$8 million operating loss for 2009/10 at lower end of forecast

Bob Gordon

Managing Director

Forestry Tasmania Chairman, Adrian Kloeden, and I called a media conference at our Hobart headquarters this morning to release the business’ financial results for the 2009/10 trading year.

We confirmed that, in line with previous forecasts of a $7 to $10 million loss, FT recorded an operating loss for the year of $8 million.

A $21 million fall in revenue, from $183 million to $162 million, which was driven by soft international demand for wood products, was partially offset by tight cost control.

However, when our community service obligation to manage conservation reserves and the special timbers zone is taken into account, our underlying profit for the year was $1.2 million.

There can be no doubt that  2009/10 was difficult and challenging. We have faced a major downturn in international markets brought about by the Global Financial Crisis, the closure of the north west mills and the collapse of managed investment scheme plantations.

Our focus during the year was to structure FT to survive the significant downturn in international markets, and we have emerged from the crisis in a stronger position than many other organisations in the forest industry, particularly some publicly listed companies.

Fortunately the development of the rotary veneer mills at Huon and Smithton enabled us to reduce our dependency on the Japanese market, which last financial year cut worldwide pulpwood imports by 20 percent. This diversification allowed us to maintain a level of work for our forest contractors during the downturn by supplying wood products to alternative customers, such as Ta Ann. Nevertheless, payments to our contractors fell nine per cent from $88m to $81m.

As we emerge from a tough trading year, the good news is that international demand for timber products has improved in the new trading period.

World markets for wood products are highly cyclical. Since the end of the financial year, demand for Tasmanian wood products has shown signs of returning to near normal levels. In the first quarter of the new financial year, demand has outstripped supply.

It is challenging for our forest contractors to ramp up after eighteen months of low activity. Many are operating at 75 per cent of their previous capacity, and have sought assistance from government to return to normal levels.

During 2009/10, we also identified fundamental changes in Forestry Tasmania’s traditional markets, and responded pro-actively to these.

Chief amongst the changes was the permanent shift in the Japanese woodchip market.

Japanese investment in pulp and paper manufacturing is now heading offshore to China, which can produce products of the same quality at a much more competitive rate. It is clear that China is now becoming a major wood processing market in its own right.

The Industry Review that is currently underway may also create new challenges and opportunities. Forestry Tasmania has established an internal working group to consider the implications for the business.

While the talks are, of course, yet to be finalised, we believe change is inevitable. We are beginning to plan for a reduction in the available native forest resource, and our major customer, Gunns Limited, ceasing native forest harvesting and developing a plantation-based pulp mill.

However, we are also working on the assumption that other significant customers, such as Ta Ann Tasmania, McKay’s Sawmill and Britton Timbers will continue to process native forest timber.

While these are challenging times, the new opportunities that will arise for our business are exciting. We are already doing new things – like developing our consultancy business, Forest Technical Services, Trees on Farms and the Northern Territory project.

Our vision is to be recognised as a world leader in environmental forestry, enjoying the support of the credible ENGOs.