial accounting viewpoint, each year FT adjusts the value of its forest estate so that as at 30th June FT’s balance sheet contains the current value of its forest estate.

Hence clearfelling a coupe merely realises its current value. It is simply swapping trees for cash.

The accounting profits from the Lapoinya coupe should have already been recorded in FT’s books over the years if the current value of the trees as recorded is correct. The small profits over time scarcely dented losses from other sources.

Chopping down a coupe is a realisation exercise not a profit making one.

Monday, 9 February 2015

Harriss Protest Bill: It works

Yesterday saw the first application of Paul Harriss’ Workplaces (Protection from Protesters) Act 2014 when protesters were directed to leave a workplace pursuant to sec 11 of the Act.

Petrarch’s Bookshop and author Quentin Beresford were holding a book launch at the Tailrace Function Centre in Launceston when three protesters acting contrary to the provisions of sec 8 entered a business premise with the aim of hindering or obstructing a business activity.

The activity of promoting and selling  the book The Rise and Fall of Gunns meant the premises fell within the broad definition of business premises contained in sec 5 which includes premises used as a shop, market or warehouse.

Minister Harriss was unavailable for comment on the initial success of his controversial legislation.

Tuesday, 3 February 2015

The rise and fall of Gunns

A tale that needed telling.

Those are the words of Geoffrey Cousins referring to Quentin Beresford’s book ‘The Rise and Fall of Gunns Ltd’.

Mr Cousins is right.

It’s a tale that everyone interested in the future of Tasmania should read.

A failure to understand history increases the chances of repeating past mistakes, a common occurrence in Tasmania.

Quentin Beresford outlines the historical context of the Gunns’ debacle, from the hydro industrialisation era, the Wesley Vale campaign through to the Rouse bribery affair. The inadequacies, failings, Machiavellian manoeuvrings, dishonesty and unethical practices by participants are laid bare.

At no stage were lessons learnt.