11/11/2009 - 12:41

Cash-flow woes sink Great Southern

11/11/2009 - 12:41

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Almost one year before Great Southern collapsed under a mountain of debt, board members of the agribusiness provider were acutely aware the company faced a serious cash-flow problem.

Cash-flow woes sink Great Southern

Almost one year before Great Southern collapsed under a mountain of debt, board members of the agribusiness provider were acutely aware the company faced a serious cash-flow problem.

Hampered by poor economic conditions and regulatory factors, Great Southern's sales force was falling tens of millions of dollars short of its targets for the 2007-08 financial year.

Details of Great Southern's financial position leading up to its collapse are contained in more than 500 pages of analysis and creditor information put together by administrator Ferrier Hodgson.

Great Southern's controversial 2008 program called Project Transform - now at the centre of litigation - has emerged as one of the key attempts to save the company.

"[The board] noted that if Project Transform did not result in a successful outcome, or MIS sales were unexpectedly low, or the planned sale of assets did not proceed, then there was significant uncertainty as to whether [Great Southern] would continue as a going concern," the administrator wrote.

Project Transform involved Great Southern acquiring the interests of investors in selected pulpwood and cattle schemes in exchange for shares that later became worthless. The transaction was designed to tap into the value of its land bank by removing the MIS leases.

Sufficient numbers of investors in two cattle projects agreed to the proposal, leading to a compulsory exchange for all affected investors.

Nonetheless, Great Southern's cash flow problems continued, with the administrator largely attributing its dire financial position to a 79 per cent fall in annual managed investment scheme sales from its peak in 2006.

Great Southern went on to record a $352.1 million after tax loss in the seven and a half months before being placed in administration in May this year. This followed a $64.5 million loss in the preceding 12 month period.

Its net debt to equity ratio had escalated from 60 per cent in 2007 to 134 per cent at the time of its collapse.

Ferrier Hodgson has recommended that further investigation needs to occur in several transactions, including Project Transform.

The administrator also said further investigations needed to occur in regards to a $2 million retirement benefit paid to Great Southern founder John Young.

Ferrier Hodgson has, however, indicated the company was probably not trading while insolvent, as the administrator was called in immediately after Great Southern's financiers formally turned down an application for bridging finance on May 15.

Roughly 43,000 investors and 12,000 shareholders were left reeling from the demise of the one-time agribusiness heavyweight.

The administrator has recommended the company be liquidated.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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