Coroner & Legal
Gunns: Gay under the cosh. Japanese get tough. Class Action mooted. Mitre 10s, Tamar Ridge to go
The chairman of Gunns, John Gay, is facing fire on several fronts. His position and that of a couple of his fellow directors, former Tasmanian premier Robin Gray and Richard Millar, have been under the microscope from governance experts, the future of Gunns’ proposed pulp mill is under renewed threat and the company’s earnings are under pressure.
Rating these factors in order of importance depends on where you sit. As an investor, the slump in the December half net earnings from $33.6 million to less than half a million would be of biggest concern.
From an environmental perspective, the biggest issue would be whether the pulp mill in the Tamar Valley can be finally killed off.
For those with an eye on corporate governance the fact that Gay and some of his associates have been around for too long and have too much power is a reason to cross rather than tick the box.
Gay is a former chief executive of Gunns and became chairman in 1986. It’s a fair bet none of Gay’s critics were too impressed by how as chairman he sold 3.4 million shares in December – only weeks before the books were lined off on the disastrous half profit. Gay avoided paper losses of about $2 million.
How he is managing to retain his position as chairman is anyone’s guess. Major shareholders confirmed to the Herald yesterday they had been speaking to him for more than a year about the possibility of moving on. The momentum only increased when they found out he had sold that stock.
At this stage it appears they have not issued him with the ultimatum to leave or he’ll be voted him off at the next annual meeting or a special meeting of shareholders will be convened to achieve that outcome.
He has confirmed he has been approached by shareholders but is not prepared to agree to their requests. This is despite reports that some parts of the management are also behind the anti-Gay push.
Meanwhile, all eyes this week are focused on the what may become of Gay’s dreams to build the Tamar pulp mill.
Such was the political will to support this project under previous premier Paul Lennon that he pushed through special legislation to support it. This followed its withdrawal from the state’s formal planning assessment process in 2007 after the company was unofficially advised it wouldn’t meet environmental and effluent standards.
Despite the political green light under Lennon, the mill was starved of finance when the ANZ Bank decided it was too hot from a public relations perspective. The mill’s chances of getting built received a further blow last weekend when the state election delivered the balance of power to the Greens.
If it was to gain support from those that have lobbied so hard against it, it would do so with radical changes – undoubtedly affecting the economics of the project.
This series of unfortunate events has left Gunns shares languishing at 54c, nearly half its trading price last month and far lower than its September price of $1.20.
The trouble for its institutional supporters is that there is little incentive to sell out at these prices.
They see the removal of Gay as potentially a circuit-breaker that might result in a re-rating of the stock. It won’t be enough.
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Various reports say Gunns is close to breaching its debt covenants but as long as it is keeping up with interest payments, there is probably little its lenders will do – particularly if the restructuring plan contains some debt repayment element.
It’s not a pretty picture down south …
Read the full SMH article, HERE
As … Japanese ethicists go after Gunns
ANDREW DARBY
March 26, 2010
PRESSURE is growing on Gunns to rebuild its poor Japanese market with sustainably certified woodchips, bringing closer an end to old-growth logging in Tasmania.
Gunns’ main woodchip customers this week consulted industry and environment groups in Tasmania as a step towards their own Forest Stewardship Council certification in Japan. The council said that to achieve the FSC green tick for its chips, Gunns would have to exit disputed high-conservation-value forests.
The Wilderness Society said representatives of Chuetsu, Marisumi, Nippon and Oji met them and other environmental and industry groups.
”My understanding is that FSC certification is essential for these companies now,” said society campaigner Paul Oosting.
Analysts see Gunns’ woodchip woes as the main reason for a surprise 98 per cent slump in first-half profit that triggered a sharemarket sell-off late last month.
Exports fell by 500,000 tonnes to 1.3 million tonnes in the first half, according to Bell Potter, which forecast a further slump to 900,000 tonnes in the second half. Ord Minnett said a lack of FSC certification for Gunns’ chips was among four drivers of reduced sales into Japan, along with the high Australian dollar, cuts in Japanese production, and uncertainty of supply caused by plans for Gunns pulp mill.
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Gunns shares closed yesterday at 54¢, down 1¢. Their low was 50.5¢ on February 26.
Read the full article in The Age HERE
AndIMF considers class action against Gunns
Bryan Frith, The Australian
LITIGATION funder IMF (Australia) is considering whether there may be grounds to launch a class action against timber and forestry group Gunns for failure to comply with its continuous disclosure obligations.
