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.