N
LY
O
E
PL
SA
M
November 2009
Gunns Limited
Lonsec Opinion of the Manager
Company Structure:
¾ Lonsec considers Gunns’ company structure to be well
diversified and vertically integrated. With its subsidiaries
operating across the entire value chain, from plantation
establishment and management, to timber processing and
sales, Lonsec considers Gunns corporate structure to be
robust; benefiting from well diversified revenue streams in
comparison to its competitors. Lonsec considers that the
acquisitions of ITC Timber and the 13.26% share in FEA
Ltd enhances the synergies within the group, strengthening
its exposure to downstream processing and timber sales, in
addition to insulating the company from competitive
pressures generated by other Australian forestry
companies.
Business Strategy:
Management:
¾ All Directors of Gunns and GPL have considerable
experience in finance, agriculture and business
management, providing a strong mix of skills for a
successful corporate management team.
¾ Lonsec considers the division of power and
independence on the boards of both Gunns and GPL to be
appropriate.
¾ Lonsec believes the appointment of Greg L’Estrange as
CEO of Gunns, with John Gay stepping aside as managing
director, as positive from a corporate governance
perspective. John Gay is now Executive Chairman of both
Gunns and GPL.
Past Performance (MIS Projects):
¾ Based on a site visit to Gunns’ plantations in October
2009, Lonsec and the Lonsec Consultant Forester are
pleased with the strong development of the majority of
plantations, and note the application of high quality
management practices.
pulpwood and clearwood projects through the north east
and south east of Tasmania. Whilst observing some areas
with minor silvicultural issues, which is to be expected over
such a large estate, the vast majority showed uniform
vigorous growth, and in the most part are producing yields
that are likely to achieve PDS expectations.
¾ Lonsec also visited GPL’s walnut projects in April 2009.
PL
E
¾ Lonsec considers Gunns’ recent acquisition of Auspine
and ITC Timber (subject to regulatory approval), to be a
positive development for the overall business,
strengthening the capacity and reach of its downstream
processing operations.
¾ On this visit, Lonsec inspected a range of eucalypt
O
appropriate, focusing on refining and growing its core
competencies in forestry establishment, management and
downstream timber processing and sale. Gunns’
participation in MIS fund raising is complementary to its
overall business, which importantly is used as an
alternative source of funds, not a key operation, which
gives the company greater capacity to develop a
sustainable and reliable plantation timber supply.
N
LY
¾ Lonsec considers Gunns’ business strategy to be
SA
M
¾ Looking forward, Lonsec believes that the company’s
greatest challenge will relate to the development of the Bell
Bay pulpmill, in particular the arrangement of financing for
the $2.5 billion project.
¾ In addition, Lonsec believes Gunns must continue to
address and enhance relationships with ‘green’ groups.
Gunns has long been at odds with environmental
campaigners, and despite employing best practice in
forestry management, and being AFS certified (Australian
Forestry Standard), its selective native timber extraction
continues to draw negative attention. Whilst acknowledging
Gunns commitment to developing a sufficiently large
plantation supply, to ween off native timber extraction, in
addition to its compliance with forestry and environmental
management standards, Lonsec believes it is important for
Gunns to continue to improve its relationship with
environmental groups and promote its commitment to the
environment. Gunns has sounded to the market that it
expects the Bell Bay pulpmill will be operated on 100%
plantation woodchips.
¾ Lonsec believes that the achievement of this will also
help the company grow its business by increasing its ability
to access bank and other mainstream funding.
From this visit, Lonsec believes that from an operational
standpoint no significant issues were present. However the
projects are at risk if water allocations in the Murrumbidgee
Irrigation region are reduced.
¾ Lonsec has not conducted a site visit or review of
GPL’s wine operations in 2009. However, Lonsec is not
aware of any significant viticultural or management issues
that may impact the performance of the projects.
Financial Resources:
¾ Lonsec considers Gunns' financial resources to be
relatively strong. The reduction in debt and the continued
diversification of its business (through the purchase of ITC
timber) is considered to be positive.
¾ Gunns diversified structure provides insulation from the
difficulties being faced in the MIS sector. Lonsec expects
that, if the acquisition is approved, ITC Timber will provide
valuable synergies for Gunns, helping to improve revenues
and manage fixed operational costs.
¾ Lonsec also considers GNS’ capital management
activities to be well timed and effective, which has helped
manage the company’s exposure to fixed financing costs,
whilst enabling the business to pursue growth
opportunities.
¾ Lonsec considers Gunns’ growth strategy to be sound.
With its acquisitions over the last 12-18 months, including a
share in FEA Ltd, and the acquisition of Auspine and ITC
timber, the company has enhanced its downstream
integration and will benefit from reduced competition.
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
2
Gunns Limited – Manager Profile
4.2. Gunns Plantations Limited
(ABN 36 091 232 209) (GPL)
1. Lonsec Key Determinant Ratings
A comparison of this manager’s rating in the 5 key
determinants against the Lonsec database average for
agribusiness managers is shown below:
Credit Risk
GPL acts as the Responsible Entity (RE) for Managed
Investment Scheme (MIS) Projects, and is one of Australia’s
largest agribusiness investment managers with over $627m
of funds under management. The company has offered a
range of agribusiness investments including GPL's Woodlot
Projects, Winegrape Projects and Walnut Projects.
Financial Resouces
4.3. Tamar Ridge Estates (TRE)
Tamar Ridge Estates (TRE), formerly known as Tamar Ridge
Wines, was purchased by Gunns in March 2003 and is now
a division of Gunns. GPL has appointed TRE to run the dayto-day operations of the vineyards for the GPL Winegrape
MIS projects. TRE has recently completed an expansion to
the winery's bottling line which enabled the processing of
nearly 3,900 tonnes of fruit in 2008, double the amount
processed in 2007.
Business Strategy
Corporate Strategy &
Resouces
Past Performance
Management
1
2
3
4
5
Lonsec Database Average
6
7
8
9
10
4.4. Gunns Finance Pty Ltd
(ABN 58 091 861 700) (GFL)
Gunns Limited
N
LY
0
2. What this Rating means
O
PL
3. Lonsec Scope
4.5. Auspine (ACN: 004 289 730)
Auspine Limited is a vertically integrated forestry company
involved in the growing and harvesting, manufacturing and
sales of quality timber products (predominately softwood) in
both domestic and export markets.
E
An Excellent rating indicates that Lonsec has high level of
confidence in the manager’s capabilities within Agribusiness
Managed Investments. Lonsec does not have any significant
issues or concerns with the management competencies and
corporate strength of the manager.
GFL is Gunns’ financing entity, providing optional finance to
investors. GFL is 100% owned by Gunns and at 31 October
2009 had a consolidated loan book of $265 million.
SA
M
Lonsec provides Manager Profiles on key managers in the
agribusiness sector as part of its broader agribusiness
research service. This Profile reviews the management
competencies and corporate strength of Gunns Ltd (Gunns)
and Gunns Plantations Ltd (GPL), and is not in itself an
assessment or rating of any specific investment offering.
4. Company Structure
Gunns Group of Companies
The Gunns Group comprises Gunns Ltd and its subsidiaries,
including GPL and Gunns Finance Pty Ltd (GFL). Figure 1
outlines the corporate ownership structure of the Gunns
Group.
