GUNNS LIMITED | ABN 29 009 478 148
PO Box 572 Launceston Tasmania Australia 7250 | 78 Lindsay Street Launceston Tasmania Australia 7250
T 03 6335 5201 | Int T +613 6335 5201 | F 03 6335 5406 | Int F +613 6335 5406 | www.gunns.com.au
20 November 2009
Company Announcements Platform
Australian Securities Exchange
GUNNS PROPOSES TO MANAGE GREAT SOUTHERN PLANTATIONS FOR INVESTORS
Gunns Limited has today signed an Implementation Agreement with Great Southern
Limited (in liquidation) (receivers and managers appointed) (GSL) and Great Southern
Managers Australia Limited (in liquidation) (receivers and managers appointed)
(GSMAL) in relation to a proposal to replace GSMAL as responsible entity of the 1998-
2006 forestry managed investment schemes (Pulpwood Schemes).
The proposal is subject to various conditions, including approval of resolutions by
growers and appropriate court directions.
Gunns Chief Executive Officer Greg L'Estrange said the proposal was a compelling
offer that would provide certainty to Great Southern grower-investors.
"Our proposal will cause minimal disruption to the operation of the schemes, supported
by Gunns' strong financial position and experience in the management and operation
of plantations under managed investment schemes," he said.
Under the proposal, Gunns as responsible entity would receive a percentage of the
1998 2006 Pulpwood Schemes' Net Harvest Proceeds when the timber is harvested.
Gunns may investigate the 2007 Pulpwood Scheme and make a proposal involving,
amongst other things, the replacement of GSMAL by Gunns as the responsible entity of
the 2007 Pulpwood Scheme.
Proposed acquisition of related assets
In addition, Gunns has substantially agreed, but not yet finalised or signed, an asset sale
agreement with GSL, GSMAL and the Receivers, McGrathNicol, to acquire certain
forestry assets of the Great Southern group for approximately $8.7 million. The assets
comprise property, plant and equipment, water licences, insurance payment
receivables and inventory.
Gunns will make offers of employment to the forestry management personnel of the
Pulpwood Schemes (other than those located in the Northern Territory). All sales
contracts between the current responsible entity and the Great Southern group will be
terminated.
Gunns has agreed terms to acquire the right of the Receivers to be indemnified out of
scheme property for costs incurred in their receivership with the value of this to be
determined at a later date following a court determination, and to extinguish any
amount that GSMAL may otherwise be entitled to (in its capacity as the outgoing R.E.)
for a payment of $4.0 million. In addition, Gunns will make a $1.0m payment for the
termination of an agreement with a group company for woodchip marketing.
Gunns is also in discussions with Ferrier Hodgson, the Administrator of several of the
Great Southern group companies, to potentially acquire certain ownership interests
that the Great Southern group has in its Pulpwood Schemes acquired as a result of
Project Transform and certain ancillary forestry infrastructure assets of the Great
Southern Group for an amount yet to be determined.
Gunns has no specific proposal to acquire any freehold land owned by Great Southern
group entities used in connection with the Pulpwood Schemes or other assets, but it
intends to work co-operatively with the Receivers and Managers to seek a satisfactory
long-term solution for all stakeholders regarding that freehold land.
Funding of the proposal
If the proposal is approved by growers, Gunns will fund the acquisition of the assets
described above from cash at hand and existing facilities. The funding requirement of
the potential acquisition of assets from the Administrator is yet to be determined.
Gunns would fund the costs of managing the plantations and operating the schemes
through to harvest (described below) from internally generated cash flows. The fees
payable by growers would be increased as described below.
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Growers meetings
Growers meetings to vote on resolutions relating to the proposal are proposed to be
held on 23 December 2009. Further details will be released shortly. The proposal is not
conditional upon any regulatory approvals.
Overview of Proposal
Great Southern's hardwood pulpwood resources represent one of Australia's largest
hardwood plantation estates. The proposal would provide highly complementary
hardwood operations for Gunns, resulting in a significant increase in scale and access
to additional plantation timber.
The proposal offers significant advantages for growers. If approved by growers, it will
allow growers to retain an interest in their woodlot during the life of the Pulpwood
Schemes and preserve growers' ability to receive a portion of the proceeds of the sale
of their trees following harvest.
The proposal, if approved by growers, would help ensure the ongoing survival of the
Pulpwood Schemes, eliminating the risk that they will be wound up, and avoiding a
distressed sale which may deliver less than full value to growers.
