Great Southern raises $143m in agribusiness project sales

Shares in West Perth-based Great Southern Plantations Ltd have fallen over 8 per cent today despite the company raising in excess of $143 million in sales from its 2006 agribusiness projects.

At market close, the company's share price had fallen 34 cents to $3.62.

The 2006 agribusiness projects include the Great Southern Beef Cattle, Winegrape and Organic Olives with the sales figure eclipsing last years $51 million raised from non forestry income projects.

The Great Southern Plantations 2006 Project remains open until 30 June, and will continue to account for a significant proportion of managed investment scheme sales in the current financial year.

Great Southern managing director John Young has been reported in saying the company's range of agricultural investment products is a deliberate long term strategy that will underpin future growth.

"We believe we've achieved the highest market share within non-forestry agricultural investment products, and we expect to maintain the largest share of the plantation project market," he said.

"This sales success demonstrates the strength of our distribution network, our management and resources and our ability to develop, package and distribute diversified investment products to a growing market."

Mr Young said despite a number of new projects coming to market late this year, the company achieved the $143 million of sales within a short time frame and without detriment to its existing business.

Great Southern has also purchased Wrotham Park cattle station in North Queensland for $53.5 million from Australian Agricultural Company. The sale includes the land (594,430 ha), branded cattle and plant and equipment.

In May, Great Southern launched its 2006 Beef Cattle project, believed to be the only cattle managed investment scheme offered in the Australian market this year, providing investors with the ability to breed, own and sell beef cattle.

The project, with an entry price of $10,000 (plus GST), is 100 per cent tax deductible for the investor, with 80 per cent deductible in the current financial year.

Below is the full announcement:

Australia's leading agribusiness manager, Great Southern, (ASX code: GTP) is pleased to announce that it has now closed its 2006 Agribusiness Income Projects.

The Great Southern Beef Cattle, Winegrape and Organic Olives 2006 Income Projects have together raised in excess of $143 million in sales in the current financial year.

This represents an increase of approximately 180% from the $51 million raised in non forestry income projects last year.

The attached Managing Director's Open Briefing provides further analysis of this sales performance and the outlook for Financial Year 2006 earnings.

The Great Southern Plantations 2006 Project remains open until 30 June, and will continue to account for a significant proportion of MIS sales in the current financial year.

Open Briefing.. Great Southern. MD on Sales and Outlook

Record of interview:

corporatefile.com.au
Great Southern Plantations Limited has announced sales of agribusiness income products of $143 million for FY06, an increase of approximately 180 percent on FY05, and your forestry project still remains open. How do you assess this sales performance?

MD John Young
We`re very pleased with our sales performance because the introduction and sale of a number of different agricultural investment products, namely wine grapes, olives and cattle, is a deliberate long term strategy that will underpin the future growth of the company. We believe we've achieved the highest market share within non-forestry agricultural investment products, and we expect to maintain the largest share of the plantation project market. This sales success demonstrates the strength of our distribution network, our management and resources and our ability to develop, package and distribute diversified investment products to a growing market.

Despite a number of our new projects coming to market late this year, we've achieved this high level of sales within a short time frame and without detriment to our existing business. Given that we already have Product Disclosure Statements available for all our existing projects for FY07 and the majority of product rulings have already been issued, we're well placed to build on our success next year and beyond.
corporatefile.com.au
Last year non-forestry projects accounted for around 14 percent of total sales. Based on sales to date and your expectations for the balance of FY06, non- forestry projects will apparently account for around 30 percent of your total sales. Why have you diversified into non-forestry income products, and what are your future plans for these products?

MD John Young
There are a number of reasons for our diversification strategy. In the past we focused on our plantations because to be successful in forestry it is vital to achieve large scale operations with an optimum, sustainable level of resources. However, our plantations have now reached a level of maturity at which sales can continue at current levels while we look for additional growth opportunities. Alternative agricultural investment projects provide an attractive base for our future growth. There are a number of agricultural commodities with international markets, strong potential demand and opportunities for economies of scale that we can distribute through our large distribution network. We therefore see income agricultural products contributing a rising proportion of our total sales.

corporatefile.com.au
Why are these income agricultural products proving to be popular with investors?