4.1. Gunns Ltd (ABN 29 009 478 148) (Gunns)
Gunns is one of Australia’s most prominent forestry
production and value-adding companies with primary
activities in the growing, harvesting, milling and processing of
woodchips for export (both hardwood and softwood) as well
as timber for export and domestic sales. Gunns, as an ASX
listed company, had a market capitalisation of $790.6 million
at 23 October 2009. Gunns acts as the Custodian for the
MIS projects managed by its subsidiary, GPL.
Auspine is a wholly owned subsidiary within the Gunns group
of companies. Total sales currently exceed $210 million per
annum and Auspine directly employed 650 people at the
time of takeover.
Auspine was purchased by Gunns in January 2008 and has
now been fully integrated into the Gunns business (Gunns
Timber Products). Gunns will continue to use the Auspine
name for the marketing of its softwood sawn timber.
4.6. Forest Enterprises Australia Ltd
In July 2009 Gunns acquired a 17.9% interest in the equity of
Forest Enterprises Australia Limited at a value of 10 cents
per share. The purchase was funded through the placement
of 5.7 million Gunns shares and a cash payment of $1.58
million to the vendors.
4.7. ITC Timber Pty Ltd
On 7 September 2009 Gunns announced it has acquired ITC
Timber Pty Ltd, a subsidiary of Elders Limited for an
enterprise value of $100 million. The acquisition is subject to
regulatory approval and other customary conditions. The
business includes two manufacturing locations in Victoria
and two manufacturing locations in Tasmania, a sales base
throughout Australia and targeted export markets, and a 50%
stake in Smartfibre, a joint venture with FEA, which exports
hardwood chips. ITC Timber was a direct competitor of
Gunns Timber Products. The acquisition of ITC Timber will
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
3
Gunns Limited – Manager Profile
Lonsec Opinion – Company Structure
make Gunns the largest hardwood sawmiller in Australia.
The acquisition has considerable synergistic benefits to
Gunns.
These synergies will be realised through operational
consolidation, optimisation of production between facilities,
and a material reduction in overheads.
4.8.
Webster Ltd (ABN 23 009 476 000)
(WBA)
GPL sub-contracts Webster, an ASX listed entity (ASX:
WBA), to act as operations manager for the GPL Walnut
Projects. WBA is a producer of horticultural food products
and services. Webster has undertaken to enter into a Walnut
Sale Agreement for the purchase of a minimum of 75% of
Grower’s walnuts.
Lonsec considers Gunns’ company structure to be well
diversified and vertically integrated. With its subsidiaries
operating across the entire value chain, from plantation
establishment and management, to timber processing and
sales, Lonsec considers Gunns structure to be robust,
benefiting from well diversified revenue streams in
comparison to its competitors. Lonsec considers that the
acquisitions of ITC Timber and the 13.26% share in FEA Ltd
enhances the synergies within the group, further
strengthening its exposure to downstream processing and
timber sales in addition to insulating the company from
competitive pressures generated by other Australian forestry
companies.
Figure 1 – Structure of the Gunns Group and Related Parties
Gunns Limited
Webster Ltd
Parent Company, Custodian
ITC Timber Pty Ltd
100%
100%
Tamar Ridge Estates
Gunns Plantations Ltd
100%
E
17.9%
O
ABN: 36 091 232 209
Date Incorporated:18/01/2000
PL
ABN: 47 009 553 548
Date Incorporated: 25/09/1985
ABN: 23 009 476 000
Date Incorporated: 07/08/1910
Responsible Entity, Land Holding company
ACN 082 806 880
Date Incorporated: 12/12/1924
Forest Enterprises Australia Ltd
Operational Contractor
Heads of
Agreement
N
LY
ABN: 29 009 478 148
Date Incorporated:25/06/1951
100%
SA
M
Wine Producer
100%
Auspine Ltd
Timber harvesting, manufacturing
and sales for softwood resources
predominately in SA
ACN : 004 289 730
Gunns Finance Pty Ltd
Finance Company
ABN: 58 091 861 700
Date Incorporated:07/03/2000
5. Business Strategy
5.1. Strategic Objectives
sustainable off-balance sheet investment in resource
creation for Gunns Ltd.
Gunns was established in 1875 by brothers John and
Thomas Gunn, and has grown through the acquisition of a
range of assets, particularly over the last decade. Whilst
Lonsec has not reviewed Gunns’ business plan, the following
strategic objectives have been identified:
MIS remains an important component of Gunns’ sustainable
plantation program. Building on its commitment to MIS,
Gunns is expressing interest in acquiring or managing the
forestry assets of Great Southern Ltd (now in administration).
Should Gunns be successful, GPL’s MIS program would
most likely be expanded to include the Green Triangle and
Western Australia.
Forestry
Gunns has had a long-term aim to transform the company
from a native woodchip business to a plantation based
company, and to add value to this resource for the benefit of
all Tasmanians. Over the last 20 years the Company has
purchased or secured over 300,000 hectares of land for
plantation development. The Company's resource
development has been focused on producing a product that
replaces native forest woodchips which have traditionally
been exported to Asia. Now the company is endeavouring to
build a domestic pulp mill to process this plantation resource.
GPL will continue to focus on the development and operation
of high quality MIS offerings (principally in forestry). GPL’s
forestry MIS offerings continue to represent a form of
Following being chosen as the preferred tenderer by the Port
of Portland, Gunns is preparing to build and operate a
second hardwood chip facility at the Port of Portland to
processes plantation grown blue gum hardwood chips from
the Green Triangle. This will also enable GPL growers
access to a woodchip export port, should GPL expand its
MIS operations into the GT.
Gunns intends to continue its commitment to environment
best practice and certification. The company has been AFS
certified for 6 years, and recently completed successful
recertification for the next 3 years. Gunns has advised
Lonsec that it is giving consideration to the implementation of
FSC certification in its business. The scope of this
certification is yet to be determined.
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
4
Gunns Limited – Manager Profile
Gunns reports that it is committed to operating MIS projects
that are based on proven forestry species and in proven
forestry regions with existing markets and infrastructure.
With regard to non-forestry operations the company has
identified that:
•
The Bell Bay Pulp Mill project remains a major focus of
Gunns Ltd’s future growth strategy. The project is ready to
commence construction once financial closure is reached.
The Bell Bay Pulp Mill represents a major additional market
for growers’ wood in Tasmania as well as the Green
Triangle.
Lonsec Opinion – Business Strategy
Lonsec considers Gunns’ business strategy to be suitable,
focusing on refining and growing its core competencies in
forestry establishment, management and downstream timber
processing and sales. Gunns’ participation in MIS fund
raising is complementary to its overall business, which
importantly is used as an alternative source of funds, not a
key operation, which gives the company greater capacity to
develop a sustainable and reliable plantation timber supply.
Overall the company has identified that it will continue to
focus on reducing debt and managing costs to support the
business through the current difficult economic climate.
5.2. Strategic Issues
PL
E
On 5 January 2009, Gunns gained approval from the
Environment Minister for 13 out of 16 of its Environmental
Impact Plan model submissions, with the 3 remaining
modules subject to Gunns completing a more thorough
wastewater discharge study.
Looking forward, Lonsec believes that the company’s
greatest challenge will relate to the development of the Bell
Bay pulpmill, in particular gaining appropriate finance to fund
the $2.5 billion project.
