Gunns the morning after

It will probably be 6 months before Gunns’ Voluntary Administrator (VA) presents his full report to creditors (the Second Report) which will reveal once and for all the mess that has been created. At that time there will be a recommendation to ...

• Hand the company back to Directors (unlikely),or

• Enter into a DOCA (Deed of Company Arrangement) where stakeholders agree to haircuts to keep the Group going. This is unlikely due to the complexity of the Group, or

• Liquidate the Group (most likely)

Electricity.... a perspective

 

Restructuring electricity companies

The discussion about power prices and the restructure of the State’s electricity sector often neglects the crucial role of the sector as a fiscal contributor to the overall State sector.

The affairs of the parent company, aka the General Government (GG), are usually discussed separately to the affairs of its subsidiaries, the wholly owned GBEs and State Owned Companies (SOCs) which together comprise the Total State sector.

The survival of any entity is inextricably linked to its net operating cash flow, in other words the cash revenue less the cash operating cash outlays.

The GG’s net operating cash flow for this year 2012/13 is expected to be $154 million. If one disregards capital grants the net operating cash flow for GG is only $45 million.

Included in GG’s operating cash is $233 million of dividends and income tax equivalents from the GBE/SOCs and also $34 million in guarantee fees, also paid as a consequence of the competitive neutrality requirements of national competition policy. Almost all these payments are from the three electricity companies for they are the only profitable ones (apart from MAIB) and their borrowings comprise 89% of all GBE/SOC borrowings upon which guarantee fees are based.

Without these payments from GBE/SOCs the GG’s net operating cash flow would be a negative $222 million. This is after payments for unfunded super liabilities but before capital and infrastructure payments, the latter this year budgeted to be $524 million, of which some, but certainly not all, will come from capital grants of $109 million, asset sales of $40 million and unspent capital grants from prior years.

GBE/SOC contributions are pretty important for GG.

The second coming is more likely

Is Gunns likely to be a takeover target?

Highly unlikely. A takeover implies assuming all the contingent liabilities as well, the ATO debts, class actions liabilities etc. A buyer would need to be extremely desperate or badly advised to venture into that spider’s web.
 

If desperate buying assets and leaving the liabilities behind may be preferable.

Joining the dots

‘Twas the announcement by Gunns on 1st July that further write-downs of its forestry assets were needed in the current environment that has shed a little more light on the problems confronting the Tasmanian forest industry.

The announcement gives a little more context to the going concern deliberations currently occupying the minds of both Gunns’ and FT’s Directors.

Tasmania's decisions

Matthew Denholm’s short opinion piece in the latest Weekend Australian on Tasmania titled ‘Governance, the economy and culture need a total overhaul’, was a welcome addition to the discussion about our future.

It was a short piece so it would be unfair to criticise the lack of supporting arguments but there were three points which warrant a comment.

Plagiarism and the grand hoax

 

I can’t recall such a high reading.

Mr Hodgman’s Fiscal Strategy for the Future appended to his Roadmap to Recovery and Growth when subjected to a plagiarism check almost resulted in system failure, worse than Geiger counters at Fukushima.

Mr Hodgman’s colleague Mr Groom lavished praise on his leader, saying it ”has been described as the most comprehensive response to the budget in Tasmanian history”.

The most comprehensive cut and paste in Tasmanian history perhaps?

Where to tasmania?

Two months ago the problems facing the State Government were outlined with a detailed examination of cash inflows and outflows in the General Government Sector over a 9 year period including the then Forward Estimates: State of the State: What your mother didn’t tell you, graph by graph.

This note proposes to update the information as a result of last week’s Budget, to see what effects if any may ensue.