MD John Young
More and more investors are seeking alternative investments and our newer projects are delivering a tax efficient, alternative diversified investment with regular income streams, which are particularly attractive to older investors whose retirement savings are under funded. With the new changes to superannuation, building investments and income outside superannuation is increasingly important.

These products are not purely about tax deductions, they provide a diversified investment with regular income and competitive returns.

corporatefile.com.au
How do the profitability and capital expenditure requirements of these new products compare with the plantations projects?

MD John Young
All our products are expected to provide a return above our cost of capital.
Expanding our products to include annual income generating products enables us to manage our capital more effectively and reduces our dependence on raising new equity to grow. In previous years the capex requirement of growing our sales by approximately 50 percent per annum has been a challenge. Now that forestry has achieved critical mass we're placing greater emphasis on balance sheet management resulting in slower group sales growth, but providing a lower risk profile, as well as allowing us to reduce our cost of capital.
In addition, with increasing sales of income agricultural products we'll derive a higher proportion of revenues from on-going management fees and will be less reliant on new product sales. For each income agricultural product sales dollar we expect to generate a further two dollars of revenue in future management fees over the life of the projects. Whilst ongoing costs will also be incurred against such revenue, we can achieve higher gross revenues on a lower sales growth rate.

corporatefile.com.au
The hardwood plantations project has historically been your major investment product. What's the outlook for plantation project sales as we approach the end of June 2006?

MD John Young
While sales are currently 30 percent higher than the same time last year, we anticipate closing the project at around the same level of sales as last year as an annual establishment level of around 35,000 hectares is the optimum in terms of land availability and capital requirements. We'll announce final plantation sales in the first week of July.

corporatefile.com.au
In May the Treasurer announced tax rate reductions and new tax thresholds. Do you expect that this will have any impact on sales in FY07 and beyond?

MD John Young
No, I don't believe so. Even ignoring the tax deductions, our projects are attractive investments providing diversification and investment in agricultural commodities with growth markets and the potential for high, regular income streams. We're providing investors with the opportunity to participate in corporate agriculture, which brings unique benefits, not only in efficiencies and economies of scale, but also the opportunity to participate in an emerging, competitive and sustainable industry that can take advantage of growth prospects in the Asia Pacific region. The changes to the tax rates should make these products even more attractive, as the income generated will be taxed at lower rates which should produce a higher after tax return on investment.

corporatefile.com.au

You've indicated that your group sales will be higher in FY06 than last year. What is the outlook for your FY06 earnings?

MD John Young
Whilst our revenue will certainly be higher than last year, our cost structure will be substantially higher. Subject to final sales to 30 June, and excluding the impact of accounting for our land under AIFRS, I expect a modest increase in net profit after
tax for the current financial year on an AIFRS comparable basis and a modest increase in EPS, even with the impact of conversion of TREES and new share issues during last year.

FY06 has been a year of consolidation and building a platform for the future. We've consolidated our plantation business and made substantial capital expenditure savings on land, particularly through the strategic acquisition of Sylvatech which gives us access to land on the Tiwi Islands. However, given its remote location, the operating costs of this plantation operation are higher.

Our fixed costs have risen substantially in FY06. To manage the quadrupling of sales over the last few years and the introduction of multiple products our business functions, such as accounting and finance, compliance, administration, IT, HSE, etc have required investment in systems with the capacity to provide a sound platform for future continued grow. In addition, we have had to expand our sales team to cope with the expanding market and multiple products in the coming years.
Whilst our operating cashflow will be ahead of last year, our profit margins will be lower than previous years' levels. However, we now have a sustainable cost structure that will facilitate future growth in earnings.

corporatefile.com.au
You flagged last year that one of the biggest impacts to the company of AIFRS is the carrying value of plantation land. How will these changes affect your FY06 results?

