Gunns shares tumble in steep first-half profit fall


Shares of Gunns slumped after news of the profit slump, falling to an 11-month low of 73 cents before recovering a little to 77c by late morning, still down 11 cents or 13 per cent.

The benchmark S&P/ASX 200 index was 1.6 per cent higher.

Gunns chairman John Gay said that trading conditions in key markets were extremely difficult in 2009, including soft wood chip demand in Japan, and resulted in depressed earnings, with a stronger Australian currency affecting competitiveness in Asia.

Revenue from wood fibre sales fell 38 per cent on year to $140.6m. This market will remain weak and only gradually improve through 2010, he said.

The Chinese market is growing, but pricing remains highly competitive due to the strength of the Australian dollar and short-term surpluses of low-priced competing products, he said.

“The company expects significant earnings improvement and the reinstatement of a dividend payment in the second half,” although this in part depends on the outcome of woodchip price negotiations for 2010, he said.

Meanwhile, Bell Bay is at “project-ready status to allow us to immediately commence construction on financial close,” which hasn’t yet been achieved, he said.

Talks with Swedish forest products co-operative Sodra continue over an equity partnership, with talks also underway with purely financial investors, he said.

Gunns’ board wants to remove what Mr Gay said is the “uncertainty” surrounding the future of the project, with a market update scheduled for April.

The recent soft market for export woodchips has reinforced the merits of the mill: in a period where wood fibre value was static, the value of pulp increased significantly with a strong outlook, he said.

“The investment merits of the Pulp Mill project will be enhanced by providing potential investors with the ability to invest in both the Pulp Mill and the underlying forest resource,” so Gunns is restructuring its business to achieve this, Mr Gay said

An investment product will be set up to facilitate direct investment in the more than $1bn plantation assets held by Gunns, which aren’t reflected in its market capitalisation, he said.