GUNNS’ Bell Bay pulp mill site is cleared and ready for earthworks to start, says the company’s corporate relations and sustainability manager Calton Frame.
“Construction-wise, we are as ready as we can be to start building,” he said yesterday.
Mr Frame said that, operationally, the massive project was also nearly ready to go.
“The hydrodynamic modelling is one of the last major milestones to be completed,” he said.
“That has required ocean testing, testing the waves and currents in Bass Strait to get 12 months worth of data and then have it modelled.
“We have up until March next year to complete it and that is on schedule.”
But Mr Frame said that a start on the proposed mill was still contingent on finance.
It was also expected that construction would take at least two years to complete once that was locked in.
He said that news of pulp markets opening up again in Japan after the global financial crisis was good news but the company still had to get the mill to operational stage before it started worrying too much about markets.
“We don’t want to get too far ahead of ourselves,” he said.
Mr Frame said that 90 hectares of the 600-hectare site, at Bell Bay, had been cleared for the pulp mill.
“There are a number of reserve areas and buffer areas but you can clearly see the footprint of the mill now.”
Dave Groves: HERE
Erika Ford on Macquarie Research, Aug 2010: Oh dear – not looking good! …
Event
• Gunns reported FY10 results.
• GNS pre-released FY10 earnings earlier this week. Underlying EBIT of $51.4m (Macq $51m) was at the bottom end of management’s $50-60m guidance range and down 53% on pcp.
• The result does not include impairment charges net of tax of $98.1m relating to non-core assets and businesses that have been or are being prepared for sale.
• Reported EBIT of -$85.3m reflects the impact of impairment expenses against assets reviewed for sale ($41.6m) and receivables from future earnings from MIS related assets ($88.4m).
• Group revenue was $704m down 8% on pcp.
• NPAT post impairment and a +$90.8m income tax consolidation benefit came in at $28.5m down 50% on pcp. 2H NPAT of $28.1m was well up on the $0.4m in the pcp and up by $5.5m on the prior year second half.
• Cashflow improved slightly to $62m vs $55m in the pcp.
• No final dividend was declared.
Impact
• Woodchips impacted by weak demand and strong AUD. Forest Products underlying earnings of $44.7m is down 51% on pcp. Woodchip volumes of 2.2gmt for the year was down 30%. 2H volumes declined to 870kt with a strong AUD impacting competitiveness in the Asian market, and Japanese demand continues to fall.
• Timber Products higher with ITC integration. Timber products revenue increased 33% to $270m (mostly ITC contribution) and EBIT came in at $15.7m. Trading conditions gradually improved through the 2H and GNS expects the Timber business is on track to deliver $30m of EBIT in FY11 following significant cost reductions. Targeted cost saves total $18m and the full benefits are expected to be achieved progressively through 2011 ($12m achieved to date).
• Asset sales have propped up the balance sheet in the 2H. GNS sold its hardware business for $40m in May 2010 which enabled a debt to be repaid and allowed the company to avoid breach of debt covenants at 30 June.
• FY11 Outlook: GNS expects the recovery for woodchips will continue to be impacted by a high AUD and activity levels in key Japanese and Chinese markets. Volumes are expected to improve to 3gmt in 2011 however margins will continue to remain under pressure with the increased sales volume largely being achieved in lower grade products. EBIT for 2011 is expected to be in the range of $50-60m with a stronger 2H bias. Reinstatement of dividends will depend on improvements in cash earnings and completion of targeted debt reductions. FOREST distributions are expected to continue through 2011.
• The outlook appears tough, especially when faced with a high AUD which reduces GNS’ competitiveness globally. We remain cautious until there are clear signs of a volume recovery and improved margins.
Action and recommendation
• We currently have a neutral recommendation.
*All values are in AUD unless otherwise stated.
Source: Company data, Macquarie Research, Aug 2010.
Tom Ellison, General Manager Wills Financial Group Pty Ltd:
A tough year ahead for Gunns
Timber group Gunns faces a difficult year ahead, despite finding buyers for the bulk of its non-core assets.
Leading financial analyst Tom Ellison said today’s confirmation that full year earnings had fallen below $29 million provided little comfort to the investment community.
“Despite unloading most of its non-core assets in recent months, Gunns doesn’t expect earnings to improve materially in the coming financial year,’’ Mr Ellison said.
“In addition, Gunns’ debt levels remain a concern,’’ he said.
“With $650 million in borrowings on the balance sheet, two thirds of pre-tax earnings go straight to the bank to service that debt.’’
“Given the uncertainty surround Gunns’ outlook, investment in the company should be viewed as speculative.’’
Mr Ellison was also critical of recent media reports suggesting Gunns’ proposed pulp mill site was ready for construction to begin.
“Gunns is a highly-leveraged company with an uncertain future,’’ Mr Ellison said. “Despite a global search for financial and joint-venture partners lasting several years, the company does not appear to be any nearer to financial close than it was when initial approvals were secured in 2007.’’
“It is irresponsible, given the community division over the pulp mill proposal, for elements of the media to suggest a construction start date is imminent.’’
Wills Financial Group is an independent, Tasmanian-based advisory and research firm specialising in ethical investment strategies. WFG is the holder of AFSL 339136
Thursday, August 19:
Mercury: Gunns pins hope on pulp mill.
Examiner: Investors in pipeline for Gunns pulp mill.
And,
Examiner: North-East fears over mill future )