In addition, Lonsec believes Gunns must continue to address
and enhance its relationships with ‘green’ groups. Gunns has
long been at odds with environmental campaigners, and
despite employing best practice in forestry management, and
being AFS (Australian Forestry Standard) certified, its
selective native timber extraction continues to draw negative
attention. Whilst acknowledging that Gunns’ commitment to
developing a sufficiently large plantation supply, to ween off
native timber extraction, in addition to its compliance with
forestry and environmental management standards, Lonsec
believes it is important for Gunns to continue to improve its
relationship with environmental groups and promote its
commitment to the environment. Gunns has sounded to the
market that it expects the Bell Bay pulpmill will operation on
100% plantation woodchips once it is commissioned.
O
Strategic issues that Gunns is and will be facing in the near
future will revolve around the ongoing management of the
Bell Bay pulp mill project and the management and control of
its expanding business.
Lonsec considers Gunns’ recent acquisition of Auspine and
ITC Timber (subject to regulatory approval), to be a positive
development for the overall business, strengthening the
capacity and reach of its downstream processing operations.
N
LY
GPL will continue to build on manufacturing and distribution
of Gunns Timber Products, which is now the largest
integrated sawmilling (hardwood and softwood) business in
Australia.
In respect to the Pulp mill, the Federal and State
Governments have placed stringent conditions on the
development of the pulp mill which will need to be carefully
managed by Gunns.
Other than completion of the existing walnut development
at Griffith, GPL has informed Lonsec that there is no
further development planned in the short term for nonforestry MIS.
SA
M
Gunns’ remain positive that the Government approval will be
achieved in time, however it is possible that the company’s
most significant hurdle will be accessing sufficient funding
before construction is to begin. With the loss of the ANZ
bank as principal financier, Gunns will have to seek funds
from other sources, which may include participation by
institutional equity partners and foreign investment banks.
Currently Gunns is reported to be negotiating a joint venture
with Sodra, a Swedish pulp and paper manufacturer.
However, no formal agreement has yet to be achieved.
Lonsec believes that the achievement of this will also help
the company grow its business by increasing its ability to
access bank finance and other mainstream funding.
Other issues facing Gunns include the strategic management
and integration of ITC Timber. If government approvals are
granted for the ITC transaction, it is essential that Gunns’
board and management effectively integrate with its new
subsidiary.
5.3. Growth Strategy
Lonsec has not reviewed GPL’s growth strategy, however
based on an assessment of the company, Lonsec believes
that GPL intends to:
•
Utilise MIS as a complementary expansion strategy in
addition to the self-funded plantation base
•
Continue to focus on the management of a sustainable
forestry MIS program.
•
Considered expansion of its plantation estate into
Western Australia, South Australia and Victoria.
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
5
Gunns Limited – Manager Profile
6. Management
6.1. Board of Directors of Gunns
6.2.
John Gay
B AgSc, CPM
(Executive Chairman)
Greg L'Estrange
Chief Executive Officer
Experience: L’Estrange has been involved within the timber
industry for over 20 years working for Boral Timber and CSR
Timber Products. His last role was as CEO of CSR Timber,
with assets of $1 billion operating throughout Australia and
New Zealand, leading the turnaround of that business and
the sale process that enabled CSR to exit its entire holding.
L’Estrange previously held the position of managing director
of Capral Aluminium from 2000 to 2004.
Robin Gray
B Ag Sc, CPM (Non-Executive Director)
Experience: Gray has been a Director of the Company since
1996. He is an agricultural consultant by profession and is
currently the Chairman of Botanical Resources Australia Pty
Ltd, a major producer of pyrethrum. He was a Member of the
Tasmanian Parliament for 19 years which included a period
as State Premier and Minister for Forests.
6.3.
Board of Directors of GPL
John Gay (Executive Chairman)
N
LY
Experience: Gay has been a Director of the Company since
1986. He has solid knowledge of the forestry and
manufacturing industries accumulated in more than thirty
years experience in management of the Group.
Refer to comments in Section 6.1.
Robin Gray
Christopher Newman
B Ec (Non-Executive Director)
Refer to comments in Section 6.1.
O
Leslie Baker
B Sc (For) (Executive Director)
Experience: Baker has managerial experience in forestry
and agricultural MIS, including overseeing the development
of the MIS projects offered by GPL. Baker is currently the
general manager of the Bell Bay pulp mill project, a Director
of National Association of Forestry Industries (NAFI), and a
member of the Institute of Company Directors.
PL
E
Experience: Newman was appointed as a Director of the
company in September 2001. He has experience in banking
and finance both in Australia and overseas. Currently, he
serves as a Director for Coneno Financial Ltd, Austereo Ltd,
Webjet Ltd, Prime Financial Group Ltd, and Balnave
Corporate Limited
Richard Millar
(Non-Executive Director)
Senior Managers of Gunns
SA
M
Experience: Millar was appointed as a Director of the
Company on 24 January 2007. He has experience as a
Chartered Accountant in public practice. He is a fellow of the
Institute of Chartered Accountants in Australia.
Paul Teisseire
(Non-Executive Director)
Experience: Teisseire, a retired Lawyer of 25 years,
currently serves as a director for Austin Exploration Ltd, BSA
Ltd and Mesbon China Nylon Ltd. Previously Tesisseire has
held directorships within Auspine Ltd, Legal Corporation Ltd
and Australian Executor Trustees Ltd.
David Simmons
(Non-Executive Director)
Experience: Appointed as a director in January 2009,
Simmons is chairman of Korvest Ltd, a director of Codan Ltd
and was managing director of Hills Industries Ltd.
Board departures since last review
At the 2009 Annual General Meeting on 11 November 2009,
Robin Holyman retired as Director of the Company. Holyman
has been a Director of Gunns since 1983.
Rodney Loone (Non-Executive Director)
Experience: Loone is a Fellow of the Institute of Chartered
Accountants and is the Managing Principal of the chartered
accounting firm, Garrotts. He has experience in accounting,
taxation, and the agriculture and forestry industries.
Patrick Sullivan
LLB (Hons) (Non-Executive Director)
Experience: Sullivan is a retired solicitor whose practice was
largely in the area of commercial law. He has previous
experience as a board member of both private and public
companies.
Robert Graham
BA DipEd (Non-Executive Director)
Experience: Graham has a history of executive and nonexecutive board positions principally on companies servicing
the timber and building industries in both Australia and
overseas. Currently a director of GPL concentrating on MIS
Compliance Management, Graham is also a Director of Rees
Operations Pty Ltd and SEAS SAPFOR Harvesting Pty Ltd
(a subsidiary of Auspine Ltd). Graham hold the position of
Chairman of Imperial Jade International Pty Ltd and is the
chairman and managing director, respectively, of Barnaby
Pty Ltd and Project Control Systems Pty Ltd (two family
owned companies).
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
6
Gunns Limited – Manager Profile
6.4. Senior Managers of GPL
6.6. Compliance Committee
Ian Blanden
BSc (For), Cert For Eng (General Manager)
GPL has established a Compliance Committee to monitor
and report on the performance of its duties and obligations
as set out under the Compliance Plan. Robert Wood, GPL’s
Compliance Officer, reports to the Compliance Committee
every second month.
