Great Southern Plantations Limited
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Great Southern Limited ABN 54 052 046 536 Financial Statements 30 September 2007 For personal use only Contents Page Key Personnel 2 Review of Operations 22 Directors’ Report 25 Remuneration Report 34 Corporate Governance Statement 47 Financial Report 52 Directors’ Declaration 113 Independent Audit Report to the Members 114 Auditor’s Independence Declaration 116 Shareholder Information 117 For personal use only Corporate directory Directors D C Griffiths Chairman J C Young Managing Director A McCleary P J Mansell M L Peacock C A Rhodes P C Butlin Secretary N J Hackett Notice of Annual General The Annual General Meeting of Great Southern Limited will be held in Meeting the Ball Room, Parmelia Hilton Hotel, Perth, WA at 10am (WST) on Thursday, 28 February 2008. Principal registered office in 16 Parliament Place Australia West Perth WA 6005 Telephone: (08) 9320 9700 Facsimile: (08) 9321 9288 Share and Transferable Computershare Investor Services Pty Ltd REset Exchangeable Level 2 Securities TREES series 2 45 St George’s Terrace (TREES2) registry and Perth WA 6000 TREES series 3 (TREES3) registry Auditor Ernst and Young The Ernst and Young Building 11 Mounts Bay Road Perth WA 6000 Solicitors Freehills Minter Ellison Level 36 Level 49 QV1 Building Central Park 250 St George’s Terrace 152 St George’s Terrace Perth WA 6000 Perth WA 6000 Bankers ANZ Banking Group Limited 77 St George’s Terrace Perth WA 6000 Trustee for TREES2 and Australian Executor Trustees Limited TREES3 holders 80 Alfred Street Milsons Point NSW 2061 For personal use only Stock exchange listing Great Southern Limited shares are listed on the Australian Stock Exchange under the code GTP. TREES2 are listed on the Australian Stock Exchange under the code GTPGA. TREES3 are listed on the Australian Stock Exchange under the code GTPGB. Website address www.great-southern.com.au - - 1 - - KEY PERSONNEL Executive Committee The Group’s senior executive team is referred to as the Executive Committee. The Executive Committee is responsible to the board for all areas of corporate strategy and operational performance of the Group. The Executive Committee currently comprises: John Young Managing Director Cameron Rhodes Executive Director and General Manager Phillip Butlin Executive Director and General Manager - Corporate Development Julian Dayman Chief Operating Officer Neil Hackett Company Secretary and General Manager – Corporate Services Simon Martin Chief Financial Officer Stuart Moran General Manager - Sales and Marketing For personal use only - - 2 - - Great Southern Limited Great Southern Limited is Australia’s leading forestry and agricultural fund manager. We provide a means for Australians to participate in large-scale forestry and agricultural projects focused on growing commodities that are in demand globally, particularly from expanding Asian markets. The company’s rapid growth has positioned Great Southern at the very forefront of the industries in which we operate. In the Australian Agricultural market, Great Southern is: The largest plantation forestry company and in the top 5 commodity producers for Beef cattle Wine grape Olives Almonds Poultry - Chickens For personal use only - - 3 - - Chairman’s message Dear Shareholders I am pleased to present your company’s 2007 annual report. The past year has been a challenging one for Great Southern and one that has presented the Company with opportunities as well as some disappointments. Notwithstanding the strong underlying economic strength of the economy the Company did not hit its sales targets which resulted in a 10% reduction in MIS product sales resulting in a 3% reduction in sales revenue which flowed on to a 25% reduction in the underlying net profit after tax to $99.6 million. The board elected to make a provision for the impairment of horticultural assets as a prudent measure due to the uncertainty that surrounds this sector reducing net profit before tax to $71.5 million down from $133 million in the year ending 30 June 2006. As a result of this reduction the final dividend was struck at 8 cents per share reducing the full year dividend to 12 cents per share. This was clearly a disappointing result and can in part be attributed to the uncertainty arising from the then Coalition Government’s and Australian Taxation Office’s position on non forestry MIS and in part to the impact of the changes which allowed one off contributions of up to $1 million to individuals superannuation funds. The shortfall in the sales of Great Southern’s traditional pulp wood plantation product was also disappointing however this project has now been restructured and significantly enhanced, which should provide a basis for increased sales moving forward. The year did however yield some promising opportunities that can provide a sound base for the coming year. The regulatory regime for the Company’s plantation based projects was settled by the Commonwealth Government and we expect the framework