There is nothing particularly new in the latest statement by Gunns to the ASX.
Except maybe that “that reported statutory earnings for the period may vary materially from prior comparative periods, due to the effects of asset valuation adjustments arising from asset sale processes”.
This means that the bottom line will cop an absolute shellacking from all the asset write downs. It is likely to be a large red number. Gunns are forewarning the market.
But ‘underlying profit’ will be $40 to $50 million. This figure is deduced by excluding all the one off expenses and writedowns from the statutory net profit and including as many markups as possible that may relate to the few continuing businesses. It’s very much an artificial figure.
There’s $60 million worth of intangibles associated with the softwood sawmilling business that may have to be written off now that Gunns is planning to sell the softwood business just months after closing down Scottsdale and buying FEA’s Bell Bay Mill.
The proposed exit from the softwood business is a new twist.
Boral are reportedly interested in the softwood business so it will be interesting to see what price they pay. Gunns only recently completed the purchase of FEA’s sawmill, paying $47 million for an asset Gunns reckoned was worth $66 million, thus enabling the booking of a $19 million profit in the latest half yearlys, absolutely vital in pushing Gunns’ profit into the black for that period.
One would expect Boral or whoever purchases the mill to pay less than Gunns’ book value, meaning a further hit to the bottom line for the full year.
The 80% fire sale of plantation assets is described as a ‘partial sale’.
But with only 20% of plantation assets remaining which are likely to be encumbered and leased to MIS growers, Gunns don’t appear to have much security value left on its balance sheet.
All eggs are in one basket… the mill at Longreach, sorry, Bell Bay.
The 30th June 2011 balance will look pretty bad if asset sales don’t eventuate as most of the liabilities will need to be classified as ‘current,’ meaning they will be repayable or renegotiable within 12 months. Always a bad look.
Little wonder JV partners are scarce.
Few would risk the indignity of being seen together.
Lara was waxing lyrical about Gunns’ announcement on the radio this morning.
She couldn’t have read it.
• Examiner: FT ‘underselling’ Gunns on woodchips
02 Jun, 2011 02:27 PM
Forestry Tasmania has been seriously under-selling timber company Gunns Ltd on woodchips into the Chinese market, Gunns chief Greg L’Estrange said this morning.
The Gunns managing director told a special government hearing into forestry that the move by the public-owned forestry company had not made things easy for Gunns at a particularly tough time in the woodchip export market.
He told the hearing that the international price for woodchips into China was about $140 a tonne but that Forestry Tasmania had been selling for $116 a tonne.
“You will not do business profitably for $140 a tonne even though $140 is more expensive than local companies in China are selling,” Mr L’Estrange said.
Both the select committee chairman, Bass Greens MHA Kim Booth, and committee member, Bass Liberal MHA Peter Gutwein, expressed surprise at the news a short time ago.
Mr Booth said that the committee would be taking the matter further when it had concluded its business.
He did not rule out referring the matter to the Australian Competition and Consumer Commission.
http://www.examiner.com.au/news/local/news/business/ft-underselling-gunns-on-woodchips/2183287.aspx
• Mercury: Gunns: FT poached customers
BRUCE MOUNSTER | June 02, 2011 03.36pm
GUNNS Limited Chief executive Greg L’Estrange this morning confirmed at a parliamentary inquiry that Forestry Tasmania had poached Gunns woodchip customers
Mr L’Estrange, answering questions from Greens MHA Kim Booth and Liberal MHA Peter Gutwein, said he understood that the State Government owned corporation had offered Chinese customers less than Gunns’ rate of about $140 a tonne and had delivered woodchips processed at Artec’s Bell Bay mill.
Mr Gutwein afterwards said he had been surprised to hear that “Forestry Tasmania had a death wish for Gunns”.
Mr L’Estrange said FT’s manoeuvres had no bearing on Gunns decision to exit hardwood woodchip and sawmilling industries. He said that decision was taken because Gunns’ institutional shareholders couldn’t see a future for either.
He said the latest price of $140 a tonne price was well below break-even and within 30 days Gunns would have exited the woodchip business.
http://www.themercury.com.au/article/2011/06/02/234851_tasmania-news.html
• ABC Online: Gunns undercut by Forestry Tasmania, inquiry hears
The timber company Gunns has accused Forestry Tasmania of actively undercutting its Chinese customers.