Experience: Blanden has managerial experience operating
forestry and agricultural MIS projects. He has been
responsible for the establishment of GPL's managed
investment schemes since inception in 1999 encompassing
in excess of 100,000 hectares of plantations, over 240
hectares of vineyards and more then 2,000 hectares of
walnuts, as well as being responsible for the maintenance of
approximately 160,000 hectares of timber plantation estate
that Gunns manages. Blanden currently serves as a Director
of the Tasmanian Agricultural Productivity Group (TAPG).
The members of the Compliance Committee are the
members of the GPL board.
6.7. ASIC Database Search
6.5. Remuneration Policy
A Remuneration Committee is responsible for assisting the
Board of Directors to ensure that suitable policies are in
place for compensation arrangements for senior
management and the Board.
GPL forestry investment products have been well received
throughout the finance sector and now represent a
substantial share of the overall forestry investment market.
The introduction of walnut and winegrape Projects in the last
6 years received moderate acceptance in the market, but
more importantly added diversity into the GPL suite of
investment products. In FY2009 GPL’s Eucalypt Pulpwood
Project was the company’s major contributor to MIS sales
totalling 56% to the company’s total sales for the year.
PL
E
A fixed component of the remuneration includes salary,
superannuation and other benefits, whereas the incentive
component is based on achieving budgeted performance as
approved by the Board. The Directors report that Gunns’
total remuneration packages for the CEO and senior
management are largely based on fixed remuneration
entitlements. Gunns’ directors appointed prior to 30 June
2006 are also entitled to allowance on retirement.
6.8. Investment Marketing
O
The Gunns Board recognises that remuneration packages of
senior executives (including the CEO) may include both a
fixed component and an incentive performance related
component.
N
LY
As a matter of process, Lonsec conducts an ASIC database
search across the key management and operations staff.
Lonsec has found no outstanding records on the existing
Board of Directors, Senior Managers and Operational
Managers of the Gunns Group in relation to Disqualified
Persons, Banned Securities Representatives, Banned
Futures Representatives and AFS Banned/Disqualified
Persons.
SA
M
The Board of the Company will, on an annual basis, review
the membership, processes and Charter of the
Remuneration Committee in order to determine the
adequacy of these factors for current circumstances,
continuing effectiveness and efficiency.
Lonsec considers Gunns’ remuneration policy for both senior
executives and employees to be acceptable.
Lonsec Opinion - Management
All Directors of Gunns and GPL have considerable
experience in finance, agriculture and business
management, providing a strong mix of skills for a successful
corporate management team.
Figure 2 highlights GPL’s market share of the total
agribusiness industry MIS sales since offering its first project
in FY2000. In FY2009 GPL experienced growth in its MIS
Market share, increasing by 1.9 percentage points to 14.1%.
This is a strong result considering the poor global economic
conditions and the uncertainty in the industry created by the
failure of Great Southern and Timbercorp. This increase in
market share can be attributed to the company’s strong
financial position and well structured and managed
investment offerings.
It should be noted that GPL places limitations on the level of
MIS funding sought due to the availability of good quality
land in regions it chooses to operate in. This may limit the
company’s ability to expand MIS market share.
Figure 2 – GPL Market Share of
MIS Agribusiness Investments
Lonsec considers the division of power and independence on
the boards of both Gunns and GPL to be appropriate.
20%
Market Share
Lonsec believes the appointment of Greg L’Estrange as CEO
of Gunns, with John Gay stepping aside as managing
director, as positive from a corporate governance
perspective. John Gay is Executive Chairman of both Gunns
and GPL.
25%
15%
10%
5%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
7
Gunns Limited – Manager Profile
Walnuts
6.9. Agricultural Product Marketing
Webster initially adopted a marketing strategy focused on the
specialty greengrocer and independent retailer segments,
with the objective of achieving national coverage in future
seasons as harvest volumes increase.
Woodchips
Gunns has established relationships with major Japanese
trading houses and leading pulp and paper manufacturers
throughout Asia, with many of these relationships in
existence since the 1970’s, when the woodchip export trade
first began.
Sales of shelled walnuts commenced late in 2007 and are
concentrated on the fresh consumption and specialty
manufacturing sectors.
Webster intends to retain a medium term focus on the
domestic market and expects that consumption will continue
to grow in line with international trends. The growth in walnut
consumption is closely linked to the reported health benefits
associated with the consumption of nuts.
In July 2009, the Port of Portland announced they were
working exclusively with Gunns for the development of a
hardwood woodchip export facility. This arrangement has
now been confirmed, with Gunns signing a long term lease
on the site to construct the facility, which will be operational
in the 3rd quarter of 2010. On completion, this facility will
have the capacity to export 1.5 million to 2.0 million green
metric tonne of plantation based eucalypts from the Green
Triangle Region.
Nut industry promotional activities continue to raise the
profile and benefits of nuts within the health profession.
These activities are now expanding to include consumer
promotion through the placement of promotional and
nutritional information in select magazines and attendance at
various public events and trade related shows.
N
LY
Gunns currently holds an approximate 20% share of the
supply of raw material to the Japanese pulp and paper
market. Sales of forestry products are secured by the offtake agreements in place between GPL, Gunns and industry
processors.
6.10. Other Agricultural Activities
PL
E
Gunns operates ten fully integrated sawmills (six located in
Tasmania, three in WA and one in SA), one veneer mill and
six export chip terminals. In addition, Gunns has received
preliminary Government approval for the Bell Bay pulp mill
that allows construction to begin, which together with the
company’s other resources, will provide Gunns with
exceptional value adding capability and MIS investors with
another potential market which should help extract the
highest value for investors’ timber.
O
Sawn Timber
Webster communicates updated walnut information to its
overseas client base with the intention to become an
important supplier as production volumes increase.
Websters reports that activities in Australia continue to
expand, with current production being the limiting factor to
achieving further expansion. Growth will be predominately in
the shelled sector as this represents 90% of the total
Australian market.
SA
M
As discussed previously, Gunns’ announced it has acquired
ITC Timber Pty Ltd (subject to regulatory approval). ITC
Timber includes two manufacturing locations in Victoria and
two manufacturing locations in Tasmania, a sales base
throughout Australia and targeted export markets, and a 50%
stake in Smartfibre, a joint venture with FEA, which exports
hardwood chips. Gunns is Australia's largest hardwood
sawmiller and a large player in the softwood sawmilling
sector.
Lonsec considers that this transaction will further develop
Gunns integrated timber processing division, providing
synergies that will cement the company’s position as a
prominent Australian timber supplier both domestically and in
the export market.
Winegrapes
GPL is responsible for marketing Investor grapes and has
already formed relationships with grape buyers, including
TRE, and is confident that it will be able to achieve a fair
market price for the winegrapes produced on behalf of
Investors. GPL has contracted TRE for all its previous MIS
winegrape projects and has an off-take with TRE for all
grapes produced under MIS projects. To date, there have
been three harvests in the 2004 and 2005 winegrape MIS
projects, and one small harvest for the 2007 Project early in
2009.
Gunns is a partner in two joint ventures, namely: Tamar Tree
Farms (a partnership with Mitsubishi Corporation Ltd,
Mitsubishi Paper Mills Ltd and Tokyo Electric Power
Company), and Plantation Platform of Tasmania (a
partnership with Forestry Tasmania and Daio Paper. Both of
these Joint Venturers are growing of plantation eucalypt for
pulpwood.
