Gunns widens net loss to AU$173.3M in six months to Dec. 31 from loss of AU$4.6M a year earlier; results include AU$168.8M of charges related to asset valuations, restructuring costs
February 27, 2012
The Company has substantially completed its exit from native forest based operations.
The financial plan to reduce corporate debt and raise equity for the pulp mill investment is being implemented.
Managing Director Greg L’Estrange said “the focus of the Company is on completion of the business transition. The future value of Gunns is clearly driven by the completion of the pulp mill project. The steps to achieving this have been identified and are being executed by management”.
“The recently announced equity investment proposal will recapitalise the Company. This will strengthen the balance sheet and together with the extension of the core finance facilities further supports the completion of asset sale processes and finalisation of the pulp mill equity investment”.
The proposed equity investment proposal will be outlined in a detailed offer document currently being prepared for shareholder consideration and approval.
The Company has reported a net loss after tax for the six months ended 31 December 2011 of $(173.3) million. This compares to net loss after tax for the 2011 comparative period of $(4.6) million. The net loss after tax reflects the effects of non-cash asset impairment charges and non-operating costs associated with the Company restructure.
Underlying earnings (EBIT) for the six months of $12.3 million was in line with previous guidance. This compares to the underlying earnings (EBIT) in the previous comparative period of $20.2 million. Reported EBIT for the period was a loss of $153.6 million compared to a loss of $5.0 million in the prior year comparative period.
The difference between underlying and reported earnings (EBIT) for the period, of $165.9 million, largely reflects the impact of non cash impairment charges recorded against forestry assets of $124 million and business restructuring and exit costs of $27.8 million. These items are outlined further below. Group revenue for the six months was $217.4 million, down 40.2 per cent on the prior year comparative period. No interim dividend was declared.
“The Company is in the process of concluding a number of significant transactions. These include the sale of our MIS loan book, the Green Triangle forest estate sale, the Heyfield hardwood mill and the Bell Bay pulp mill equity investment.”
The sustained strength of the Australian dollar continues to impact on competitiveness of the Company’s products in the Asian market and the level of import competition in the domestic market. Achieved prices for plantation woodchips have declined in the course of the 2012 year. The changes in woodchip markets and forest ownership in Australia are expected to provide consolidation and rationalisation opportunities in the near term.
Forest products revenue for the half of $63.9 million compares to $177.6 million in the prior year comparative period, with underlying earnings of $15.5 million, down 25 per cent on the prior year comparative period. Timber products revenue decreased 2 per cent to $151.5 million, with underlying earnings reported at $3.9 million, down from $6.2m, in the prior year comparative period.
Trading conditions in timber products markets remain difficult with import competition strong.
The costs of the managed investment business for the half of $1.5 million compares to $1.8 million in the prior year comparative period.
Earnings per share (EPS) for the six months of (21.1) cents compares to (1.1) cents in the prior year.
A net operating cash inflow of $23.5 million for the period compares to an operating cash inflow in the prior year comparative period of $6.5 million.
REVIEW OF ASSET VALUES
The Company is continually reviewing the carrying value of assets within the context of sales processes and changing market conditions. Where appropriate, impairment charges have been recorded against the carrying value of relevant assets to reflect the recoverable values. Significant charges recorded in the period include:
Forestry asset values have been reviewed to reflect the impact of a decline in prices achieved for plantation wood products in the current market. A reduction in estimated future plantation stumpage values reduced the standing timber valuation by $39.6 million. The value of Tasmanian woodchip plant and equipment was reduced by $25.0 million reflecting the likely recoverable value of these assets.
MIS Related Assets
Provisions of $59.4 million were recorded against MIS related assets. This included $43.5 million against receivables, intangibles and MIS units owned by the Company to reflect expected lower plantation stumpage values in the near term. The carrying value of grower loans was reduced by $14.2 million to reflect the expected market value of the loan book asset.
EXIT FROM TASMANIAN NATIVE FOREST OPERATIONS
As noted in previous market updates, the cessation of all business activity associated with wood sourced from native forests in Tasmania was a fundamental and essential decision for the future of the Company. This decision was implemented in the course of the half with progressive closure of operations and the finalisation of compensation and contractual arrangements with the Tasmanian Government and Forestry Tasmania. Further costs of $9.7 million (net of compensation received) were incurred in the period. This is in addition to costs reported in previous periods of $76.7 million.
BELL BAY PULP MILL PROJECT
The Company is engaged in final negotiation of the key terms of the equity financing structure for the project. Finalisation of the project is critical for the Company to underpin and unlock the value of the Gunns forest estate and address Australia’s near term position as a high cost woodchip export supplier to an over supplied market.
The initial phase of bulk earthworks at the project site is near completion and has proceeded on schedule and budget.
The Company has negotiated the extension of core senior debt and working capital facilities (totalling $445 million) until 31 December 2012. The extension provides the necessary flexibility for the Company to complete the asset sale and capital program necessary to fully retire this debt.
The status of the FORESTS note issue will be reviewed as the asset sale transactions are progressed.
Underlying earnings (EBIT) for the 2012 financial year are expected to be in line with current guidance of $30 million.