I agree Molonski,as john Lawrence says in part below
When GSL originally announced their intention to purchase investors’ interests in the 6 tree projects only 9 months figures for the latest financial year were available. The full 12 months figures have now been released. The result is a shocker, a $64m loss. This is after finance costs of $73m, write off of doubtful loans to disgruntled MIS investors of $57m and write off of impaired (vanished?) goodwill of $30m. Worse still was the deterioration in the cash position by $116m over the full year.
Even more interesting in the full year’s accounts is the change in accounting policy with respect to future project management fees. As a rule revenue is included as income when it is earned not when it is received. But only when it can be reliably measured. In the past, project fees were not recognised as income until the value of the project’s net harvest proceeds were calculated.
However the 2008 full year’s accounts contain a change. GSL has now determined that reliable measurement of the net proceeds from the harvest of plantation projects can be made after approximately 4 years of timber growth. GSL has included $17.4m as management fees, $1.4m to be received in the next year and $16m thereafter. Some of the revenue won’t be received for 6 years. But it’s been booked in this year’s accounts. It helped boost the bottom line (or partially offset the loss). A bold move. Shades of Eddie Groves from ABC Learning , now a legend when it comes to revenue recognition. Eddie could recognise revenue at 150 paces. Eddie bought some day care centres in September 2007 for $72m. When accounts were prepared, he reckoned he should have paid $123m so he booked the $51m difference as revenue, a discount on acquisition. A few days later his bank margin called him. Financial oblivion soon beckoned.
To put it in perspective, GSL has been managing tree plantations since 1994. GSL is now admitting that from 1998 onwards it has had reliable information about plantation yields. Yet it continued to say that 250m3 per hectare was a reasonable yield after 10 years. For GSL to make such an admission now is quite staggering, seeing as lawyers acting for aggrieved investors have already suggested misleading and deceptive conduct by GSL and failure to make adequate disclosures at material and relevant times.
GTP Price at posting:
12.5¢ Sentiment: None Disclosure: Not Held
