More transparency in financial reporting

Dr Hans Drielsma, Executive General Manager

Last week Forestry Tasmania announced a new independent valuation of state forest assets.

The revaluation is a positive step forward that will further improve our transparency in reporting our financial performance.

In practical terms, the value of the forest estate is now based on the value of the standing timber. The appraisal reflects what this asset would be worth on the open market, taking account of all of the business constraints that are imposed on Forestry Tasmania in managing the forests for multiple uses.

The revaluation was initiated by the Board of Forestry Tasmania after the Legislative Council last year suggested greater transparency would be achieved by separating our commercial activities from the non-commercial obligations imposed on it by the Forestry Act.

The Auditor General also raised the issue while auditing our financial performance.

Acting on this advice, we engaged American based firm James W Sewall, which has significant experience and expertise in forestry valuations in Australasia, to undertake the review early this year.

Prior to the revaluation, we valued our key assets (standing timber, land and roads) separately. However, Sewell recommended that an integrated approach be taken to calculating a net value for the state forest asset, and placed this at $296.7 million.

Sewell calculated this value by setting the value of FT’s production forest at $362.5 million, which was much the same as previous valuations, because it was based on the commercial value of the standing timber.

However, it recommended that formal forest reserves and the special timbers zone be recorded as a $66 million liability, because these areas cost more to manage than the amount that can be re-couped through commercial activity. This liability translates into an operating cost each year of about $10 million.

Our Board accepted Sewall’s recommendations and the book value of land managed by FT has been set at zero, down from $277 million. This valuation recognises that the land is not owned by FT – we are the managers and stand to gain no financial benefit in the hypothetical event of a sale.

Taking all of Sewell’s recommendations into account, the Board agreed to write down about $300 million in asset value. Most of this write down can be attributed to no longer using land values to determine the overall value of the state forest asset. The write down will be reflected in our annual accounts.

However, it’s important to note that there is a key difference between the financial cost to FT of managing reserves and the special timbers zone, and the wider social, economic and environmental benefits these areas of state forest bring to the Tasmanian community.

For example, special species timbers are an integral part of the Tasmanian brand, generating $70 million annually and 2,000 direct jobs to the state economy. Similarly, our forest reserves generate tourism activity, are a recreational asset for Tasmanians, provide clean water, and protect flora and fauna.

Nevertheless, the forest revaluation is not just an exercise in accounting. It will serve to provide a more precise picture of our financial performance and return on assets, which can only increase our accountability to our stakeholders.