HHIT holds an
interest in Hancock Victorian Plantations
Victorian Plantations (HVP) is one of Australias largest private timber
plantation companies, with estates of approximately 243,000 hectares across
Victoria. The company was established following the privatisation of the
Victorian Plantations Corporation in 1998. HVP subsequently acquired Grand
Ridge Plantations (formerly Australian Paper Plantations) in 2001.
Stumpage Revenue was 3.2 percent above budget for the year to 30 June 2011 and
1.5 percent higher than the previous year despite sales volumes being 0.9
percent below budget. The performance was primarily driven by higher than
anticipated log prices.
performance was one of contrast with demand and pricing strong for pulpwood and
weak for sawlog. This created challenges for the operational teams to ensure
balancing of the forest estate. The structural timber market is one of the
major drivers of stumpage revenue being the predominant market for high-quality
domestic sawlogs. The market has been sluggish for some time, but has been
challenged more significantly over the year.
confidence was negatively impacted over the year due to a large increase in
imports from Eastern Europe sourced mainly from Estonia and the Czech Republic.
This increase in imports has been assisted by a strong Australian dollar and
subdued demand in North America. By securing increased market share in key
structural grades through 1015 percent lower prices than their Australian
competitors, there has been an impact on all structural timber suppliers with
large inventories building in mill yards, causing extended mill shuts and
dropping of shifts in order to balance working capital. This has had an impact
on HVPs stumpage revenue through reduced demand from its saw log customers
across all of its three regions. In response to claims by the major processors,
the Australian Customs and Border Protection Service initiated an anti-dumping
received an unusually large amount of rainfall during January and February,
which had the benefit of reducing bushfire risk, but conversely created
harvesting and road damage issues. Damaged road infrastructure required
replacement or maintenance and additional roading
expenditure was provisioned during the year to meet HVPs winter harvest requirements.
The additional roading works were hampered by further
wet weather but are now largely complete. HVPs customers were also affected by
the difficult weather conditions, which impacted the local building sector
through unexpected delays in building projects.
capitalise on the favourable pulpwood market
conditions, HVP formed a growers log export consortium with ForestrySA and Green Triangle Forest Products to aggregate
and export pulpwood logs out of Port of Portland. The ability for HVP to
aggregate its pulp log volumes with other growers will increase its capacity to
access this export market at commercially viable levels. Negotiations are
currently progressing with Port of Portland as well as the consortiums export
agent having recently formalised the consortium through a Heads of Agreement.
to underpin the Carbon Farming Initiative (CFI) was passed by parliament on 23
August 2011 and received Royal Assent on 15 September 2011. The CFI aims to
provide recognition and accreditation of land based greenhouse gas abatements
by allowing parties to generate government-backed tradeable credits from
Australian land-based actions that reduce or sequester carbon pollution. Whilst
forestry is proposed as one of several land-based abatement activities under
CFI, based on its current proposed design CFI offers little to commercial
forestry interests and may have little attraction to many landowners. With the
support of HVP, the National Association of Forest Industries submitted a
response to the federal governments draft legislation and guidelines for its
proposed voluntary carbon scheme. A crucial element to the CFI scheme will be
the details of the final rules and regulations, many of which are yet to be
released, and its workability is linked to the future policy and regulatory
framework around a carbon price mechanism. Reassuringly, under the proposed
Clean Energy Future Scheme, there is no carbon price on off-road use of
transport fuels in forest management and harvesting. There is also no carbon
price on on-road haulage for the first two years.
refinancing process in respect of its senior debt facility was completed during
the year reaching contractual close in September 2011 following Board approval
of the final debt proposal. This process resulted in an increase in the
facility amount and a split between three and five year tranches, which will
reduce HVPs refinancing and pricing risk going forward. Reflecting the
high-quality of HVPs underlying business, the process attracted strong
interest from all domestic banks with the participation of a further two
financiers in the new facility. The final pricing outcome was also better than
originally anticipated at the bid proposal stage and represents an outstanding
result considering the current credit environment.
end of the financial year to June 2011 position reflected a particularly strong
year in the northern region and the export market for pulpwood.
the shorter term, persistent poor weather conditions may increase the risk of
operational disruption to customers woodflow. The
structural timber market continues to be under import pressure, due to the high
Australian dollar, which in turn is likely to lead to more customers downsizing
and reduced orders for HVP. The outlook over the next few months is for a
difficult trading period. This will be influenced by the depressed structural
will continue to pursue a business strategy that strengthens the regional wood
baskets in each of its three regions to support a long-term sustainable
processing industry. This is largely in response to a projected shortfall in
log supply which was compounded by the impact of the Black Saturday bushfires
in February 2009. To this end, HVP has been progressing
its fire recovery replanting program which is due to be completed in 2015.
export volumes and price were particularly strong for the final quarter of the
financial year, more recently demand from the Chinese market has deteriorated
significantly. Whilst this is expected to be temporary, the abruptness of the
decline in the export markets is likely to have an adverse impact on HVPs 2012
financial results relative to plan.
line with HVPs land acquisition strategy, HVP is monitoring the sale of
various Australian timber estates, which may represent opportunities for HVP to
strategically acquire additional timberland. Opportunities include those that have
arisen through the sales process being undertaken by the liquidators of Willmott Forests in relation to its MIS assets.
Hancock Victorian Plantations
Financial and operational performance
30 June year end
*CAGR: Compound Annual Growth Rate