Company burnt by foray into forestry sector

Haidee VandenbergheCountryman
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Elders plans to exit the forestry industry within 12 months, selling off its assets and shedding its staff.

The company bought Integrated Tree Cropping (ITC) in 2006, along with its thousands of hectares of blue gums on the South Coast, and ITC was later renamed Elders Forestry.

Those plantations should have started to be harvested in 2008, but instead the company has walked away from its mature trees after conceding its forestry operations were haemorrhaging money.

An Elders spokesman said its forestry operations had consumed $58 million over the past two financial years. By contrast, the company's unharvested Esperance blue gum plantations has yielded no income.

"Elders' forestry operations have been unprofitable since the onset of the global financial crisis (GFC)," the spokesman said. "The total net loss from this sector since 2004 is approximately $460 million."

Earlier this week, Elders announced the rural services arm of its business would be put up for sale.

A contributing factor was the continued underperformance of its plantations and debt sustained by its forestry assets.

The writing was on the wall by 2008. Just two years after smashing the land sale record to buy Condingup property Linkletters for $32.5 million and spending another $18 million to buy the nearby Beef Machine, ITC revealed it had, in fact, decided to sell off both properties and was leasing back the trees.

Elders still owns about 10,900ha in Esperance but intends to sell the land. The company has admitted the yield from its Esperance plantations has been disappointing.

Not only have the trees been affected by what Elders described as 'low rainfall', beetles have damaged the trees. One 4296ha planting on the Beef Machine has suffered severe Heteronyx beetle damage. An investor report concluded a large proportion of the trees were showing no signs of recovery.

In that particular plantation, established in 2006, the target yield was 275 cubic metres of wood per plantation unit by year 10.

By last year - halfway to its first harvest - the average volume of timber for Esperance was just 42 cubic metres per plantation unit.

It has also coincided with falling demand and prices for woodchips, causing Elders to write down its forestry assets at the end of last year from $524 million to $133 million.

Since that time, the company has worked to offload forestry assets.

A deal to sell 12,400ha of Elders-owned land to US giant Global Forest Partners was believed to have netted the company more than $45 million, leaving Elders with $75 million of remaining forestry assets.

But Elders has not been the only company to watch its foray into the once promising woodchip plantation industry go up in smoke.

In recent years, all of the once mighty blue gum companies - driven by investor dollars chasing tax incentives - have fallen.

In 2009 the two biggest managed investment scheme (MIS) timber companies, Timbercorp and Great Southern, buckled under falling investments, a slump in the market and disappointing yields from their WA plantings. Rewards Group and Gunns have followed suit.

New players have since come into the market to manage the thousands of hectares of blue gums, but with last year's announcement that Elders would cast off its forestry arm, the last MIS blue gum player has effectively left the industry.

An Elders spokesman said the company could no longer justify the "cash burn" the forestry sector caused.

"Elders' experience in forestry is but one aspect of an overall sector-wide collapse that has been playing out since the GFC," he said.

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