Lonsec Opinion – R&D and Marketing
Lonsec considers that Gunns product sales and agricultural
marketing capacity is a key strength of its investment
offerings and business structure
The utilisation of specialist third parties (Webster) is
considered to be a strong approach in horticulture which is
not a core business of Gunns.
The company’s internal timber processing capacity and
direct involvement in the negotiation of contract prices with
Asian customers is considered a key benefit for investors. To
this end, Gunns timber exposure, through its plantations
funded on-balance sheet, provide for the alignment of
interests with investors, in respect to the export and sale of
processed timber and woodchips.
Lonsec also considers the development of the Bell Bay mill a
positive prospect for pulpwood investors, which should help
alleviate some price risk associated with exporting chips to
Asia.
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
8
Gunns Limited – Manager Profile
7. Past Performance
7.1. Agricultural Managed Investment
Schemes
Timber Projects
Lonsec has reviewed independent forestry reports for all
GPL’s woodlot projects between 2000 and 2009. The
forestry review conducted by VDFC Forestry Consultants
generally reports strong performance of all the eucalypt and
pine options.
GPL has offered 23 MIS projects in the past (Appendix 1)
with the following areas established:
¾ Forestry – 104,840 ha
¾ Winegrape – 246 ha
The 2000 and 2001 woodlot Projects are reported to be
growing at a rate above PDS projections (confirmed by
formal inventory). Inventory work was carried out in 2006 on
the woodlots planted in 2000 and the forecast MAI potentials
of the Preolenna (NW Tasmania) plantings in Option 1 and 2
3
are estimated at 39.1m /ha/pa and 46.3 m3/ha/pa at age 13
and 20 respectively. This compares to original PDS forecasts
of 25m3 and 28m3 respectively.
Figures 3 and 4 show the development schedule of forestry,
walnut and winegrape plantings respectively.
Figure 3 – GPL Forestry Plantings
from FY2000-FY2009
25,000
120,000
80,000
15,000
60,000
10,000
40,000
5,000
20,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
PL
Figure 4 – Walnut and Winegrape Plantings
from FY2004 to FY2009
1600
SA
M
Hectares Planted
1400
1200
1000
800
600
400
200
0
2000
2001
2002
2003
2004
Walnuts
2005
2006
2007
In respect to the 2002 project the independent forester has
identified that “In general, the observed growth levels in 2009
are in the upper end of expected tree growth performance
range. This is to be expected as the planted sites generally
have better than average soils and climate characteristics
and the management treatments provided are acknowledged
to generate quality increments in growth”.
E
0
Inventory work commenced in 2008 on the woodlots planted
in 2002 (approximately 52%) and the woodlots planted in
2003 will have inventory completed during the summer of
2009/2010. Based on the initial measurements and noting
that the revised projection as a result of the inventory
measurements is not a guarantee of final yield, the
Independent foresters report shows that the option 1 and 2
plots planted in 2002 have a revised forecast of
25.4m3/ha/pa and 28.1m3/ha/pa. This is marginally below
original expectations which were 27.2m3/ha/pa and
29.7m3/ha/pa respectively.
O
Hectares Planted
20,000
Cumulative Area Planted (ha)
100,000
N
LY
¾ Walnuts – 949 ha
2008
The 2003 to 2008 Projects are currently too young to
definitively assess yield and growth performance.
2009
Winegrape
7.2. Project Performance
At the time of writing, Gunns’ annual independent experts’
review of its Winegrape and Walnut projects was not yet
complete. As a result, Lonsec has been unable to update the
status of these projects from its last review.
The comments below relate to Lonsec’s assessment made,
based on information from Gunns’ 2008 independent
experts' review of its Winegrape and Walnut projects.
However, Lonsec has sighted the updated impendent
reviews of Gunns Woodlot project, and therefore the
discussion of its ‘Timber Projects’ reflects a review of these
reports published in November 2009.
However, the independent forester’s report(s) generally
states that trees express strong vigour and appearance.
Browsing by animals has been highlighted as an issue in
parts of some projects; however it is not considered to have
had any significant impact on yield.
Lonsec is aware that GPL has commenced the thinning
harvest of the 2000 and 2001 woodlot project (Option 1 & 2).
Investors in Woodlot Project 2000 Option 1 received a
distribution in May and August 2009. Option 2 investors
received a distribution in August and October 2008, and
January, May and August 2009.
Investors in Woodlot Project 2001 Option 1 received a
distribution in August 2009. Option 2 investors received a
distribution in May and August 2009.
GPL has achieved a thinnings price for the timber sold of
3
$37.40/m (stumpage basis), which is 18% above the original
Prospectus forecast.
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
9
Gunns Limited – Manager Profile
Winegrape Projects
Walnut Projects
The 2008 financial year saw the second harvest for Growers
in the Winegrape Project 2004. For this harvest, GPL
achieved an average price in excess of $2,000/tonne for
investors’ grapes. In 2007 Investors received yields of 3.2
t/ha, which was above expectations, with no yield forecast in
the PDS for that year.
The independent expert’s reports on the GPL Walnut
Projects No.1 Early Growers, No.1 Late Growers and Project
No.2, dated 24 December 2008, report strong tree growth
and effective weed and orchard management. The earliest of
these Projects, the “No.1 Early Growers”, was planted in
2006 and therefore harvest revenues are not expected until
2010 (as identified in the PDS).
For the 2008 harvest GPL anticipates that Investors will
receive yields equivalent to approximately 10.7t/ha,
approximately 21% higher than initially forecast. The grapes
from this project are being sold to Tamar Ridge Estates,
Tasmania’s largest cool-climate wine producer.
Lonsec Opinion – Past Performance
N
LY
On this visit, Lonsec viewed various eucalypt pulpwood and
clearwood projects through the north east and south east of
Tasmania. Whilst observing some areas with minor
silvicultural issues, (this is expected over such a large
resources base), the vast majority showed uniform vigorous
growth, and in the most part are producing yields that are
likely to achieve PDS expectations.
Lonsec also visited GPL’s walnut projects in October 2009.
From this visit, Lonsec believes that from an operation
standing no significant issues were present; however the
projects are at risk if water allocations in the Murrumbidgee
Irrigation region are reduced.
O
In addition to the 2004 project, Lonsec has reviewed the
independent expert’s reports on the Winegrape Projects
2005 and 2007, dated 29 June 2007 and 29 June 2008
respectively. The reports generally state that the proposed
management plans for the vineyards have been followed and
are appropriate; the vines in the “existing” vineyards of the
2005 plantings (those planted before project
commencement) are reported to have made good growth,
with the “new” vineyards showing a “high standard” of
development.
Based on a site visit to Gunns’ plantations in October 2009,
Lonsec and the Lonsec consultant forester are pleased with
the strong development of the majority of plantations, and
note the application of high quality management practices.
SA
M
PL
E
Lonsec has not conducted a site visit or review of GPL’s
winegrape operations in 2009. However, despite this, Lonsec
is not aware of any significant viticultural or management
issues that may, or are, impacting the performance of the
projects.
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
10
Gunns Limited – Manager Profile
8. Financial Resources
A summary of Gunns’ financial statements over the past four
years is presented in Table 1. The values in this table are
based on accounts prepared on Australian equivalents to
International Financial Reporting Standards (AIFRS).
