South Perth-based bamboo flooring products company Style Ltd will write down the value of its assets by $1.3 million after exiting from its obligations at the Wanzai plantation in China.
South Perth-based bamboo flooring products company Style Ltd will write down the value of its assets by $1.3 million after exiting from its obligations at the Wanzai plantation in China.
The company decided to exit the agreement following the receipt of an independent report that confirmed substantial damage caused to the plantation in an ice storm would take around four years to regenerate.
"The company has formed the view that these events render the project not viable and have hence sought to exit the project," Style said.
The project involved both sourcing from third party plantations and the acquisition and development of a plantation asset at Wanzai.
The company said it had reached an in-principle agreement with relevant Chinese authorities to exit the agreement.
As a result, the company said it will write down the value of its assets by $1.3 million, but will benefit from a reduction in ongoing annual leasing costs of $769,000.
The company will also cancel 2.75 million director options that had conditions association with the project.
Below is the full announcement:
Style Limited is pleased to advise that the new management team is continuing to make progress in implementing the strategy articulated in June, namely to strengthen the existing business model to drive top line revenue, accelerate strategic partnerships to increase its competitive position in key priority markets and to test market breakthrough products.
We wish to advise the market of two matters noted below.
- Wanzai Plantation project update
- Settlement of previous franchisees dispute
These matters will be further addressed in the finalisation of the financial statements for the year ended 30 June 2008, which currently are being prepared.
Plantation update
The management team has reviewed the Wanzai Plantation project previously announced in November 2007. This project involved both the sourcing of bamboo from third party plantations and the acquisition and development of a
plantation asset at Wanzai.
The review follows the receipt of an independent report by the Company confirming the substantial damage caused to the plantation by the previously advised ice storm in February 2008 and that it will take approximately four
years to regenerate. The Company has formed the view that these events render the Project not viable and have hence sought to exit the project.
In relation to the above the Company wishes to advise that it has reached inprinciple agreement with the relevant government authorities in China to exit from its obligations relating to the Wanzai Plantation project.
As a result, the relevant government authorities will release the Company from its obligations to develop the plantation and industrial land in return for the Company handing back its rights to the plantation to the government authorities and contributing $300,000 to the cost of local wages for clearing and initial development of plantation and industrial land to date.
The net effect on the Company of this agreement will be to write down the value of assets by $1.3m representing a $784,295 reduction in the carrying value of Biological Assets and $242,000 of Land Rights Use. The Company will benefit from a reduction in ongoing annual leasing costs of RMB 5 million ($769,000) and absence of a commitment to develop the plantations and industrial site.
The Board will also cancel 2.75 million Director Options that had vesting conditions associated with the successful commercialization of the Wanzai plantation project.
This event is not expected to result in any disruption to the supply of materials to the Company.
Litigation Resolution
The Company historically distributed its products via franchisees in Australia.
The Company sold the entity holding these franchisee arrangements in April 2005. The Company then entered into distribution arrangements with other parties that continue and does not distribute any products via any of the previous franchisees.
As disclosed in the Annual Report for FY07, the Company had commenced legal action to recover an outstanding debt against former franchisees. It was also disclosed that one party had lodged a counterclaim and that another party had notified its intention to lodge a counterclaim.
Following recent legal advice and further discussions with the franchisee representatives, the Company has reached an in principle settlement agreement that will involve the Company paying the franchisees $675,000 and the
cessation of action by all parties. This will be provided for in the Company's balance sheet as at 30 June 2008.
Resolution of this matter will enable the Company to close off a potentially costly and time-consuming piece of litigation.
