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Gunns defends claims and blames market volatility for losses

GUNNS will defend a shareholder class action over a large profit drop in 2009 by pointing to market volatility caused by the global financial crisis and to forecasts by stockbroking analysts of "a material decrease" in earnings.

GUNNS will defend a shareholder class action over a large profit drop in 2009 by pointing to market volatility caused by the global financial crisis and to forecasts by stockbroking analysts of "a material decrease" in earnings.

In a formal defence document filed in the Federal Court, the company denied it contravened the continuous disclosure regime or misled investors about the performance of its woodchip export business.

It conceded foreseeing "short-term" difficulties and beginning, but not concluding, work on a profit forecast at the time.

The continuous disclosure law allows companies to withhold information which is "insufficiently definite" or "incomplete".

A class action run by solicitors Maurice Blackburn and funded by IMF (Australia) was filed against Gunns in April. Its members claim they suffered losses because the company failed to alert them early enough to problems with its exports of woodchips to Japan, China, Korea, Taiwan and Indonesia.

On February 22 last year Gunns reported a net profit for the six months to December 2009 of $400,000, a 99 per cent drop from its profit for the December 2008 half of $33.6 million and a 98 per cent drop from its profit for the June 2009 half of $22.6 million. The share price fell 35 per cent in the week after the negligible earnings were announced.

The class action claims that Gunns knew from August 31, 2009, when it reported its June results and announced a $145 million capital-raising, that its next results were likely to be significantly worse.

The statement of claim refers to a company statement that day that "significant uncertainty remains but Gunns is optimistic that 'bottom of cycle' has been reached".

The defence said that in early November 2009 the company "formed the view there was a difficult short-term outlook for its main wood fibre business" but the extent of the impact and the likely performance of other parts of the business was "not at that time sufficiently clear".

"Following a board meeting of [Gunns] on 11 November 2009, [Gunns] took steps to prepare a forecast for its 1H10 results but that process was not completed prior to the announcement to the ASX of the first-half results on 22 February 2010," the defence said.

It said the global financial crisis affected exchange rates, consumer demand and the availability of credit in Australia and in its export markets, all of which was "known to the market at all material times".

Research published by equities analysts had predicted "a material decrease" in its profit for the December 2009 half, it said.

These included net profit forecasts of $7.2 million by Bell Potter Securities, $10.8 million by UBS Securities Australia, $10.5 million by Macquarie Securities and $18.2 million by RBS Morgans.

The class action says the consensus market forecast was $12.3 million and Gunns failed to disclose there was likely to be "a material variation" between this estimate and its actual results.

The trial is not expected to begin until next year.


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