INTERVIEW WITH CAMERON RHODES, MANAGING DIRECTOR OF GREAT SOUTHERN LIMITED (GTP)

“GTP - Proposed Major Restructure of Great Southern”

http://www.brr.com.au/event/50786

TUESDAY, SEPTEMBER 2, 2008, 12:35 PM.

            BRR    Good afternoon and welcome to Boardroom Radio. Today, we are speaking with Mr. Cameron Rhodes, Managing Director of Great Southern Limited.

10                    Thanks for joining us today, Cameron.

            GTP     No problem, thanks. It’s nice to be here.

            BRR    Cameron, we see you’ve released an announcement detailing that Great Southern is about to go through an important restructure. What are some of

15                    the details of this and why is Great Southern taking this path?

            GTP     Sure. Well, really this is a combination of several months’ work where we’ve been strategically looking at our business and undertaking a comprehensive review of each part of our business in order really to try to build a more sustainable and transparent and of course valuable business moving forward.

20                    There have been a number of factors impacting upon our business over the last 12 to 18 months and a number of those, you know, external forces none more so than the (inaudible) (0:00:49) and government position with regards to MIS. And as a result of all those external influences, we thought it was appropriate, as I say to undertake a detailed strategic review. And our

25                    announcement really is the combination of that and through that process, what we’ve really identified are three key initiatives, two of which are well underway already and then the third and perhaps the most central component is the detail that we announced. So the three initiatives really are significant cost reduction program, really focusing on getting some synergies and

30                    efficiencies in our business. We’ve already reduced half numbers and we are looking at making some cost savings of around $30 million this year alone compared to 2008 levels, so that was the first initiative. The second was a sort of a reorientation and a refocus of our agricultural investment services business to ensure that we’re running that as efficiently and effectively as

35                    possible, and really looking at having offering investment products that makes a lot of sense for both us and the investors alike. And then the third and as I’ve said perhaps the most central component was in fact this proposal that we’ve made to offer investors in (inaudible) (0:02:04) managed investment scheme projects the opportunity to exchange their interest in the projects for

40                    shares in Great Southern.

            BRR    Cameron, you’ve talked about the investors exchanging their interest into shares of the company. What for you has been decided upon and how do you come to this figure?

45        GTP     Yeah, sure. What we really did for each of our projects that this offer relates to, which are our two cattle projects and six of our plantation projects. We assessed the future cash flows that investors in those projects would likely to receive and obviously just count them back into that today’s dollars and that comes up with a value. And based on that value, we’re saying exchange that value for shares in the company and then of course the question becomes what issue price do we set for the shares in the company which we set having regard for a number of factors. Obviously, one needs to look at and consider today’s share price, but now (inaudible) (0:03:04) that today’s share price just

5                      reflects the market’s value of the company as it stands today, which is a company that has, you know, one business stream being the agricultural investment services business whereas, you know, if this offer is accepted, we’ll be quite a different company. We would’ve transformed into a fairly robust agricultural company. We would be Australia’s largest integrated

10                    forestry company, one of the largest cattle companies as well as still having that market leading position in agricultural investment services. So we need to have regard for not only what the share price is today, but more perhaps importantly what the share price is as that new company that has those different business streams. And of course have regard for the asset backing,

15                    which at the moment is $2.13 per share and post transaction will still be a $1.46 per share. So we really needed to weigh all of that up and based on that, we determined that using a S1.10 share price was reasonable having regard for all of those circumstances. I think perhaps, the important point to stress here is that having done that, the independent directors of the

20                    responsible entity have appointed their own independent expert to assess whether Great Southern’s offer to each MIS investor is fair and reasonable and KPMG who were appointed as the expert have assessed. We offer for each project and they have determined that it is in the best interest of each of the schemes investors to vote in favour of the proposal.

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            BRR    Cameron, what are the benefits that are going to come out of this for Great Southern?

