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When Gunns released its first-half numbers last year, the company made an effort to disguise the woeful performance of the underlying businesses by marking up the value of the Bell Bay sawmill. 

Even though Gunns didn’t yet own the mill, the books included `revenue’ of $19 million from an upwards revaluation of the operation.  Some journalists fell for what was little more than an ethically questionable attempt to put lipstick on a pig.

There’s no lip gloss this time around, just the festering corpse of the pig.

When John Gay was still running the company, he made a point of letting former premier Paul Lennon know that delays in the pulp mill project were costing Gunns one million dollars each day.  Now those prophetic words are true, although perhaps not in the manner Gay intended.

Gunns lost $173.3 million in the six months ending 31 December 2011.  That’s pretty close to one million dollars each day, or in other terms, Gunns is losing the equivalent of its entire market capitalisation three times each year.  Not unlike its previous native forest operations, Gunns losses aren’t sustainable for much longer.

So what business is Gunns in? 

One could be forgiven for assuming the company is in the business of enjoying Government handouts.  In fact $23 million of the revenue from `ongoing operations’ is a handout for last year’s deal between Giddings and Gillard. 

Perhaps it’s flippant to imply there’s more to come from that source, but if the $23 million hadn’t been included as revenue, the underlying earnings numbers would have looked even more miserable.

A full analysis will follow, but here’s a couple of juicier points from an initial scan of the result:

Gunns has around $9.5 million in cash.  That doesn’t sound too bad, until one considers the $120 million in unpaid bills, the $515 million in short-term borrowings and the fact the overdraft has already blown out to $80 million. 

Creditors shouldn’t expect payment in a timely fashion this year.

And we all love bank fees.  Most of us grizzle when we get slugged with a $5 fee for using the internet too often to transfer funds.  But Gunns has agreed to the mother of all bank fees - $29.4 million.  That’s how much the consortium of lenders has slugged Gunns for extending the $340 million primary debt facility, and short-term borrowings for 11 months.  That’s on top of whatever punitive interest rates are being applied. 

In short, Gunns needs more than a white knight.  It needs a miracle.  Even KPMG are starting to have doubts about Gunns’ solvency.

More later.

Love,

Jarvie

What Gunns said:

27 February 2012

Gunns Limited Half Year Report

Please refer to links below relating to Gunns six monthly results.

http://www.gunns.com.au/Content/uploads/documents/ASX%20RELEASE%20-%202012%2002%2027%20-%202%20-%20ASX%20RELEASE%20-%202012%2002%2027%20-%20Completing%20the%20Transition.pdf

http://www.gunns.com.au/Content/uploads/documents/Directorsreport.pdf

http://www.gunns.com.au/Content/uploads/documents/ASX%20RELEASE%20-%202012%2002%2027%20-%203%20-%20PRESENTATION%20-%20Half%20Year%20Results%20Announcement%20Feb%202012%20-%20FINAL.pdf


Greg L’Estrange, Managing Director

• How ABC reported it:

Gunns reports profit slump
Posted February 27, 2012 11:58:31

Timber company Gunns is blaming its exit from native forests in Tasmania for hammering its half yearly profits.

Gunns has reported a net loss after tax of $173 million for the six months to last December.

The result compares to a loss of $4.5 million for the same period the previous year.

The company is blaming several factors for the drop, including exit costs, asset revaluations and a dip in prices for plantation woodchips.

Gunns says its restructure and move out of native forest logging has cost almost $28 million in the past six months.

The initial phase of bulk earthworks at its Tamar Valley pulp mill site is nearing completion but the company still does not have a partner for the controversial project.

http://www.abc.net.au/news/2012-02-27/gunns-profit-slumps/3854840?section=tas

• GUNNS HALF-YEARLY REPORT MORE LIKE A DEATH NOTICE

Kim Booth MP
Greens Forestry Spokesperson

The Tasmanian Greens said Gunns Ltd’s half-yearly report released today should be read as a death notice to the market. 

Greens Forestry spokesperson Kim Booth MP said the report details a staggering net loss of $173.3 million, punitive loan extension fees of $29.7 million and a massive 40% asset write down on plantation stumpage values and MIS values lowered.

“This report is basically a death notice from Gunns Ltd,” Mr Booth said

“It reveals unsustainable losses, and now the market can only expect the funeral arrangements to be made before Gunns and their blighted Tamar Valley pulp mill can be consigned to the trash can of history.”

“Despite having received blatant political support from the Labor and Liberal parties in past years, this report shows that the company is now unable to generate enough profits from product flows to repay interest on their considerable loans, let alone capital.”

“To put that into context, just the $29.7 million dollar loan extension fee alone will gobble up probably more than the entire net realisable value of Gunns’ Bell Bay pine sawmill.”

“There is no possible way that these growing liabilities can be repaid with profit from product sales, which means that the only way to repay the loans and interest is by asset sales.”

“Gunns needs to sell their assets quickly because with every report their value is on the decline.  This latest report states that the value of standing timber has been devalued by $39.6 million while the value of the Tasmanian woodchip plant and equipment was reduced by $25 million.”

“With total current liabilities of $702 million and $121 million payable in the next 12 months, it begs the question what will be sold next and at what price?”

“Despite loud announcements to the market last year the report states that the Green triangle and Maryvale mills remain on the books, which suggests that more bad news is coming about their market value.”

“Despite significant support from the Labor and Liberal parties over many years, this report clarifies that the massive public forest industry subsidies have been wasted insofar as failing to be a considered investment into a sustainable forestry future in Tasmania.”

“The Greens released the first Tasmanian Forest Transition Strategy in 2002, then an updated version in 2006 and 2010.  The Strategy highlighted a way forward for our forestry industry, which had it been adopted,  may well have seen a profitable industry with a future instead of the mendicant Forestry Tasmania model which has now crashed and all but burnt.”

“Public money should have gone to health and education and Tasmanians should be critical of any more political support that is for just one company rather than for the long-term vision of the broader forestry industry,” Mr Booth said.

Or read the report on Gunnsblog here

• First published: 2012-02-27 01:55 PM


• Brown blasts Crean contradiction


Australian Greens Leader Bob Brown says the federal minister for regional development Simon Crean’s advocacy of Gunns’ polluting pulp mill directly contradicts his own call that “Tasmania the clean state – clean energy, clean water, clean food – has enormous potential”.


“Mr Crean has a bee in his bonnet called a pulp mill. But he hasn’t been to talk with local vintners who say this pulp mill, planned to be one of the biggest in the world, will be plonked into a beautiful valley with 100,000 residents.


“That’s not clean green, it’s mean of Mr Crean,” Senator Brown said.


“It’s about time this minister caught up with the locals.”


Today’s Share Price here