nasty surprise

SMH


The reporting season has thrown up few negative surprises as companies increasingly comply with regulatory pressure to release bad news as it comes to hand. One exception is the timber company Gunns, which surprised the market on Monday by reporting a 24 per cent revenue slump that left it with a half-year profit of just $400,000 - down 98 per cent.

The result sent Gunns' share price into a tailspin, falling 21 per cent on the day of the result, and trending lower as the week progresses.

Yesterday the company responded to an ASX query about the timeliness of its disclosure by pointing to a number of statements made about tough trading conditions in recent months. However, the market had not realised just how severely a downturn in Asian markets for woodchips and a rising Australian dollar would eat into corporate profits.

The poor trading results leave Gunns scrambling to restructure in a fashion that will allow it to obtain finance for its long-delayed $2.2 billion pulp mill at Bell Bay. The company has told investors that it hopes to name the investors in the project, but unless profitability improves, funding for the pulp mill may take a secondary role to survival in the board's mind in coming months.

Elsewhere in the timber sector, Forestry Enterprises Australia went into a trading halt last night. The company has been negotiating amendments to $200 million of financing facilities for some time, and expects to make an announcement in relation to financial covenants and finance facilities by Friday morning.