Gunns believes the proposal will provide certainty for Great Southern growers. The
increased grower charges under Gunns' proposal are less than those sought by the
only other public proposal. Gunns' proposal will cause minimal disruption to the
operation of the Pulpwood Schemes, supported by Gunns' strong financial position and
experience in the management and operation of MIS plantations in the forestry sector.
Under the proposal, Gunns as responsible entity would receive a percentage of the
1998 2006 Pulpwood Schemes' Net Harvest Proceeds when the timber is harvested.
The percentage varies by Scheme and ranges between a total of 4.5% and 55.0% of
Net Harvest Proceeds.
The increased charges enable Gunns to meet the expenditure required to properly
manage the plantations through to harvest. It is also proposed that additional flexibility
be provided to manage harvest scheduling to address matters such as the effect of
drought and market conditions.
Gunns has also agreed with the Receivers to propose to reduce the rental on freehold
land under the control of the Receivers in respect of some of the land used in the
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Pulpwood Schemes, in return for termination of any potential option to extend the
leases to enable a second rotation of timber, where the right to exercise is in doubt
following the receivership of the group.
The percentage impact of this varies based on the amount of freehold land in a
particular MIS scheme year. While this would mean that Gunns would not be able to
offer a further investment opportunity to growers to extend their investment for a further
period, the return to growers from their current investment would be improved.
Scheme
Net Planted
Area (Hectares)
Additional % of Net
Harvest Proceeds
(excludes GST)
Waiver of rental on
freehold land under
the control of the
Receivers (%)
Total % of Net Harvest
Proceeds (excludes GST)
(1)
1998 616
1.50
(2.50)
4.50
1999 3,900
7.00
(2.50)
10.00
2000 15,564
12.00
(2.50)
15.00
2001 4,737
15.00
(2.25)
18.25
2002 6,438
22.00
(2.00)
25.50
2003 20,005
27.00
(2.25)
30.25
2004 21,345
32.00
(2.50)
35.00
2005 26,039
44.50
0.00
50.00
2006 23,171
49.50
0.00
55.00
(1) Total % of Net Harvest Proceeds includes the 5.5% fee the R.E. is currently entitled to.
Operational metrics
Gunns expects the harvest profile from the Pulpwood Schemes estate to increase from
approximately 540,000 green metric tones (GMT) in the 2010 financial year progressively
to approximately 2,800,000 GMT in the 2017 financial year.
This will build on Gunns' existing substantial sales volumes of plantation fibre and further
enhance Gunns' leading market position as producer and exporter of wood fibre,
consistent with Gunns' strategy that focuses on plantation-based fibre.
The estate includes approximately 42,000 hectares of plantation in the Green Triangle
region which is expected to generate an annual woodflow of approximately 100,000-
1,000,000 GMT through the Portland Loading facility currently under development by
Gunns.
Gunns, in its proposed role as RE of the Pulpwood Schemes, would incur an estimated
aggregate of approximately $100 million gross cash operating costs up to and including
the year of harvest of the timber spread across a period of approximately 11 years.
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The gross operating costs are predominantly in relation to maintenance, land lease,
and overhead. Annual gross operating cash costs from these activities are not
expected to exceed approximately $20 million in any given year.
On the basis that the proposal is approved by growers and associated agreements with
the Receivers and Administrator are completed Gunns expects the transaction to be
EPS accretive in the 2010 financial year.
Information about Great Southern Pulpwood Schemes
The Pulpwood Schemes comprise a net planted area of approximately 122,000 ha of
predominantly hardwood pulpwood plantations in some of Australia's prime forestry
regions in Albany, Bunbury and the Green Triangle (SE South Australia and SW Victoria).
In May 2009, Receivers and Managers, and Administrators were appointed over Great
Southern Limited and related entities. Some of the group companies are now in
liquidation as of 19 November 2009.
Information about Gunns
Gunns is Australia's largest fully integrated hardwood-based forest products company
currently managing over 300,000 hectares of land for forestry use, Gunns Plantations
Limited has established 15 managed investment schemes in wood, wine grapes and
walnuts with approximately $620 million of funds under management.
Further information for growers
Growers who would like further information on Gunns' Proposal can call the information
line 1800 24 23 00.
Contact
Greg L'Estrange 0408 017 525
Matthew Horan 0403 934 958 (Media)
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