Risky: Gunns revenues down 20%

Posted: 8 September 2006 in Australia, Gunns

Since 2002, the Australian government has provided generous subsidies for industrial tree plantations. The government is currently reconsidering tax benefits for investors in plantations. Naturally the pulp industry and its supporters are up in arms.

For example, Allan Hansard, acting CEO of the National Association of Forest Industries says, “We think the Government’s current proposal is unworkable and will create significant uncertainty for the industry. We hope they are carefully rethinking whether they need any change to the existing tax arrangements.”

When tax benefits were cut in 1999, there was a 70% drop in investment in plantations. The government set up the current tax benefits in 2002, as part of an election commitment.

In August 2006, Gunns announced to the Australian Stock Exchange that its profits had collapsed, as Jarvis Cocker, a consultant specialising in the Australian financial sector, points out on the Tasman!antimes website. Revenues fell by 20%. The volume of woodchip exports was lower than the every analyst in Australia expected. Meanwhile Gunns’ share price fell from just over A$3.20 in April to about A$2.60 in early September. In August, Deutsche Bank sold its approximately 5% share in Gunns.

Cocker points out that the Tasmanian media completely failed to ask what this might mean for Gunns’ proposed A$1.5 billion pulp mill. Without subsidies for plantations, Gunns proposed pulp mill starts to look distinctly shaky. As NAFI’s Hansard says “The continued development of plantations is crucial for the future of the forest industry as the plantations resource provides the feedstock for value added processing and is a critical factor in the Gunns pulp mill proposal.”

Add rocketing oil prices into the equation and Gunns’ pulp mill looks like an increasingly risky venture.


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