to remain in place for the foreseeable future. This gives the Company a level of certainty it has not experienced before and this combined with the launch of a new plantation timber project offers an exciting future for Great Southern in this sector. With the purchase of Rural Funds Management Ltd. during the year the Company has procured a well established rural funds manager which provides a base for Great Southern to leverage its considerable rural expertise to take advantage of the recent investor interest in soft commodities and grow a non-MIS based rural investment fund. While the immediate impact on the Company’s profit will be relatively small, Great Southern believes this fund will grow to become a very important arm of the business and one which will provide steady recurring returns to the Company. The future of the MIS industry in the non forestry sector remains unclear however the new Federal Labor Government’s policy does call for a comprehensive review of the sector. Great Southern will be a keen participant in this review and will be poised to take advantage of any positive outcomes. The future position is also dependant on a test case between the industry and the Australian Tax Office to be heard in the Federal Court. Based on its legal advice Great Southern remains confident that this test case will support the industry’s position. While Great Southern remains cautiously optimistic that it will be selling non-forestry MIS products beyond 2008 the Company will not stand still waiting for the out come of this review. We have announced a new strategic plan which will centre on new forestry projects which are less capital intensive and growth into the non MIS rural funds management. We expect this model to improve longer term cash flows and make them more commensurate with profits. Because of the changes to the timing of revenue recognition arising from the new plantation forestry product profits will be lower next year but should improve the following year as the recognition of the balance of the sales receipts flows through to revenue. Dividends in the coming year will reflect cash availability and future expected profits and will not necessarily reduce with the profit reduction. For personal use only This annual report is the first that the company has produced under its new reporting timetable with a 30 September financial year end. This change is seen as more appropriate to the company to reflect the seasonal nature of its agricultural operations and business model, and enables us to provide more meaningful information to shareholders and the broader market. However it will mean that investors will need to be careful when comparing results with previous reporting periods. - - 4 - - On 10 December 2007 Great Southern announced that its founder Mr John Young will stand down from his role as Managing Director after the Company’s annual general meeting in February but will remain as a major shareholder and non-executive director of the Company. This is a significant change for the Company. John has lead the Company from inception to its position where it is now Australia’ largest agribusiness investment manager. The Company has planned for succession and it was very pleasing to appoint Cameron Rhodes as the new managing director. Cameron has had a great deal of experience in a senior management role within the company and is widely recognized as leader in the agricultural managed investment scheme sector. The Board is very confident that Cameron has all the qualities required to lead Great Southern in executing its growth plans. The impact of water shortages and climate change on yields and the appreciation in the value of the Australian dollar are providing significant challenges to the rural sector however there are also opportunities arising from improving prices for soft commodities and improvements in production techniques. Great Southern with its internal expertise and its carefully selected and geographically diverse estate is well placed to meet these challenges and capitalise on the opportunities. While it has been a disappointing year for shareholders it has been a very challenging and taxing one for our board and staff. I would like to thank them all for their endeavours and commitment to the company. I would also like to give a very special thanks to John Young and acknowledge his outstanding contribution over the years. Finally I would like to thank shareholders for their patience and support. David Griffiths Chairman For personal use only - - 5 - - Managing Director’s message Dear Shareholders The past year has presented some substantial challenges for Great Southern Limited. Drought conditions throughout many regions of Australia, competition from a one-off opportunity for investors to make contributions of up to $1 million to their superannuation fund and legislative uncertainty combined to create a tough environment for sales. As a result, sales of the company’s investment products totalled $412 million, somewhat lower than anticipated.