The managing director Greg L’Estrange has told a parliamentary inquiry into the closure of its softwood sawmills at Scottsdale, the state-owned company had made it difficult for Gunns to maintain the mills.
Mr L’Estrange told the committee’s chairman, Greens MP Kim Booth, Forestry Tasmania had also worked against Gunns in China’s hardwood woodchip market.
“So are you aware that your supplier, FT, has been going in the door after you’ve been talking to a customer and undercutting the prices?” Mr Booth asked.
Mr L’Estrange replied: “Yes, we’ve had that.”
“[Has] interference in your customer base by FT affected Gunns financials?” he asked.
“It would be our view, yes,” Mr L’Estrange said.
http://www.abc.net.au/news/stories/2011/06/02/3234024.htm
• New position: Community Liaison Officer – Launceston
Posted on June 2, 2011 by gunnsblog
Gunns Ltd is seeking to employ a Community Liaison Officer (CLO), based at its Launceston head office. The CLO will act as liaison between the company and external stakeholders. Primary focus will be community liaison around the construction of the Bell Bay pulp mill but the CLO will also provide support for Gunns’ forestry activities across the whole of its plantation estate. The advertisement is attached below. Community Liaison Officer – 2011 05 30
• EXAMINER, Friday: Gunns needs $560m just to pay bills, says analyst
BY ALISON ANDREWS CHIEF REPORTER [LOGOY202]
03 Jun, 2011 12:00 AM
TASMANIAN timber company Gunns needs at least $560 million from its newly announced sale of assets to meet short-term debt, a Northern Tasmanian analyst said yesterday.
And analyst Tony Gray said that figure was before the company starts to find the money to make a substantial start on its proposed $2.3 billion Bell Bay pulp mill.
Gunns managing director Greg L’Estrange came out fighting suggestions yesterday that major assets sales announced on Wednesday were a do-or-die effort to raise cash for the pulp mill.
He refused to put a figure to the amount that the company needed from the expanded sale of assets.
He also confirmed that Gunns still hoped to secure a joint- venture partner to build the mill despite announcing that the company was prepared to go it alone on financing if necessary.
The assets sale did not have to be finalised before the August permits for a start on the pulp mill ran out,” Mr L’Estrange said.
But Mr Gray said that Gunns’ last half-yearly report showed the company had a large loan payment due in the next six months before it started finding money for the mill.
The report showed that the company faced debt repayments of about $200 million in the 2011 calendar year.
It would also be required to deal with its $360 million refinancing arrangements in January.
Gunns told the Australian Securities Exchange on Wednesday that it needed to pay off a short-term advance of $45 million by the end of this month.
It must also make a $10 million quarterly loan repayment this month as well as another in September and again in December.
The company has struggled to sell assets …
• ABC Online, Friday: Jobs axed as woodchip mill closes
The Australian Manufacturing Workers Union has been told Gunns will close the Triabunna woodchip mill on Tasmania’s east coast this month.
Organiser Darren Clark says about 50 workers will be made redundant by Monday but all relevant entitlements have been secured.
Mill workers were stood down temporarily in April as part of a two-month shutdown caused by volatile woodchip markets.
The Triabunna mill is on the market under Gunns’ plans for a mass asset sale to help finance its $2.3 billion Tamar Valley pulp mill.
• ABC Online, Friday: Forestry denies price cutting
Forestry Tasmania has denied it has been offering cut-price woodchips to Gunns’ Chinese customers.
The allegations were made yesterday at a parliamentary inquiry looking into the closure of the company’s two Scottsdale sawmills.
Gunns chief Greg L’Estrange told the committee the state-owned forestry business had deliberately undercut Gunns in the Chinese hardwood market and the Government knew about it.
Forestry Tasmania has reacted with disbelief.
Spokesman Ken Jeffreys says the company has never sold woodchips to China and only sells whole logs.
“We’re a little confused,” he said.
“Forestry Tasmania has not made any sales of woodchips into China or, for that matter, anywhere else in the world.