The market got a nasty shock on February 22 when Gunns reported a 98 per cent plunge in December half earnings to a mere $400,000. Moreover, the fall was due to operational factors rather than adjustments for extraordinary items, as the operating EBIT fell 88 per cent, from $69.3 million to $4.8m.
The major factor was a fall in woodchip prices and demand, exacerbated by a strong dollar.
The market reacted by slashing Gunns’ share price from 90c to 70c and since then the price has continued to slide, closing yesterday at 54c.
That prompted the ASX to ask when Gunns first became aware the profit would be 98 per cent below the result for the first half of 2009. Under the continuous disclosure rules a company must make immediate disclosure once it becomes aware of any information that a reasonable person would expect to have a material effect on the price or value of the company’s securities.
As a guide the ASX expects disclosure if a company becomes aware that the pending result will vary by more than 10 per cent to 15 per cent from the previous corresponding period. The goal is to ensure the market is informed and that investors are not bushwhacked by a result that it is way out of line with expectations.
Gunns replied that the half-year accounts were reviewed by the audit committee on February 19 and approved two days later. Up until that time there remained a number of unresolved matters relevant to the accounts, including the accounting treatment for the Great Southern acquisition.
But it’s questionable whether that satisfactorily answered the ASX query as the major reasons for the profit slump appeared to be operational, rather than accounting, issues.
Gunns also said it had made a number of ASX announcements regarding its expectations for trading conditions and outlook for the first half, including when the 2009 results were released in August last year, the annual report in October and the annual meeting in November.
It’s true that the company had warned of reduced Japanese demand for woodchips and a difficult short-term outlook for the main wood fibre business, but at no stage had Gunns specifically warned that it expected a significantly lower profit for the half year.
Given that the ASX requires notification if the profit is expected to vary by more than 10 per cent to 15 per cent and there had been no such notification from Gunns, the market was entitled to believe the half-year result would vary by no more than that percentage range.
It’s difficult to accept that the management and board didn’t expect until the last moment that the profit would fall by much more than 15 per cent.
Companies normally prepare management accounts at least on a monthly basis.
The displeasure of some institutional shareholders is heightened by the fact that Gunns raised $145m last year through a one-for-four non-renounceable issue at 90c, a discount of 21 per cent to the then share price of $1.145 and 16.7 per cent to the TERP (theoretical ex rights price) of $1.08, without any warning of a possible sharp fall in first-half earnings.
The issue was announced on August 31 and completed on September 30, midway through the half year. The capital raising was underwritten by Credit Suisse, which presumably conducted due diligence before taking on the underwriting.
Adding to the dissatisfaction is that early in December, only weeks before ruling off the books for the half year, the chairman John Gay raised $3.1m through the sale 3.4 million shares, more than 20 per cent of his holding, at an average 91c a share. Gay is left with a direct and indirect holding of 12.24 million shares, or 1.5 per cent of the capital.
Gay’s timing means that he received $1.22m more than if he were to sell at the current price.
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Read the full article in The Australian HERE
And,
Gunns to sell Mitre 10s to cut debt
26 Mar, 2010 10:29 AM
EMBATTLED forestry group Gunns plans to sell eight Mitre 10 hardware stores to cut debt.
The Australian Financial Review reports Woolworths and Bunnings are contenders to buy the Mitre 10 outlets, according to a source.
Besides owning one of Australia’s largest collection of forests, Gunns operates hardware and building supply stores in Tasmania and two specialist timber stores, with wholesale timber outlets in most capital cities.
The sale has been announced as the company comes under pressure from shareholders following a slump in earnings and its shares.
Also, from Finance News Network
Gunns Ltd (ASX:GNS) plans to sell Mitre 10 stores
March 26, 2010 10:06 AM
Forestry group Gunns Ltd (ASX:GNS) plans to sell eight Mitre 10 hardware stores to cut debt.
The Australian Financial Review reports that Woolworths and Bunnings are believed to be contenders to buy the outlets.
The announcement of the sale comes as the company receives pressure from shareholders following a slump in earnings and its shares.
Calls for Chairman John Gay to step down have dominated media reports this week, with shareholders Concord Capital and Perpetual Investments asking him to resign.
Gunns is pushing ahead with a new strategy that will leave it with four divisions: the pulp mill, plantation assets, the sawmilling business and construction, hardware stores and the Tamar Ridge wine business.
There is speculation the company will sell off all non-core assets in the coming months, including Tamar Ridge Winery and its construction operation Hinman, Wright and Manser.
Gunns posted a profit of $56.24 million for the 2009 financial year.
The Gunns saga is playing out just as Tasmanian Times writer John Lawrence predicted: HERE