Bob’s media release led with the statement that FT booked an operating profit of $9.3 million. All well and good, but plucking a single performance criterion out of the financial statements to back dubious claims that all is well is, at best, misleading.

The media fell for it though.  Even the ABC, who in the past have scrutinised GBE performance pretty well, ran with `cutting senior salaries has helped the company’s bottom line.’  Piffle.

Did any of them read the financial report?  Even a journo with an ounce of economic knowledge should have noticed that, according to page 2 of the report, Bob’s $9.3 million was `before tax, capital grant income, biological asset valuation adjustment, movement in the unfunded superannuation liability, superannuation investment, asset revaluations, gains on acquisition of subsidiaries and impairment of assets.’ 

This is all pretty basic stuff.  Let’s look at an example.  According to FT’s balance sheet, net assets stand at $581 million.  Suppose Premier Bartlett saw fit to give Jarvis the same amount to invest for the benefit of the good folk of Tasmania.

Jarvis Inc could simply stick the lot in an ING direct account, generating annual income of $26 million.  After investing $10 million in community services (which in FT’s case presumably means logging roads) and $1 million in consultant’s fees for Jarvis, the company would still record an operating profit of $15 million.  Even Bob would have to be happy with that.

Accepted, that scenario will never happen – Bartlett doesn’t have the cash, so let’s be more realistic.

Another GBE, the looming disaster that trades under the name TT Line, also likes to talk about operating profit.  That company could record operating profits each year for the next twenty years – but end up with a billion dollar bill to replace the ageing Bass Strait ferries.  Presumably, that would come as a shock to our elected leaders, who seem happy to accept this sort of spin from our publicly owned organisations.  Either that or they are a pack of financial nitwits.

Bob can talk about FT’s community service obligations all he likes – in fact it is to be applauded.  As custodian of Tasmania’s forest estate, FT shoulders a pretty hefty responsibility.

And those obligations extend beyond building the odd flying fox and proposing new `tourism drives’ through the wilderness.  Rather than the $20 or $30 million Bob suggests FT could generate if it took its commercial responsibilities seriously, I’d suggest the business should be generating, on average, EBIT (more on that later) of around $75 million each year.

Jarvis would love to debate FT’s financial performance publicly with Bob.  I’d probably make a fool of myself - I’m getting a bit cranky in my old age, particularly if pinot is served with lunch, and Bob doesn’t like greenies anyway.  But it’s a lovely thought.

I’ll pull the income statements apart later, but my initial impression is that real earnings in 2008/09 are pretty ordinary.  One of the fundamental rules of business is to sell stuff for more than it costs to produce.  Bob doesn’t seem to understand that.

Jarvis

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JARVIS COCKER
Spending one’s evenings poring over financial documents has its drawbacks.  Wine stains on the notebook are one.

On checking last night’s notes, I can make out a barely legible `buy more wine.’  Further down the page, there’s a cryptic comment about squirrels, and then underlined, the words `offer Bob Gordon economics lessons.’

After all, he clearly needs some sort of basic guidance.

After taking out ads in the dailies to bore the readers with a stripped-down version of Forestry Tasmania’s financials, he followed up with the bizarre statement `we could easily double or treble our profits, if our sole objective was to manage the forests for wood production.’

Silly Jarvis.  I though the name `Forestry Tasmania’ suggested some sort of timber business.