“So clearly either Mr L’Estrange is misinformed or we’re not getting a clear picture of what he’s told the committee.”
The company’s Bob Gordon has told ABC Local Radio Mr L’Estrange needed to offer proof.
“I suggest the appropriate course of action is, if Mr L’Estrange has evidence of these accusations, the committee should call him back and out him under oath and get him to produce the evidence,” he said.
The Premier Lara Giddings says she is seeking advice.
The inquiry’s chairman, Greens MP Kim Booth, has not ruled out referring the issue to the Australian Competition and Consumer Commission.
Pulp and Paper analyst Robert Eastment says the allegations made against Forestry Tasmania are not a good look.
• MERCURY, Friday: ANZ says it won’t back mill
NICK CLARK | June 03, 2011 12.00am
THE ANZ Bank reaffirmed yesterday that it would not provide finance for the $2.5 billion Gunns pulp mill at Bell Bay.
“There has been no change in our position since May 2008,” a bank spokesman said.
Gunns told the ASX on Wednesday the company was working on a facility that better reflected the need for pulp-mill construction finance.
“This work is well progressed. When in place this new facility will provide the funds necessary to continue with construction activities that have already commenced at Bell Bay,” managing director Greg L’Estrange said.
In March Mr L’Estrange hinted that ANZ might become involved again because Gunns had improved the proposed mill’s environmental performance.
Gunns is in a race against time to gain finance and substantially start the mill before permits lapse on August 30.
• GARRY STANNUS: HIGH COURT JUDGEMENT: Definition of ‘substantial commencement’
HIGH COURT OF AUSTRALIA
DAY v. PINGLEN PTY. LTD. [1981] HCA 23; (1981) 148 CLR 289]
15. We come then to this question of substantial commencement . As has been said, it is a question of degree. The facts must be such as to lead naturally to the conclusion that the commencement is not merely evident, but is substantial, that is, of considerable amount. The statutory purpose must be borne in mind. A substantial commencement involves a commitment of resources of such proportions relative to the approved project as to carry the assurance that the work has really commenced. We notice that Samuels J.A. questioned the use by the learned trial judge of the word “significant” in applying the criterion; with respect, we agree because it merely substitutes one word of uncertain content for another. Suffice it to say that in the present case we have no hesitation in concluding that the construction of the slab was not a substantial commencement . Pinglen pressed the analogy with the facts in Lebnan’s Case but it is futile to seek an answer to one case in the facts of another. We have already referred to the unusual situation which existed in that case, and no doubt the positive obstruction by the council in refusing to inspect the excavations so as to enable the concrete to be poured before the time limit expired encouraged the taking of a favourable view of the work that was done. The statutory purpose must be borne in mind in determining the question of substantial commencement . In our opinion the concrete slab was not a substantial part of the approved work of six town houses costing an estimated $350,000. (at p299)
[http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/HCA/1981/23.html?stem=0&synonyms=0&query;=”substantial commencement” Day v Pinglen Pty Ltd [1981] HCA 23; (1981) 148 CLR 289 (26 May 1981)
HIGH COURT OF AUSTRALIA
DAY v. PINGLEN PTY. LTD. [1981] HCA 23; (1981) 148 CLR 289]
Garry Stannus: I also draw readers’ attention to the Tasmanian BUILDING REGULATIONS 2004 (S.R. 2004, NO. 43) – REG 3
3. Interpretation
(1) In these regulations –
“commenced” , in relation to building work, means commenced on site;
The same applies for plumbing.
It is ironical that Doug Parkinson, in his remarks to the Upper House in support of the Clarification Bill, appeared aware of the salient part (15) in the High Court Judgement which provided some usable guidelines for understanding ‘substantial commencement’, yet chose not to inform the Chamber of them, nor to inform the House clearly how the pulp mill project stood in relation to the High Court.
The point is, a Court of Law will require much more actual construction work for a $2.3b project, spread over an area of 50 kms, than an area of ground logged at Longreach and a concrete slab poured. Once again, Gunns are failing to meet another deadline. Our Parliament is failing in its duty to the citizens of Tasmania. The law is clear, Pulp the Mill, We Can, We Will.
First published: 2011-06-02 03:19 PM
