Gunns chief argues losses due to period of transition

EMBATTLED timber company Gunns Limited has slumped to a loss of $355.5 million following heavy write-downs.

By InvestSMART · 26 Aug 2011

By InvestSMART ·
26 Aug 2011

Comments

EMBATTLED timber company Gunns Limited has slumped to a loss of $355.5 million following heavy write-downs.

The annual net loss after tax compares to a 2010 net profit of $28.5 million and reflects a business in transition, managing director Greg L'Estrange said last night. In a review of asset values, Gunns found impairments including $218.1 million against Auspine assets, a 19 per cent reduction in the value of the Tasmanian forest assets to $406 million, and $77 million in provisions against MIS-related assets.

A strategic restructure has seen Gunns exit native forests and sell off a series of assets in a shift to a plantation-based business, eventually feeding the planned $2.3 billion Tamar pulp mill.

Gunns met guidance of underlying earnings before interest and tax at $41.6 million. In a presentation to analysts, the company claimed net equity of $1.5 billion, down 27 per cent on the previous year.

However, it remains in a trading halt, now three weeks old, originally called with its shares at 20.5?, as it negotiated a settlement with the Tasmanian government for exiting contracts from public native forests. The company also faces a deadline for "substantial commencement" of the pulp mill, required by August 30, or state environmental permits will lapse.

The analysts were told Gunns had undertaken substantial investment of more than $200 million, and works on the project to meet this requirement, but Tasmanian Premier Lara Giddings said the meaning of substantial commencement might need to be tested by the courts.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

Why did Gunns Limited report a $355.5 million loss?

Gunns reported a $355.5 million net loss driven mainly by heavy asset write‑downs and impairments as part of a revaluation of its businesses during a strategic transition. The company recorded major non‑cash impairments that pushed the annual result into a large after‑tax loss.

Which specific asset write‑downs and provisions did Gunns announce?

Gunns disclosed several material adjustments: a $218.1 million impairment against Auspine assets, a 19% reduction in the value of Tasmanian forest assets to $406 million, and about $77 million in provisions related to MIS‑linked assets, all contributing to the overall loss.

How is Gunns changing its business strategy and what does 'plantation‑based' mean for investors?

Gunns is exiting public native forests and shifting toward a plantation‑based model, selling assets to focus on timber from plantations. The company says this strategy will ultimately supply feedstock to its planned Tamar pulp mill, moving away from native forest operations.

What is the status of the planned $2.3 billion Tamar pulp mill and why does it matter?

The Tamar pulp mill is a central part of Gunns' strategy and is budgeted at about $2.3 billion. The company faces a contractual deadline to show 'substantial commencement' of the project by August 30 or risk losing state environmental permits, so progress on the mill is crucial to the plan.

Is Gunns still trading on the market and what is the trading halt about?

Gunns was in a trading halt three weeks at the time of the report, originally called when shares were quoted at 20.5 (as reported). The halt relates to negotiations with the Tasmanian government over exiting contracts for public native forest supplies and other developments around the restructure and mill project.

Did Gunns meet its underlying earnings guidance despite the loss?

Yes. Gunns reported underlying earnings before interest and tax of $41.6 million, which met the company’s guidance, even though the statutory result was impacted by large non‑cash impairments.

What did Gunns report about its balance sheet and net equity position?

In a presentation to analysts, Gunns stated net equity of $1.5 billion, representing a 27% decline from the previous year, reflecting the impact of write‑downs and the broader transition in the business.

What near‑term issues should everyday investors watch about Gunns?

Investors should watch the outcome of Gunns' settlement talks with the Tasmanian government over exiting native forest contracts, progress toward the 'substantial commencement' test for the Tamar mill (and the associated August 30 deadline), the ongoing trading halt, and any further asset write‑downs or provisions as the company restructures.