The group reported weaker results due to: unfavourable growing conditions, lower sugar prices and higher maintenance costs. However, MSL remains in a solid credit position given its extensive asset base and financing flexibility
| Income statement | 1H16 | 1H15 |
| Revenue | 270.7 | 307.5 |
| Gross profit | 159.9 | 164.5 |
| EBITDA | 45.2 | 57.0 |
| NPAT | 29.2 | 40.3 |
| Balance sheet | 1H16 | 1H15 |
| Total tangible assets | 786.6 | 775.1 |
| Total debt | 209.7 | 195.7 |
| Total liabilities | 490.9 | 452.5 |
| Total equity | 295.8 | 322.6 |
| Credit ratios |
| EBITDA/Interest | 5.9x | 8.4x |
| Total debt/Tangible assets | 26.7% | 25.2% |
| Total liabilities/Tangible assets | 62.4% | 58.4% |
| Debt/Total capital | 41.5% | 37.8% |
Source: FIIG Securities, MSL
Key points:
- Revenue for the period fell 12% to $270.7m impacted by unfavourable growing conditions resulting in lower crop and sugar production as well as a decrease in the sugar price
- Operating and maintenance expenses increased for the period by $5.9m to $92.9m due to a timing issue on the Mossman mill crushing agreement and extensive repairs to cane bins
- The fall in revenue and rise in maintenance expenses led to a fall in NPAT from $40.3m to $29.2m
- MSL’s credit ratios while weakening, are still strong
- The group is forecasting a loss of $47.7m in the second half compared to a loss of $51.7m in 2H15. A loss in the second half is normal as the crushing season occurs in the first half generating income while the majority of maintenance in completed in the second
- The full year FY16 forecast is for a loss of $18.5m compared to $11.4m in FY15
Sugar Prices
Sugar prices continue to remain low as the global raw sugar market deals with oversupply.
Commodity Futures Price Quotes for Sugar (US cents per pound)
.jpg?sfvrsn=1e2cb65a_0 "Commodity Futures Price Quotes for Sugar (US cents per pound)")
Source: NASDAQ
However through the second half of 2015 prices increased and Australian produce has been supported by a weaker AUD.
Sugar price (AUD per tonne)
.jpg?sfvrsn=122cb65a_0 "Sugar price (AUD per tonne)")
Source: FIIG Securities, Queensland Sugar Limited
MSL suggests that a sugar price of A$400 per tonne is below its cost of production (and below that of a lot millers around the world). Positively, the above chart details prices have remained above that level since October last year.
Conclusion
While continuing to be impacted by depressed sugar prices, there has been a recovery in prices over the second half of 2015. MSL is a cyclical business with a long trading history and has managed through similar periods before. Most importantly, MSL has a significant asset base in marketable, easily divestible assets and many options to sell or monetise assets as needed. MSL has property, plant and equipment with a book value of $321m, $140m in associated investments and a net asset position of $295m at 1H16. The group’s recent Sugar Terminals Limited shares transaction which generated $26.5m is an example of its ability to monetise assets as needed.
MSL has a stable credit profile supported by a significant asset base. The group’s fixed rate bond offers an attractive return for a relatively short dated, two year security of 5.8% indicative yield to maturity in April 2018.