            GTP     Sure, there are a number really. I mean as I’ve said, we viewed that this is again quite a transformational process that we are trying to embark upon. At

30                    the moment, Great Southern is a market leader in what it does, which is offering agricultural investment products to retail investors and that’s still is going to be a very cool part of our business moving forward, but at the moment, that’s only a part of our business and of course, that has faced quite a lot of regulatory change and regulatory uncertainty in recent times and as a

35                    result being that all of our revenues are derived from that one single source, our company has suffered a little bit through that uncertainty. What we’re really doing through this process is transforming our business and making it much more of a robust agricultural company rather than simply just having that one string to our bow, we will have several. Importantly, by bringing the

40                    land and the agricultural commodities back together again. We’re unlocking (inaudible) (0:05:43) quite a lot of additional values and creating new business streams for the company. So as I mentioned before, we would become Australia's largest hardwood plantation company with 23% of the market, you know, owning an integrated forestry company with very large

45                    land holdings; maintaining those plantations, processing and marketing the wood farther that comes off from; we would end up having processing something like 7.5 million tons of woodchip in the next five years alone currently worth about $800 million. So, it becomes a very robust forestry operation that the company is deriving revenues and cash flows from. And similarly from our cattle by bringing the land and the cattle together, we become an integrated and diversified cattle business and derived revenues and cash flows from that. So, we become a company with a very large forestry business, a very large cattle business as well as to maintaining our

5                      market-leading agricultural investment services business. So, if that in itself does a number of things, of course, it unlocks further value from our land. As a company, we own lands today but that land is encumbered if you like or use within our MIS projects which restricts once ability to deal with it by winding the projects up and bringing the land and the assets back together again. The

10                    land becomes unencumbered and we have far more flexibility to be able to use that land in the most value or creative way for our shareholders. So that in itself is positive obviously. As I’ve said, our earnings and our cash flow predictability and reliability is significantly enhanced because rather than just having one form of source of revenue from the sell of investment products,

15                    we still have that but we have reliable and predictable cash flows and earnings from forestry and cattle operations as well. So that makes us much more of a robust business. It clearly significantly improves our balance sheet, and puts more assets on our balance sheet and creates more efficiencies and opportunities for us as a company. So, I think the whole transaction really

20                    transforms our business and lifts it to a whole new level.

            BRR    Cameron, talking here about this being a transforming (inaudible) (0:08:01) for Great Southern and certainly a lot of changes and also for the shareholders, I guess what are these changes of the shareholders going to

25                    be and what are the benefits to these investors for them to vote yes?

            GTP     For the investors in our projects, we think it is about performing a win-win proposition here. We certainly think the proposal is obviously advantageous to our shareholders, but also to the project investors as well remembering that this offer indeed means that the project investors, if they were all to

30                    accept the offer, will end up owning 55% of the company, so they become effectively the majority shareholders. So, I think that’s the first important point to use that when you can see the compelling benefits to our shareholders in what we’re suggesting, the investors by accepting the proposal and becoming their shareholders, we will derive those benefits themselves. But also there

35                    are a number of other benefits and it really all starts with the fact that what we’re proposing is to simply exchange today their interest in the MIS project per share in a company at fair value and that fair value, of course, as I mentioned before has been independently assessed by KPMG. So that certainly provides a level of comfort I think to investors to know that the offer

40                    is based on a fair and reasonable basis. Given that, then the additional benefits to the investors are through that exchange and they were exchanging what is a relatively illiquid investment for one that is very liquid of this shares quoted on the stock exchange, so they have liquidity that they are able to obviously have divisibility in terms of being able to sell a portion

45                    thereof which they don’t necessarily in the MIS project investments. Certainly, they have better diversification in terms of an asset class. They now got exposure through the Great Southern shares to, you know, a very broad and robust agricultural company, so you know, through that exchange of fair value, they have liquidity, divisibility, improved diversification. They do not have to incur ongoing costs in terms of their plantation projects and with the cattle projects there are some tax efficiencies as well. So, we think, you know, it is quite compelling for our project investors because they really are just exchanging a relatively illiquid investment for something that they got

5                      flexibility and liquidity over and all that is done at fair value and then they get shares in the company and will benefit from all that transformational benefits that I talked on earlier. So, each scheme will have a vote and it’s within their control of course but we are very hopeful that each investor will see the benefits of the transaction, the transformational benefits that apply to the

10                    company which they (inaudible) (0:10:48) and would vote in favor of them.

            BRR    Cameron, thank you for your time today and the information that you’ve provided with us. We look forward to speaking to you soon.

            GTP     Pleasure, Eddie. I appreciate the opportunity.

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            BRR    That was Mr. Cameron Rhodes, Managing Director of Great Southern Limited. And if you have any questions about this broadcast or any other broadcast, please feel free to contact us on brr@brr.com.au. I am Eddie (Inaudible) (0:11:13) and thank you for listening to Boardroom Radio.

INTERVIEW CONCLUDED

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