Forest Products revenue retracted 5.8% on that reported in
FY2008, to $597m. However, as a result of the significant
fixed costs within this operation, the division EBIT fell 12.6%
from FY2008, to $91.4m (FY2009). Gunns identified
weakened demand for wood fibre in the second half of
FY2009 as the key reason for the decline in revenue and
profitability. For its solid wood segment, Gunns also cited
weak domestic demand conditions as the cause for reduced
performance.
The following financial analysis is based on information from
the 2006 to 2009 financial statements of Gunns Limited and
other information provided to Lonsec by Gunns.
8.1. MIS Fund-raising Summary
As discussed earlier, the plantation MIS division was
significantly impacted by a 45% reduction in new MIS funds
raised, in comparison to FY2008.
GPL, as a subsidiary of Gunns, has offered 15 MIS projects
in the past, raising a total of $627.3m in funds, including:
For the group (consolidated entity), Net Profit after Tax fell
3.0%, to $57.7m. Whilst the decline in NPAT was a result of
constrained revenues across its major business operations,
a positive change from 2008 was the decline in interest
expense, falling by $19.5m to $58.8m in FY2009, which was
the result of the company’s debt reduction activities that
occurred over the period.
¾ 9 Timber Projects ($580.3m);
¾ 3 Winegrape Projects ($17.6m)
N
LY
¾ 3 Walnut Projects ($29.4m).
As shown in Appendix 1 and Figure 5, Gunns’ MIS sales in
FY2009 can be broken down between the projects as
follows: Woodlot Project $32.5m (down 72% on FY2008),
and the Walnut Project $9.1m (down 68% on FY2008).
E
O
In the 2009 financial year GPL experienced a significant
decline in MIS sales revenue, as the Agribusiness MIS
market experienced it greatest ever retraction, with an
industry wide fall in fund raisings by approximately 73%
(from FY2008 to FY2009) in the wake of corporate failures
and poor global economic conditions. In FY2009 Gunns
raised in total $42 million, 32% less than that in FY2008.
In comparison to the Lonsec database for Return on Equity
(ROE), Gunns’ Lonsec adjusted ROE for FY2009 is equal to
the median at 3.0% (Figure 7). The range of agribusiness
ROE values in the Lonsec Database (for FY2009) is -37% to
23%.
PL
80%
Figure 5 – GPL Sales Summary
FY2000 - FY2009
1,400
SA
M
140
Sales ($m)
120
100
80
60
40
20
2001
Forestry
2002
2003
Winegrape
2004
2005
2006
Walnuts
2007
2008
40%
20%
0%
1,000
-20%
800
-40%
400
200
0
2000
60%
1,200
600
0
Total Funds Raised (Agri MIS) Industry ($m)
160
Figure 7 – Adjusted Return on Equity 2006- 2009
against Lonsec Database
2006
2007
2008
2009
-60%
High
8.3.
Median
Low
GNS
Balance Sheet Summary
2009
Total Industry Fund Raising
8.2. Profit and Loss Summary
Gunns recorded a reasonable result in FY2009, considering
the poor market conditions and the fallout from the failure of
Timbercorp and Great Southern, which placed considerable
pressure on MIS fund raisings towards the end of the period.
Gunns operating revenue fell by 10.7% to $767m (exc gain
in biological assets and interest income) in FY2009, down
from $859m in FY2008.
As discussed in the company’s 2009 annual report, the main
pressures on GNS’ revenue in FY2009 was the difficult
trading conditions in the company’s export wood fibre and
domestic solid timber markets (forest products revenue), in
addition to the significant reduction in plantation MIS activity.
Gunns’ improved the status of its balance sheet in the year
to 30 June 2009, reducing debt and growing net assets by
35% to $1.32b at the end of FY2009. Gunns’ balance sheet
capitalisation at 30 June 2009 was at $2.0b. At close of
trading on 23 October 2009, GNS market capitalisation was
$790.6m.
The company’s gearing is considered moderate with a Net
Debt/Equity of 49.5% at the end of FY2009.
Gunns’ gearing level relative to its peers within the broad
agricultural sector is moderate, and below the Lonsec
Database median of 51%, with the lowest and highest
gearing levels recorded for the period (8 October 2009) at
20% and 71%, respectively.
In considering Gunns’ gearing, Lonsec believes it important
to acknowledge the significant debt reduction activities the
company has completed over the past 12 months, reducing
net debt by $395m since 30 June 2008. The major capital
management transaction in 2009 that contributed to debt
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
11
Gunns Limited – Manager Profile
reduction include, the completion of a $316m capital raising
in September 2008 and the sale of a tranche of standing
timber for $173m in February 2009.
Lonsec also highlights Gunns’ post balance date activities
including the acquisition of ITC timber for an enterprise value
of $100m (subject to regulatory approval) and a retail and
institutional entitlement offer which the company announced
on 30 September 2009, is expected to produce gross
proceeds of approximately $144.6 million. These two
transactions are considered positive, strengthening the
company’s position in the timber processing market whilst
the additional share placement will assist managing debt and
funding the company’s growth activities.
Figure 8 – Gunns Gearing 2006-2009
(net debt/equity) against the Lonsec database
The company’s improved liquidity position is a product of its
ongoing debt management strategy. At a micro level, the
company reduced its overdraft and short term bank loans
considerably, from $276m in FY2008 to $45m at the end of
FY2009. Despite this Lonsec believes it would be
advantageous from a risk management perspective to
continue to improve its liquidity, especially in light of the
constrained cashflow within the MIS fund raisings sector.
8.5. Cash Flow Summary
In FY2009, Operating Cash Flow contracted significantly,
falling approximately 20% frorm FY2008 as a result of the
decline in revenue across most of its operations.
Investing cashflow improved in FY2009 from the previous
year with divestments of $173m, reduced MIS and plantation
establishment costs and wound back acquisitions. These
factors resulted in a net investing cashflow of $81m, up from
a $362m deficit in FY2008.
400%
350%
300%
Overall Gunns’ net cashflow marginally improved for the
period to $40m in FY2009, up from a net deficit of $55m in
the previous year. Financing cash flow was the most
significant drain on cash, which was due to debt repayments
undertaken during the year as mentioned above. Overall
financing cashflow fell from $237m in FY2008 to a deficit of
$95m in FY2009.
N
LY
250%
200%
150%
100%
50%
2006
2007
High
Median
2008
Low
2009
GNS
O
0%
Lonsec Opinion –Financial Resources
E
Lonsec considers Gunns financial resources to be relatively
strong. The reduction in debt and continued diversification of
its business through the purchase of ITC Timber is
considered positive.
PL
8.4. Liquidity
SA
M
Liquidity and working capital have become an increasing
concern for many agricultural businesses in recent times as
debt financing costs place pressure on companies to
generate sufficient cash to sustain ample liquidity to operate
the business and service debt. Figure 9 below shows Gunns
quick ratio in comparison to the Lonsec database.
Figure 9 – Gunns Quick Ratio 2006 – 2009
against the Lonsec Database
Gunns diversified structure provides insulations to the
difficulties being faced in the MIS sector. However, despite
this Lonsec believes that Gunns must now clearly define
what are its core operations and focus on optimising
synergies within these areas in order to benefit from its
diversified structure.
Lonsec also considers GNS capital management activities to
be well timed and effective, which has helped manage the
businesses exposure to fixed financing costs, whilst enabling
the business to pursue growth opportunities.
