This morning at an exclusive briefing for solicitors, accountants and financiers, Chairman of Mackay Sugar, Andrew Cappello and CEO, Jason Lowry, outlined Mackay Sugar’s plan of action to get the organisation back on track. They wanted to inform professionals about their proactive plan and dispel some of the myths circulating in the community.
It was reassuring to learn that the company is only 45-48% geared and there is no current defaults on bank loans, or even pressure from financiers to reduce current debt levels. There is no doubt that there are challenges after a number of bad years, but the Board wants to implement a plan to provide for sustainable financial management so that Mackay Sugar can stay “grower owned” and “is not dictated to by banks”.
We were told there is “no silver bullet”! – but the Board is looking at all options and taking advice to, over the next few years, get Mackay Sugar into a better position. They outlined the strategy for this is 3 fold:
1. Asset Sales to reduce debt and kickstart capital spend
The obvious assets available for sale include Mossman Mill, Sugar Australia and the Co Gen Plant. The Board is currently negotiating with growers in Mossman to buy the Mill. The sale of Mackay Sugar’s interest in Sugar Australia is challenging, as they are a minority shareholder only holding 25%. The other 75% is held by Wilmar. Not many people want to buy a piece of the pie which gives them no real control.
There is varied and positive interest in the Co Gen plant. One option is to sell the income stream and keep the asset, but Mackay Sugar is exploring all alternatives. Advisory firm, Kidder Williams estimates that Mackay Sugar could realise $100-140M from the sale.
Whilst these assets sales should get Mackay Sugar in a better position, “it is still not enough”!
2. Internal cost reductions and revenue enhancement for cashflow
The CEO spoke at length about Mackay Sugar’s plans to cut costs by driving efficiencies in the mill and cane supply. They are aiming for a $10M saving this year. He talked about an emphasis on better training across the organisation to streamline processes, make the right decisions at the right time and reduce downtime.
The further discretionary costs that could be cut are maintenance, but the Board does not want to do this as it will have adverse, longer term impacts. Even with what the organisation is currently spending on maintenance, it is still not enough to improve performance and reliability – it is just keeping things ticking.
Again, this step will help, but is a drop in the ocean of what is needed.
3. Grower contribution for cashflow and ongoing capital needs
Now we come to the grower contribution. The CEO explained that the growers are essentially suppliers to the business, however the challenge is that most of them are also shareholders. Kidder Williams initially proposed a grower contribution of $3 per tonne, which would see a turnaround in 5 years. However, the Mackay Sugar board decided the $3 per tonne contribution would put a lot of growers under significant financial hardship, which they did not want to do. The Board therefore has assessed the market and decided that a more comfortable level is $2 per tonne which sees a turnaround in 7 years (adding an extra 2 years to the process) – which could be more comfortably accommodated by the majority (acknowledging though that it will still hurt).
Think about the mining downturn – the big mining houses put the squeeze on suppliers, forcing them to be more competitive and shave their prices. This scenario is no different, except for the fact that it is hard to swallow because the grower suppliers are in fact the shareholders in this scenario.
So that’s the plan!
Everyone will likely have an opinion, and we can understand why there would be concern in the community. The reality is though that drastic action does need to occur and whether or not this is the right way forward (time will tell), it is good to know that the Board is working tirelessly, seeking advice and being proactive in devising and implementing a plan.
In question time, Mackay Sugar was pleased to inform that it sustained minimal structural damage at the mills during the cyclone but there was quite a lot of damaged rail infrastructure, especially at Eton, Marian-Hampton Road and to the north. The CEO said it isn’t anything which cannot be fixed though.
Further, Andrew Cappello said that Mackay Sugar was committed to assisting farmers (partly through partnering and contributing to other organisations such as MAPS) in upskilling on new farming practices, technology and discussed sensitivities of new cane varieties in terms of the challenges of growing. He also talked about how Mackay Sugar are trying to drive volume and with an aging farming base, support younger, enthusiastic growers to lease land through subsidy support.
Thank you Mackay Sugar for taking the time to inform us as to your plan and we hope you succeed in your goals.
Queensland Law Society Accredited Specialist Business Law
(0749630820 / firstname.lastname@example.org / http://www.mckayslaw.com)
(0749685430 / email@example.com / http://www.mckayslaw.com)