vote no - shut down the schemes, page-11

suggest you read this Marri,Ireckon you know all about anyway---sorry just ranting

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Attention ASX Company Announcements Platform
Lodgement of Open Briefing®
Great Southern Plantations Limited
1205 Hay Street
West Perth, Western Australia 6005
Date of lodgement: 02-Jun-2005
Title: Open Briefing®. Great Southern. MD on Growth Outlook
Record of interview:
corporatefile.com.au
Great Southern Plantations Limited forecast in a presentation in early May that
managed investment schemes (MIS) sales would reach $400 million for the year to
30 June 2005. What progress are you making towards that target?
MD John Young
We’re on track for our forecast total sales of $400 million for the year. Our first
Organic Olive Project, which has just closed fully subscribed, raised $19 million.
The 2005 Vineyard Project 2 has also just closed fully subscribed, and with the
Vineyard Project that closed in March, total vineyard MIS sales of $31 million are
nearly double the amount raised last year. Overall, our total sales for the year to
May 31, 2005 are up approximately 60 percent compared with the same period of
last year.
corporatefile.com.au
Last year Great Southern had around 37 percent of the agribusiness MIS market
and it would seem that you’ll at least maintain market share this year given
industry predictions of total MIS sales of $800 million to $1.0 billion sales in
2005. What is driving your sales momentum?
MD John Young
Our products are successful because of the way they’re structured. They’re simple
to understand with a single upfront payment that maximizes the tax efficiency and
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creates certainty for investors. The large majority of our clients borrow from us to
invest. We have comprehensive finance packages allowing clients to borrow up to
100 percent secured against the project.
Our emphasis has always been on the strength and stability of both our products
and our company. Our investors have a high level of confidence in our ability to
deliver returns as they fall due, as demonstrated by the fact that we’re about to pay
returns from the FY05 woodchip harvest to our 1994 plantation project investors.
Our distribution network is also a significant asset. We have a highly trained, hard
working sales team which has a good relationship with accountants and financial
planners. This is best demonstrated by the FY05 interim sales result of $80
million which was higher than any delivered by our competitors for the year to 30
June 2004. It is also worth noting that we expect approximately 65 percent of
FY05 sales to come from existing clients. This repeat business has underpinned
compound annual sales growth of almost 50 percent per annum over the past 10
years.
Our management team has made sure that the whole company is in a position to
deliver projects that meet sales demand. This has meant that our land acquisition,
land mapping, land preparation, forestry services and Head Office administration
are all capable of dealing with the growth targets we have set and consistently
achieved.
corporatefile.com.au
What guidance can you provide for FY06 and what longer term growth rates in
sales and profits are achievable?
MD John Young
Another year of solid economic growth is forecast for Australia with real GDP
growth of 2.5 percent to 3 percent and full employment. We’ve had strong
demand for all our products and we are starting to see returns going back to
investors from the 1994 projects which takes us full circle. We’ll probably see
moderate growth in FY06 with our target sales at approximately $525 million to
$550 million.
corporatefile.com.au
Until 18 months ago your MIS product was purely plantation forestry projects.
Can you explain your strategy of product diversification into grape vines, olives
and cattle?
MD John Young
Plantation forestry represents almost 70 percent of all agribusiness invested in the
MIS industry last year and it remains Great Southern’s core product. As we
diversify, forestry will fall from 93 percent of Great Southern’s FY04 sales to
about 85 percent in FY05 and it’ll fall again in FY06, but it will still be our
dominant product.
We’ve carefully chosen our new products to meet a series of key criteria. Firstly,
the product must have a global end market. Our woodchips are exported to the
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pulp and paper industry in South East Asia, our grapes are made into wine, much
of which is sold overseas, and organic virgin olive oil is sold in Australia and
overseas. We aim to be in the top 25 percent of Australian cattle producers.
Australia has enormous opportunities in neighbouring South East Asian markets
and our growers’ agriculture products will benefit from Australia’s proximity to
these markets.
The second criterion is size. We are the largest operator in the hardwood
plantation timber industry in Australia and we aim to take dominant positions in
viticulture, olive oil and cattle. Large players have economies of scale and can
deliver consistent quality to processors.
The final key factor is the long term supply/demand outlook for the agricultural
product underlying our projects. For example, the long term outlook for organic
olive oil is very strong based on the health benefits of olive oil and the general
consumer trend towards higher margin organic products. Similarly, the strong
growth in GDP per head in Asian countries will create further demand for
Australian beef.
corporatefile.com.au
What was the strategy behind the recent acquisitions of Sylvatech for $41 million
and assets from Environinvest for approximately $55 million?
MD John Young
Sylvatech is all about land and Environinvest is all about a new project that we can
offer to the market.
Land is the key issue for woodchip exports to the pulp and paper industry of South
East Asia and Sylvatech gives us potentially 100,000 hectares of long lease
property. About 9,000 hectares of Sylvatech’s high rainfall, good quality land will
be available for our 2005 project which represents a capex saving for us of over
$45 million. Of course, we’ll continue our land acquisition program throughout
the rest of Australia.