14.0
Quick Ratio
12.0
10.0
8.0
6.0
4.0
2.0
0.0
2006
High
2007
Median
2008
Low
2009
GNS
Gunns’ quick ratio, a key measure of liquidity, shown in
Figure 9 improved marginally between FY2008 and FY2009
for 0.4 to 0.6. Acknowledging this measure only represents
the position at balance date, it does give a fair indication of
Gunns financial structure and liquidity.
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
12
Gunns Limited – Manager Profile
8.6. Directors’ Shareholdings
Figure 10 outlines the shareholding interests of the Directors of Gunns Ltd, as at 30 June 2008.
Figure 10 – Gunns Directors’ and other Shareholdings as at 30 June 2009
Shareholder
No. of Shares
% 2009
% 2008
Gunns Ltd Directors
15,563,311
1.9%
3.5%
R.T Gray
481,910
0.1%
0.1%
R.T.J Holyman
597,969
0.1%
0.1%
P.D Teisseire
60,000
0.0%
0.0%
D.J Simmons
-
0.0%
0.0%
C.J Newman
2,775,684
0.3%
0.5%
R.V Millar
3,836,881
0.5%
1.3%
29,579,082
2.9%
5.6%
Other Shareholders
773,634,714
96.3%
94.4%
Total
803,213,796
Directors’ Total
N
LY
J.E Gay
8.7. Financial Statement Summary
100.0%
100.0%
O
Table 1 - Summary of Gunns Ltd Financial statements – 2006 to 2009
Gunns Ltd
AIFRS
2006
Year ended 30 June
AIFRS
2008
AIFRS
2009
637.6
5.1
31.1
673.8
642.7
153.5
(29.8)
123.6
(27.1)
65.4
673.9
15.3
17.8
682.2
664.4
176.9
(72.2)
104.7
(23.6)
63.3
858.8
29.2
36.6
904.8
868.2
138.6
(60.7)
78.3
(7.9)
33.9
767.1
49.2
33.9
829.0
795.2
111.5
(40.1)
71.5
(3.6)
34.0
23%
10%
5.1
26%
8%
2.5
15%
4%
2.3
13%
3%
2.8
305.3
1,141.7
1,447.0
252.9
465.1
718.0
729.1
1.21
310.2
1,504.0
1,814.2
198.3
723.4
921.7
892.5
1.56
404.2
2,176.6
2,580.8
577.0
1,021.6
1,598.6
982.2
0.70
321.8
2,134.4
2,456.2
283.9
850.5
1,134.3
1,321.9
1.13
308.2
128.4
5.4
431.1
59%
542.5
36.7
17.9
561.4
63%
705.3
353.1
9.5
1,048.9
107%
554.2
108.2
8.1
654.4
50%
(8.1)
66.9
(157.5)
80.9
(9.6)
(17.8)
0.27
(17.8)
(15.6)
(143.8)
190.5
31.1
13.4
-0.07
13.4
69.5
(362.1)
237.3
(55.2)
(41.8)
0.18
(41.8)
55.3
80.6
(95.4)
40.4
(1.4)
0.13
SA
M
PL
E
PROFIT AND LOSS ANALYSIS ($m)
Lonsec Adjusted Operating Revenue*
Other Revenue
Gain/(Loss) for change in fair value of biological assets
Reported Revenue
Lonsec Adjusted Revenue**
Earnings Before Interest and Tax
Net Borrowing Cost (less Interest Income)
Reported Profit Before Tax
Lonsec Adjusted taxation expense
Lonsec Adjusted Net Profit After Tax
(before asset revaluations)
EBIT/Sales Ratio
Adjusted Return on Equity
Interest Cover (Times)
AIFRS
2007
SUMMARY BALANCE SHEET ($m)
Current Assets
Non-Current Assets
Total Assets
Current Liabilities
Non-Current Liabilities
Total Liabilities
Net Assets/Shareholders' Funds
Working Capital Ratio
GEARING ($m)
Long Term Debt
Short Term Debt
Less Cash at Bank
Net Debt
Net Debt/Equity
SUMMARY CASH FLOW ($m)
Opening Cash
Operating Cash Flow
Investment Cash Flow
Financing Cash Flow
Net Cash Flow
Closing Cash
Current Cash/Debt Coverage Ratio
* Reported operating revenue less in change in fair value of biological assets and, interest revenue
**Reported revenue less in change in fair value of biological assets
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
13
Gunns Limited – Manager Profile
9. Credit Risk Assessment
The Lonsec Agribusiness Credit Risk assessment (Table
9.1) provides a graphical snapshot of a range of key risk
measures used to quantitatively and qualitatively identify
Gunns relative and comparative exposure to debt, financing
counterparties and the overall risk created by financing to
future solvency.
These risks, outlined in Table 9.1, identify the relative level of
financing risk adopted by the corporate entity in its financing
operations and the counterparty risks associated with the
parties involved in these transactions. At the project level,
this analysis shows Lonsec’s opinion of the risk to projects
and their investors created by the investor financing
arrangements and the potential risk to the corporate entity
generated by investor default, investor loan structures and
agreements, and the counterparties associated with the
project/investor finance arrangements.
Risks (in Table 9.1) are categorised as Low, Moderate or
High, based on Lonsec’s opinion of the risks inherent in the
financing arrangements used by Gunns and the agreements
between counterparties at both an investor and corporate
level.
Table 9.1: Credit Risk Assessment
Corporate Credit Risk and Exposure
Low
N
LY
Short-term Liquidity
Debt Ratio
Leverage (Debt/ Equity)
Counterparty Risk (Credit Risk)
Project Credit Risk and Exposure
Moderate
High
High
E
O
Low
Counterparty Risk (Credit Risk)
Project finance structure & securitisation
Default Risk
Risk Level
Moderate
SA
M
PL
Corporate Credit Risk and Exposure refers to the elements
which create financing risk and uncertainty for the corporate
entity. This analysis provides the basis for Lonsec’s opinion
of Gunns risk in relation to the company’s level of short and
long term gearing, level of liquidity and relevant exposure to
counterparty risk inherent in the financing arrangements.
The Project Credit Risk and Exposure identifies the risk to
Gunns generated by investor loan arrangements. The
finance terms, associated counterparties, including third
party financiers, in addition to rates of default recorded by
Gunns within other projects, provided a measure of the
relative risk associated with the project finance
arrangements.
Lonsec Opinion – Credit Risk
Compared to other managers, Lonsec believes that Gunns’
risk level in relation to leverage, is moderate, and has
improved significantly over the last 12 months as a result of
its debt reduction activities discussed previously.
Lonsec believes that the corporate borrowing used by Gunns
is satisfactory, with the use of reputable credit sources and
acceptable protocols. However, Lonsec believes there is
some risk inherent with Gunns on-balance sheet financing of
MIS grower investors, which exposes the company to grower
default risk. Whilst Lonsec acknowledges that the company’s
grower default level is relatively low, based on a review of
the broader industry grower defaults rates, the trend is
increasing. As a result Lonsec prefers that managers use
reputable third party financiers for the majority of grower
investor loans.
In comparison to its peers within the agribusinesses sector,
Gunns’ moderate level of gearing, well diversified cash flows
and use of reputable credit sources place it towards the
lower end of the relative risk spectrum. However, on an
absolute basis, the company’s debt exposure and the risk
profile of the industry means that the company is inherently
exposed to a moderate level of risk from the issuance of
finance to growers and the use of debt financing.
