GUNNS PLANTATIONS LTD| ABN 36 091 232 209 PO Box 588 Launceston Tasmania Australia 7250 | 78 Lindsay Street Launceston Tasmania Australia 7250 T 03 6335 5290 | F 03 6333 0646 | www.gunns.com.au/plantations Grower Update 30 July 2012 Gunns Plantations Ltd Woodlot Projects 2000 - 2009 & Great Southern Plantations 1998 - 2006 Projects (Woodlot Projects) Introduction As a grower in the Woodlot Projects, Gunns Plantations Ltd (GPL) wishes to draw the following information to your specific attention, which concerns impairments made by GPL’s parent company, to the parent company’s accounts. Impairment of MIS Receivable by Gunns Limited As previously informed, GPL contracts the forest management functions in respect of Woodlot Projects to its parent company, Gunns Limited (Gunns). For the GPL Woodlot Projects 2002 - 2009 and the Great Southern Plantations 1998 - 2006 Projects, in consideration for providing forest management services Gunns receives the entitlement to the deferred Maintenance Fee from the Scheme Proceeds. These fees receivable are recognised by Gunns as "MIS Receivables". In applying its accounting policies, Gunns reviews the carrying value of assets on a regular basis. Where appropriate, impairment charges are recorded against the carrying value of relevant assets to reflect management's estimate of the recoverable value of those assets. The assessment of the recoverable value of MIS Receivables involves significant judgements by management. These include estimates of future growth rates, management costs and the sale value of products. Over the past two years, Gunns has impaired the value of their MIS Receivable asset. These impairment charges are detailed in Gunns’ financial reports. (Please refer to Half Year and Full Year Results of Gunns Limited - http://www.gunns.com.au/investors/investorsasx-announcements/). Gunns have recorded specific impairment charges based on the following assessments: GUNNS PLANTATIONS LTD| ABN 36 091 232 209 PO Box 588 Launceston Tasmania Australia 7250 | 78 Lindsay Street Launceston Tasmania Australia 7250 T 03 6335 5290 | F 03 6333 0646 | www.gunns.com.au/plantations Pulpwood Stumpages (31 December 2011) Based on an assessment of current market conditions and foreign exchange rates, a reduction in the assumption for hardwood plantation pulpwood stumpages was applied. Growers should refer to the GPL quarterly grower updates for commentary regarding the current market conditions, and the impact of foreign exchange rates. GPL Woodlot Projects - Planting Option 2 (31 December 2011) The following comment was reported by Gunns in its 31 December 2011 financial report: "The Company reviewed its outlook for the value of the MIS veneer Projects. This has impacted the value of the deferred fees receivable from deferred harvest proceeds with an adverse profit and loss impact of $18.5Mil". GPL understands that this impairment charge is based on Gunns' judgement that the future stumpage payable for the veneer logs derived from Option 2 of the GPL Woodlot Projects will not be of a sufficient premium (over stumpage received for pulpwood) to warrant growing the trees on for 20 years and that the optimal return from these Projects would be obtained from harvesting on a 13 - year rotation for pulpwood. This issue is currently under review by the GPL Board. Yield Predictions (June 2010 and June 2011) Gunns recorded impairments to its MIS Receivable predominantly to reflect Gunns' volume (yield) predictions for the MIS estate. Growers in the GPL Woodlot Projects would be aware that GPL has a policy of publishing forecast growth rates based on measured inventory results, (as soon as they are available for each of the GPL Woodlot Projects, at approximately age 6-7).
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In undertaking its review, Gunns has applied an in-house developed tool (“MAI Calculator”) to estimate the forecast growth rates prior to the conducting of measured inventory. GPL understands that Gunns' estimates based on application of the MAI Calculator indicate a weighted (by area) average standing MAI (at Age 15) of the GPL (Tasmanian) estate of 18.4 cubic metres per annum per hectare.
GUNNS PLANTATIONS LTD| ABN 36 091 232 209 PO Box 588 Launceston Tasmania Australia 7250 | 78 Lindsay Street Launceston Tasmania Australia 7250 T 03 6335 5290 | F 03 6333 0646 | www.gunns.com.au/plantations Growers should note that, although it is not based on measured inventory, it is likely to indicate that growth rates will be lower than those forecast in the relevant PDS. Growers should be aware that there are a considerable number of factors that can influence growth rates over the life of a plantation including climatic effects such as temperature and rainfall and the occurrence of pests and diseases, many of which are outside the control of GPL. GPL will continue to make growers aware of any results of measured inventory when they become available. ASX Release – 2nd July 2012 As previously informed, Gunns issued an ASX Release on the 2nd July 2012 which referred to the on-going review of the values of its forestry related assets. GPL will inform Growers of any further relevant updates issued by it’s parent company. Growers should note that the market outlook for wood remains very difficult due to the reasons outlined in previous disclosures. The situation is being closely monitored. A further quarterly Grower Update will be released shortly, Yours sincerely, Regards, Ian Blanden Chief Executive Officer
GNS Price at posting:
16.0¢ Sentiment: Sell Disclosure: Held