Environinvest is the only significant provider of cattle in the MIS industry. We
acquired a small amount of forestry land with it, but primarily we’ve taken over
their cattle projects. We are buying grazing land on King Island and in Victoria
and access to leased land in NSW and Queensland. We’re buying intellectual
property, assets and experience gained over four projects. From June 30 cattle
projects will form a part of our MIS raisings.
corporatefile.com.au
Plantation forestry operations achieved an EBITDA to sales margin of 63 percent
in FY04. Will the new projects generate similar returns, or are grapes, olives and
cattle more management intense?
MD John Young
The new projects are structured and managed in exactly the same way as the
forestry operations and all our projects will return similar sales margins to Great
Southern shareholders. Non-forestry management has been outsourced and we’ll
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use our existing team to oversee operations. As the non-forestry operations grow
we may take certain of the out-sourced functions in-house if it is cost efficient for
us to do so.
corporatefile.com.au
You have now had several years of tax office product rulings. How do they work?
MD John Young
It’s important to note that Great Southern growers do not get any special tax
treatment. There is no special section of any tax act that refers to our growers or to
MIS. Our growers are conducting businesses and the tax deductions that our
clients are allowed are exactly the same as the deductions that the typical business
operator gets for his costs. The difference is that the tax office rules (through the
ATO product ruling) in advance on the tax deductibility of the costs that represent
the growers investment in a Great Southern product.
The tax office introduced these product rulings in FY98. Product rulings allow us
to pool our clients’ investments into large projects and provide deductibility
certainty to the investor, removing fear of an audit in arrears. The first ever
product ruling for an agricultural product was for a Great Southern product and
we’ve had rulings on all our products ever since.
Product rulings work extremely well. While individual investors receive
deductions, Great Southern pays significant tax on its profits, we employ in excess
of 150 people directly and about 500 indirectly who pay income tax and growers
are starting to pay tax on their returns with the 1994 project investors receiving
income from the FY05 harvest.
corporatefile.com.au
The recent budget announced an extension to 30 June 2008 of the 12 month prepayment
rule. What does this extension mean to your business?
MD John Young
The 12 month prepayment rule is important because the tax year and the
agricultural year are not always aligned. The tax legislation provides MIS
plantation timber companies with flexibility in the timing of delivering the service,
namely the clearing and planting of the trees etc that gives rise to the tax deduction
for growers. The 12 month prepayment rule was introduced under a 25 year plan
for plantation timber, called Vision 2020, to encourage a viable private plantation
industry in Australia and to address Australia’s significant trade deficit in timber
products. The last budget extended the 12 month rule for another two years to 30
June 2008 when it will be reviewed.
corporatefile.com.au
To what extent have you established a recurring income base?
MD John Young
Our model is to generate sales upfront rather than spread the payments from
growers over several years as our clients do not like making ongoing payments.
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The success of this approach is evident in the growth in our market share to 37
percent last year and probably more this year.
As two thirds of our business comes from our existing customer base we look at
this as a “recurring revenue base”. Our customer network is very strong and very
loyal. Several of the sales strategies we provide include on-going investment in
Great Southern product.
We’ve also matched our cash flow from sales with land purchases which has
reduced future capital requirements to finance land purchases as the land
purchased can be re-cycled in future projects. For example, we are now harvesting
the 1994 pulpwood project and that land should be available for us to use again
against this year’s sales without the capex cost of buying the land.
The outcome of this approach is that as we move into the second rotation of our
land bank, profit becomes much more closely matched with cash flow. Our land
bank also becomes a very significant barrier to entry into the market place for any
new entrant and makes our land bank a key strategic asset. We have estimated the
unencumbered replacement cost of our pulpwood land bank at today’s prices at
over $800 million.
corporatefile.com.au
Can you explain the strategy of securitising your MIS loan book?
MD John Young
Rather than having assets tied up on the balance sheet in a loan book, the sale of
the loans unlocks cash flow to grow MIS project sales which in turn generate
higher returns for shareholders.
corporatefile.com.au
The annual dividend in FY04 was 10 cents fully franked on fully diluted EPS of
40 cents. Will the Board consider lifting the 25 percent dividend payout ratio in
FY05?
MD John Young
We will keep the payout ratio around 25 percent while we continue to reinvest
retained profits to meet growing demand for MIS projects.
In the medium term, as our land capex requirements are reduced by the increasing
availability of harvested land for second rotation into MIS, and we generate
increasing revenues from our percentage take of our plantation, grape and olive
harvests, I expect we’ll lift the payout ratio.
As the company’s cash reserves increase dividends will be our first priority.
corporatefile.com.au
Thank you John.
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For more information about Great Southern Plantations, please visit
www.great-southern.com.au or call Great Southern 1800 258 348
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