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
14
Gunns Limited – Manager Profile
Appendix: List of MIS Investment Options offered by GPL
Financial Year
Offered
Area (ha)
Amount raised
($m)
GPL Woodlot 2000 - Opt 1 - Euc Pulpwood
GPL Woodlot 2000 - Opt 2 - Euc Veneer & Pulpwood
GPL Woodlot 2000 - Opt 3 - Pine Veener & Sawlog
GPL Woodlot 2001 - Opt 1 - Euc Pulpwood
GPL Woodlot 2001 - Opt 2 - Euc Veneer & Pulpwood
GPL Woodlot 2001 - Opt 3 - Pine Veneer & Sawlog
GPL Woodlot 2002 - Opt 1 - Euc Pulpwood
GPL Woodlot 2002 - Opt 2 - Euc Veneer & Pulpwood
GPL Woodlot 2003 - Opt 1 - Euc Pulpwood
GPL Woodlot 2003 - Opt 2 - Euc Veneer & Pulpwood
GPL Woodlot 2002 - Opt 1 - Euc Pulpwood (2)
GPL Woodlot 2002 - Opt 2 - Euc Veneer & Pulpwood (2)
GPL Woodlot 2004 - Opt 1 - Euc Pulpwood
GPL Woodlot 2004 - Opt 2 - Euc Veneer & Pulpwood
GPL Woodlot 2003 - Opt 1 - Euc Pulpwood (2)
GPL Woodlot 2003 - Opt 2 - Euc Veneer & Pulpwood (2)
GPL Winegrape 2004
GPL Woodlot 2005 - Opt 1 - Euc Pulpwood
GPL Woodlot 2005 - Opt 2 - Euc Veneer & Pulpwood
GPL Winegrape 2005
GPL Woodlot 2006 - Opt 1 - Euc Pulpwood
GPL Woodlot 2006 - Opt 2 - Euc Veneer & Pulpwood
GPL Woodlot 2006 - Opt 3 - Pine Sawlog & Pulp
GPL Woodlot 2005 - Opt 1 - Euc Pulpwood (2)
2000
2000
2000
2001
2001
2001
2002
2002
2003
2003
2003
2003
2004
2004
2004
2004
2004
2005
2005
2005
2006
2006
2006
2006
164
179
110
670
495
75
13,271
1,742
11,025
1,376
422
194
4,291
467
3,780
624
90
9,773
1,426
41
7,418
1,945
1,137
1,238
0.8
0.9
0.5
3.2
2.4
0.4
52.4
6.9
44.1
5.5
1.7
0.8
19.3
2.1
15.1
2.5
5.3
60.6
8.8
3.2
46.0
12.1
7.0
7.7
GPL Woodlot 2005 - Opt 2 - Euc Veneer & Pulpwood (2)
2006
104
0.6
GPL Winegrape 2005 (2)
GPL Walnut No. 1
GPL Woodlot 2006 - Opt 1 - Euc Pulpwood (2)
GPL Woodlot 2006 - Opt 2 - Euc Veneer & Pulpwood
2006
2006
2007
35
69
10,322
2.7
2.6
64.0
2007
7,527
46.7
(2)
2007
3,357
20.8
GPL Winegrape 2007
GPL Walnut No. 1
GPL Walnut No. 2
GPL Winegrape 2007 (2)
GPL Walnut No. 2 (2)
GPL Woodlot 2008 - Opt 1 - Euc Pulpwood
GPL Woodlot 2008 - Opt 2 - Euc Veneer & Pulpwood
GPL Woodlot 2008 - Opt 3 - Pine Sawlog & Pulp
GPL Woodlot 2009 - Opt 1 - Euc Pulpwood
GPL Woodlot 2009 - Opt 3 - Pine Sawlog & Pulp
GPL Woodlot 2009 - Blend (Opt 1, 2, 3)
GPL Walnut No. 3
2007
2007
2007
2008
2008
2008
2008
2008
2009
2009
2009
2009
50
38
73
30
485
14,376
2,263
333
3,459
109
1,168
284
3.9
1.4
2.1
2.4
14.2
98.0
15.0
2.0
23.5
0.7
8.3
9.1
106,035
627
PL
E
O
N
LY
Project Name
SA
M
(2)
GPL Woodlot 2006 - Opt 3 - Pine Sawlog & Pulp
Total
A summary of Lonsec Manager Rating System is available on the Lonsec website.
For more details please feel free to contact Lonsec.
Amber Irwin
Research Assistant
Ph: 03 9623 6358
Fax:03 9623 6393
amber.irwin@lonsec.com.au
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
15
Gunns Limited – Manager Profile
Date Prepared: 25 November 2009
Analyst: Tom Bourne
Release Authorised by: Jim Blackburn
IMPORTANT NOTICE:
The following Warning, Disclaimer, Disclosure and Analyst Certification relate to material presented in this document published
by Lonsec Limited ABN 56 061 751 102 ("Lonsec") and should be read before making any investment decision.
O
N
LY
Warnings:
Past performance is not a reliable indicator of future performance
Any express or implied recommendation or advice presented in this document is limited to “General Advice” and based
solely on consideration of the Managers Competencies, without taking into account the investment objectives, financial
situation and particular needs (“financial circumstances”) of any particular person. It is not a recommendation to purchase, sell
or hold any financial products provided by the Manager, and the reader must consider whether it is personally appropriate in
light of his or her financial circumstances or should seek further advice on its appropriateness before making an investment
decision.
Disclosure as at the date of publication:
Lonsec did not receive a fee from the Project Promoter for rating the manager(s). However, Lonsec may release research
separately form this document that relates directly to a particular financial product(s) provided by the Manager and for which
Lonsec may receive a fee.
Lonsec do not hold the product(s) provided by the Manager referred to in this document. Lonsec’s Directors, officers,
representatives, and their associates, may hold the product(s) provided by the Manager referred to in this document, holdings
which may change during the life of document, but none receives or gains any other benefit as a consequence of the
recommendation or advice presented in this document. Lonsec considers such holdings not to be sufficiently materially to
compromise the recommendations or advice, and the Analyst at the time of publication is not aware of any holdings.
Analyst Certification:
The Analyst(s) certify that the views expressed in this document accurately reflect their personal, professional opinion about
the Managers Competencies to which this document refers.
SA
M
PL
E
Disclaimer:
This document is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by
any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of
the information presented in this document, which is drawn from public information that has not been verified by Lonsec.
Lonsec does not accept any liability arising from errors in or omissions from information provided to it about Manager.
The conclusions, recommendations and advice contained in this document are reasonably held at the time of completion but
are subject to change without notice and Lonsec assumes no obligation to update this document following publication.
Actual results may differ significantly from projections and estimations, and nothing in the report should be treated as a
guarantee, promise or representation as to the future. Except for any liability which cannot be excluded, Lonsec, its Directors,
employees and agents disclaim all liability for any error or inaccuracy in, or omission from, the information contained in this
document or any loss or damage suffered, directly or indirectly by the reader or any other person as a consequence of relying
upon the information.
Lonsec Limited ABN 56 061 751 102 • AFSL No. 246842 • Participant of ASX Group
This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
16