re: intelligent investor watching 2005 AUSPINE ANNUAL GENERAL...

re: intelligent investor watching 2005 AUSPINE ANNUAL GENERAL MEETING
CHAIRMAN’S ADDRESS
DELIVERED 24 NOVEMBER 2005
Good morning Ladies and Gentlemen and welcome to the 2005 Auspine Annual General
Meeting.
I am disappointed in having to deliver my first Chairman’s Address for Auspine Limited
for the 2004 / 2005 Financial Year when Auspine has produced a very poor result after a
year of difficult operational and trading conditions.
The Annual Report for the year ended 30 June 2005 has been delivered to shareholders
and is a comprehensive document, which sets out in detail the position of the Company,
together with corporate governance and other legal requirements.
We experienced a reduction in revenue and an increase in costs as a result of basically
commissioning new plant installations. This occurred at a time when the market for
timber products became extremely competitive.
Our production targets were not achieved and as a result we lost out in sales in a period of
reasonable product demand.
Woodchip sales were also affected by lower sawmill production as well as low pricing
and high exchange rates.
However, I am pleased to say that the first five months of the 2005 / 2006 Financial Year
have delivered an improved sales and production result.
Outlook
The outlook for housing is for a continued decline in housing starts with a forecast
reduction of 5 to 7% over the year to 30 June 2006.
2
During the year, the Company further restructured its operations. In response to this,
Management has commenced a business wide review of all costs with an emphasis on
reductions in discretionary expenses. Individual managers have been encouraged to
adopt an entrepreneurial approach to the management of their business units and will be
rewarded accordingly.
Management has also identified additional savings from further restructuring
opportunities. These savings will begin to take effect during the latter part of the current
financial year and should fully impact the 2006/07 financial year.
All production sites have developed capital works programs designed to:
• extract greater value from the plantation resource;
• optimise existing capacity utilisation;
• reduce production costs;
• widen the range of products available to the Company’s customers; and
• seek alternative revenue streams from plantations.
The Company is committed to the maintenance of a safe and productive workplace and is
pleased to announce the renewal of its Workers Compensation self-insurance status for its
South Australian operations. This provides the opportunity for the Company to manage
directly injured employees and is a major cost-saving initiative.
The Company has further refined its recruitment and selection processes. This has
improved the overall calibre of the workforce and is a major investment into the future.
Profit Guidance & Current Year to Date Trading
The Company’s financial performance for the first 5 months of the current financial year
is ahead of the previous year.
Whilst current trading conditions remain competitive, both in price and volume, the
Company has been able to achieve encouraging operational improvements to its
production facilities.
Our Tarpeena and Scottsdale sawmills are both achieving lower operational unit costs
due to Management initiatives as well as realising the benefits of the Capital Expenditure
undertaken on both sites over the past 2 years and programmed improvements in
workplace relations that were commenced five years ago.
3
Year to date wholesale sales of timber products are some 6.0% higher in volume than the
comparable 5 month period last financial year.
Similarly sales of our Auspine Prefab operations in Adelaide are marginally ahead of the
same period last year.
Export sales of softwood woodchip have been very strong for the first 5 months of the
year. Further outlook of these exports remains buoyant.
To date, the 2005/06 year is proving to be a difficult one for some of our business units.
Whilst sales revenue is also above last year, operating margins have been squeezed by
cost pressures, particularly in freight and logistics, and by having to reduce some prices
in order to retain market share. Various initiatives are in the process of being examined
to offset these factors in the second half.
It is anticipated that pressure will remain on pricing for at least the remainder of this
financial year.
Dividends
The Company is mindful that the last dividend payment was disappointing and will be
working hard to restore normality in its franked dividend performance.
Balance Sheet Values
Increases in value of freehold land sales within the Green Triangle region remains a
concern.
The land assets in the Company’s accounts are valued fairly but conservatively.
The underlying land values are becoming very difficult to support with cash earnings
from plantation forestry and sawmilling not keeping pace with land values.
Standing Timber Insurance
As per the Board’s decision last financial year, we will not insure our own plantations.
Insurers have increased premiums and reduced coverage to a point where insurance does
not represent value to the Company.
4
Auspine believes that we have a track record of being able to manage plantation fire risk
very effectively over many years. This has not been given satisfactory recognition by
insurers.
Frenchpine
On the Corporate front, we continue to be proactive in identifying and evaluating
compatible clip-on businesses that will add value to shareholders and replicate the recent
addition of Tasmanian Sawmiller, Frenchpine, completed on 31 October 2005 at a cost of
$35.0 million.
The business generated turnover of $35.0 million and will be earnings positive in the
current year. This acquisition cements the Company’s position in the Tasmanian Market
and secures the future of the softwood industry in Tasmania.
This is a strategic move for Auspine providing an opportunity to consolidate the future of
the Tasmanian softwood sector and present much brighter prospects for employees at
both Auspine’s and the former Frenchpine Scottsdale mills. Now referred to as
Tonganah and Ling Siding respectively.
Michael John Lloyd
It was with immense sadness that Auspine farewell it’s immediate past Chairman,
Michael Lloyd who passed away on 25 January 2005.
Michael’s involvement with the Company’s operations commenced in the early 1960’s.
Michael was a strong believer in the Company, its people and its potential. His presence
at the Board Room table is sadly missed.
Our People
Attracting and retaining committed and proficient people in the midst of a buoyant labour
market has been a key challenge for the Company. This challenge is made all the more
difficult given our regional disposition and the ongoing imperative to reduce unit costs.
Conclusion
In conclusion, I wish on your behalf to thank my fellow Directors and all employees for
their dedication and loyalty over a difficult and challenging year.
Paul D Teisseire
Chairman of Directors Dated: 24 November 2005