interesting view on mis from gunns

http://www.businessspectator.com.au/bs.nsf/Article/Ian-Blanden-pd20090522-SA7FG?OpenDocument&src=sph



Ian Blanden, the head of Gunns Plantation Ltd, the group's managed investment scheme (MIS) vehicle, tells Business Spectator's Isabelle Oderberg:

* It would be unfortunate if the market started to believe all MIS is bad, because of the problems at Timbercorp and Great Southern
* MIS schemes offer the opportunity for diversification of farm income, providing farmers with security and offering choice to other landowners
* The difference between Gunns, Timbercorp and Great Southern is a diversification of revenue stream, with Gunns not being solely reliant on revenue from MIS
* MIS makes up 10 to 15 per cent of Gunns' annual revenue
* Great Southern and Timbercorp are suffering from corporate issues, but that doesn't mean their investments aren’t still valuable.




Isabelle Oderberg: Can you tell me about what sort of demand you are seeing for your timber products?

Ian Blanden: Well, Gunns has existing demand or existing markets for approximately four million tons of wood a year, and that comes from in relation to woodchips. It also comes from both export and domestic markets for the production of softwood sawn timber and again both domestic and export customers for the production of hardwood veneer.

IO: Can you break down for me what are the kind of woods that are being produced and where the demand's coming from for the different categories?

IB: For the MIS plantations that are being grown, they're being grown for essentially three or four main products. There's hardwood pulpwood which supplies the current woodchip export market but is also being grown to supply our proposed pulp mill in the Bell Bay area. There's also the production of hardwood veneer, which will supply as I said, both domestic and export markets and that is either sliced or rotary veneer that produces things like panelling, desk tops, doors, laminated veneer lumber type of products and then thirdly there's softwood plantations which are being grown for sawn timber and that's designed mainly for the domestic market and that's usually for the construction market both construction and decorative market but for essentially homes and infrastructure and buildings.

IO: We did an interview with the CEO of Elders Malcolm Jackman and he was saying that they've had eight or nine phone calls from Japan wanting to secure supply in the wake of the collapse of Timbercorp and Great Southern so I'm just wondering what that says about demand for the products that are being produced. Are you getting similar kind of queries?

IB: I couldn’t comment on whether we've received similar phone calls in that it's not my area essentially managed investment scheme for Gunns but it's not surprising in that there is a high demand for the product particularly both for export woodchip markets and predominantly Japan and to an increasing degree China but also for domestic purposes as in domestic pulp and paper mills.

IO: Could just differentiate for me, between Timbercorp, Great Southern and Gunns, the product offerings of each group?

IB: I prefer not to comment directly on Timbercorp and Great Southern, but suffice to say that our forestry investments are generally less expensive than the two companies that you named. The structure of our projects aren’t that dissimilar and it would be unfortunate if people believed 'all MIS is bad' or that 'all MIS won't work', just simply because of the fact that there are two organisations in the sector struggling financially at the moment.

Our business model is very different in that what we have had to do over the last couple of weeks is to differentiate ourselves and our business model. We are a forest products company who have established an agribusiness investment or forestry investment arm. We're not an MIS company that is looking for markets for the produce that it's producing. We've already got the markets and we're looking to produce the resource using forestry investments in the form of MIS so in that way we're an end user looking for a resource, not a resource searching for an end user and we have a very diversified source of revenue, MIS making up somewhere between 10 and 15 per cent of our annual revenue to the Gunns group.

IO: You mentioned it would be a shame if all MIS were coloured by what's been going on recently in the market. Can you explain for investors that are feeling jittery invested in Gunns why that shouldn’t be the case?

IB: Well as I said, the strength of the Gunns group is in the fact that we have a diversification of revenue streams and that we're not solely reliant upon revenue from our managed investment schemes and annual sales to continue in business and that provides strengths to the overall group and provides strengths to be able to have the recurring cash flow to keep in operation. It's that diversification of income streams. It's the fact that we don't rely heavily on the income streams from managed investment schemes to keep our ongoing business and it's the fact that we already have existing markets and processing plants for growers' wood. In that respect we are already harvesting or providing returns to growers in our first two wood-lot projects. That's wood-lot project 2000 and 2001 and we are conducting a commercial thinning of those projects as we speak and delivering returns to those growers.

IO: What proportion of Gunns' business is in MIS?

IB: Well out of the 200,000 hectare estate that we manage about half of it or 100,000 hectares is owned by investors in our forestry investments and then in addition to that we have about just under 250 hectares of wine grapes that are owned by investors in our MIS and about 650 hectares of walnuts that are owned by investors in our managed investment schemes.

IO: How comfortable are you with the MIS investments and their stability going forward?

IB: Very, very comfortable with it. Obviously, the current situation with the two companies that are currently struggling has an impact on the sector and the industry and we're concerned about that but we are actively speaking and communicating with our investors, our growers, to ensure that they are fully informed about our situation and how the differentiation if you like between us and the two organisations that are currently struggling.

IO: Does the MIS model have a future going forward?

IB: We strongly believe that it does have a future going forward. As I said it would be unfortunate in the current situation if people believed that all MIS won't work. We certainly don't believe that. We believe that it does work and we believe that it is a great opportunity for investors and members of the public in the city to invest in projects which provide benefits to people in rural and regional areas of Australia.

IO: You sound very confident in the MIS investments that you have. Why do you think yours will work when theirs didn’t?

IB: I'm not saying that theirs didn’t. They're obviously suffering some problems corporately, but that's not to say that their investments or their investors investments aren’t out there and growing. Trees don't look at the stock market, trees don't look at the ASX. They're still out there growing. So this doesn’t necessarily have an impact upon the quality of the resource that's sitting out there growing.

IO: It's about the demand for the trees that are still growing.

IB: Absolutely. Part of it is about the demand for the produce that's being grown by the investors absolutely and so we are confident, back to your question, we are confident because we have existing markets for the wood that's being produced. We have existing infrastructure and processing plants in place and we've been growing plantation trees in Tasmania where the bulk of our forestry investments are located for a long period of time now. We've been growing plantations since the 1960s and hence are very comfortable with the areas in which we're growing these trees.

IO: What's the market for the land that the trees are on, like?

IB: Well we aren’t in the market looking to sell any land so I can't speak too much about that in that we certainly aren’t looking at trying to offload any of the land we have…

IO: No but perhaps you might be looking at buying up some of the land that's going to come onto the market, looking at it from the other direction.

IB: Well yep. Couldn’t comment in relation to land that may be on the market with the two organizations you mentioned but just in general in terms of land purchase and lease I would have to say that we're not actively seeking much new land in that we're placing greater reliance upon land that we have owned historically. Land in which we have taken off a crop of plantation and replacing it with a new crop of plantation so we're not actively in the market looking for large areas of land but in general in Tasmania the land market has been very tight. There's been lots of competition from non-forestry areas such as dairy and other forms of traditional agriculture.

IO: Has there been any expression within Gunns of interest in buying any of the assets that may come up for sale.

IB: Couldn’t comment on that I'm sorry Isabelle.

IO: What are the positive benefits of MIS?

IB: Well from our perspective we see positive benefits for investors. As I say bringing funds in general from urban areas back into regional and rural areas. Providing employment for people establishing, maintaining and adding value to these plantations but we also see great value for land owners in our situation, in Tasmania, whereby we provide choices to those land owners. They can lease a portion of their properties to us, continue on their properties farming and conducting traditional agriculture on parts of their properties and leasing other parts of their property to us for forestry purposes and in that way it's a diversification of farm income which provides them some great security and to other landowners it provides some choices if they wanted to exit the farming arena.