Gunns says market remains difficult
Monday August 31, 2009, 6:47 pm
Woodchipper Gunns Ltd has booked a virtually flat annual net profit and says the market for forest products remains difficult.
Gunns also says it is still negotiating the financing of its $2.2 billion pulp mill project at Bell Bay in Tasmania.
As it released its annual results on Monday, Gunns also announced it will acquire the ITC timber processing division, ITC Timber Pty Ltd, from rural services company Elders Ltd, financed through a $145 million capital raising.
The ITC forestry and managed funds divisions have not been sold.
Gunns booked an annual net profit for the 2008/09 financial year of $56.24 million, down one per cent on the prior year.
Gunns chairman John Gay said the outlook for Gunns’ forest products business remained difficult.
“Wood fibre sales are largely dependent on the Japanese market, and economic conditions are expected to remain weak through at least the course of the first quarter of the 2010 financial year, with the strengthening Australian dollar adversely impacting our competitive position,” Mr Gay said in a statement.
Gunns said it was acquiring the timber processing division of ITC for an enterprise value of $100 million.
The acquisition will be funded with a $145 million fully underwritten one-for-four non-renounceable pro-rata entitlement offer at 90 cents per share.
Gunns shares closed at $1.145 on Thursday, before entering a trading halt ahead of the capital raising.
Gunns said the balance of the funds to be raised would give it flexibility to pursue other acquisitions or to reduce debt.
The ITC timber business includes two manufacturing sites in Victoria and two in Tasmania.
It also includes a 50 per cent stake in Smartfibre, a joint venture with Forest Enterprises Australia Ltd, which exports hardwood chips.
“This acquisition creates a business with significant scale and a distribution footprint across Australia and southeast Asia and the ability for the group to strengthen its presence in the most viable wood baskets in Australia,” Mr Gay said.
The transaction is expected to deliver annualised earnings before interest and tax (EBIT) of about $20 million.
In June, Gunns announced it had selected a preferred joint-venture partner for its pulp mill project at Bell Bay in Tasmania.
“Negotiations are continuing positively,” Gunns said on Monday.
“In parallel with the joint-venture process, Gunns has continued to progress negotiations with project finance banks.”
Mr Gay said that, during 2009, export and domestic construction demand for forest products weakened, particularly in the third quarter.
But they stabilised in the last quarter and were expected to improve through the 2010 financial year.
Gunns’ main business, forest products, experienced a six per cent fall in annual revenue and a 13 per cent decline in earnings before interest and tax (EBIT) in 2008/09.
Mr Gay said disruption to the managed investment scheme (MIS) sector caused by the collapse of Timbercorp and Great Southern had significantly affected sales in Gunns’ MIS business.
Gunns said it was working on a possible role in the ongoing operation of assets presently managed by Timbercorp and Great Southern Plantations.
The restructure of the MIS sector was generating significant opportunities for the expansion of Gunns’ forestry interests.
Revenue for the year ended June 30, 2009, fell 10.7 per cent to $769.34 million.
The company declared a final dividend of two cents per share, compared to four cents in the prior year.
Gunns’ total dividend for the year was four cents per share compared to 10 cents in the previous year.