MD John Young
We own the majority of the land used in our plantations project which we regard as an investment that will increase in value over time. Under the new international accounting standards our investment property land is required to be recorded at fair value, and this value needs to reflect the encumbrance of the lease given to growers and the deferral of rental streams.
This AIFRS accounting treatment will add a degree of volatility to future earnings as an accounting loss is expected to be booked when the land is first leased to growers. This loss, however, is expected to reverse progressively over the following years as the lease term reduces to expiry and the land becomes unencumbered again.

In any financial year, assuming no major changes to the assumptions underlying
land values, the net impact on earnings will reflect the expected initial fair value
accounting loss from land leased that year to growers and the expected accounting
gain in fair value of the opening land bank at the end of the year, as the leases to
investors will be one year closer to expiry by the year's end.

For FY06 we expect the net impact to earnings from plantation land accounting to
be a loss as during the year we acquired a large amount of land and leased it to
investors. This expected net loss impact on earnings is accounting in nature and is
not a cash outflow.

In the future, given that we expect to hold new plantation sales at around current
levels, we expect the net impact to earnings from AIFRS accounting for our land
to become earnings positive. The size and value of our land bank is expected to
increase to a level at which the accounting gain arising from the leases that are
closer to expiry at the end of the year should more than offset the accounting loss
arising from land which has been leased to new growers.

corporatefile.com.au
You mentioned earlier that you are more focused on capital management. What
steps have you taken to improve capital management?

MD John Young
In addition to the land bank acquired with Sylvatech, the continued growth of
income agricultural products as well as the rotation of our existing plantation land
bank are providing more capital efficiencies. Our strong balance sheet and our
new income projects are allowing us to use gearing more efficiently, although we
intend to remain conservatively geared compared with our major competitors.
Initially, we've put a new $250 million facility in place with ANZ Bank to fund
the acquisition of cattle and vineyard properties, and we expect to increase our use
of debt in future.

We're also currently working with ANZ Investment Bank to potentially raise
around $200 million through a structured finance transaction of our pulpwood land
bank. We currently expect that recourse on any such financing could be limited to
a separate land bank trust entity and we hope to complete any transaction by the
end of the `07 calendar year.

We've also recently revised our loan securitisation arrangements with Adelaide
Bank under which we'll have no credit exposure at all to the investor loans that we
securitise. Our cashflow will increase as there will be no collateral or security
withheld and if, as we expect, the transactions are off balance sheet we'll have a
cleaner and more meaningful balance sheet.

corporatefile.com.au
There have been recent media reports suggesting that Managed Investment
Schemes (MIS) are having negative impacts on rural areas and are detrimental to
various agricultural sectors. What's your comment on that?

MD John Young
On the contrary I believe that MIS are positively impacting rural areas and are
beneficial to a number of various agricultural sectors. Great Southern is targeting
commodities which are produced in large scale operations and for which there are
large international markets. We are bringing efficiencies, employment
opportunities and economic and social benefits, particularly to rural areas. We're
participating in corporate agriculture and our business dealings are often between
other corporates. We're not dealing in small niche products with limited domestic
markets, which are more suited to smaller operators. Australia has a real
opportunity to be a major world player within the agricultural sector, especially in
the rapidly growing Asian markets, but we'll only realise this potential if
companies can own and operate large scale, efficient enterprises.

corporatefile.com.au
Finally, what is the outlook for FY07?

MD John Young
With the continued success and maturity of our plantations project and the success
this year of our cattle, organic olives and vineyards projects, were well placed to

build on past achievements, particularly given that we have product immediately
available for sale in FY07. The market for these diversified, tax efficient
investments with income streams is growing which will enable us to both grow
existing product and to look at new opportunities.

corporatefile.com.au
Thank you John.