26/05/2008 - 11:00

Great Southern suffers $49m loss

26/05/2008 - 11:00

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Investment manager Great Southern Ltd has commenced a strategic review of its business after reporting a worse than expected loss of $49.1 million for the half-year to 31 March 2008.

Investment manager Great Southern Ltd has commenced a strategic review of its business after reporting a worse than expected loss of $49.1 million for the half-year to 31 March 2008.

The company has previously foreshadowed that it would incur a loss but a blow-out in provisions for doubtful debts to $37.2 million made the loss larger than anticipated.

The latest result compared with a net profit of $14.9 million in the previous corresponding half-year.

Chief executive Cameron Rhodes said the company has begun a comprehensive strategic review of its business "to provide a more sustainable, transparent and valuable business that can become less susceptible to regulatory forces".

 

A Great Southern announcement is pasted below:

Half-Year Result

Great Southern Limited (ASX code: GTP) has today released its results for the half year ended 31 March 2008. As previously indicated to the market, the company has incurred a loss for the half year driven by the seasonality of MIS sales and increased provisions for doubtful debts.

The net loss after tax for the half year ended 31 March 2008 of $49.1 million (2007 $14.9 million profit) is the third time in the last four years that the company has incurred a half year loss, which reflects the fact that sales revenues are typically heavily weighted to the second half of the company's financial year.

Total revenue to 31 March 2008 was down 21% to $140.3 million, as a result of a $46.3 million reduction in MIS sales revenue for the period. As announced on 1 April 2008, the company's lower sales for the period were heavily influenced by the fact that a Beef Cattle Project was not offered for this year (2007 sales $78 million). Sales in the first half were also impacted by delays in receiving a product ruling for the company's new forestry project, which was subsequently issued on 23 April 2008.

The sales outlook for the full year is more encouraging and in this regard the company is pleased to advise that its 2008 Wine Grape Project has recently closed oversubscribed, having raised $27 million.

The company's olive, almond and two forestry projects remain open with considerable investor interest.

The result for the period has also been impacted by an increase in the provision for doubtful debts of $37.2 million. Whilst the majority of the company's MIS investor loans are securitised with no further default exposure to the company, there is a certain proportion of loans that do remain on balance sheet. An increase in debt provisioning in respect of these loans, driven by general market volatility and credit uncertainties, was flagged at the Company's AGM in February 2008. The quantum of the provision is now higher than was originally anticipated due to further provisioning in respect of a particular group of investors who no longer do business with the company. The company will continue to take appropriate action to recover the loans which have been provided for.

The Company's balance sheet remains robust, with net assets per share of $2.19, underpinned by its unique and diverse agricultural land portfolio. The company's gearing ratio (measured by total debt/total debt + equity) at 31 March 2008 was approximately 52% with cash as at 31 March in excess of $83 million.

Commenting on the result, Great Southern's new CEO Cameron Rhodes said "Our half year result has never been a good guide of operational performance for the year, particularly given the heavy weighting of MIS sales revenue to the second half of our financial year. That said, the increase in debt provisioning, is of course particularly disappointing and unacceptable and in that regard we have fully reviewed our loan approval and collection processes to improve the quality of any future loans."

"This year is a year of transition for Great Southern - a year in which we have committed to make changes to our business for the longer term benefit of the company and our shareholders. The decision not to offer a cattle project this year due to the significant capital funding requirements and operational pressures, as well as the hard line we have taken on debt provisioning, have significantly impacted the half year result but have placed Great Southern in a stronger position moving forward."

Strategic Initiatives

The company also advises that it has begun a significant and comprehensive strategic review process of its business. Commenting on the review Cameron Rhodes said "We are actively seeking to diversify our earnings, to leverage our strength and capabilities in the forestry sector and to significantly change the cost structure of the company. We have enormous opportunities in agriculture and in particular forestry and we are actively examining each facet of our business to provide a more sustainable, transparent and valuable business that can become less susceptible to regulatory forces. I expect this strategic review process to be completed over the next quarter and further details will be provided to the market at the appropriate time."

Interim Dividend

The Board of Great Southern has declared an interim dividend of 3 cents per share, fully franked, with a record date of 18 June 2008 and payable on 16 July 2008.

 

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