Saturday, 4 June 2011

Death throes?

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.

No comments:

Post a Comment