Key points
- Mackay Sugar (MSL) reported solid financial results mainly driven by favourable weather leading to higher crop yields
- However, operational performance was very poor with significant lost crushing opportunity due to equipment and operational failures (total lost hours doubled to 4,680hrs 1H15 – across two mills). In response the company will conduct an extensive capital and maintenance program to enhance operational performance in the coming year
- The forecast for full FY15 is NPAT of $5.4m ($5.2m FY14)
- The main credit strengths of MSL are its long stable trading history and significant asset backing in marketable, easily divestible assets. While one of the lower yielding FIIG originated issues it is also one of the lowest risk
Details
- Revenue was $307m (up 2.5% on 1H14), gross profit $164m (up 11.7%) and NPAT $40.3m (up 8.3%)
- Improved growing and crushing conditions in both Mackay and Mossman (due to favourable weather leading to higher crop yields) resulted in an increase in cane and sugar production across the business
Mackay region
Source: FIIG Securities, Company presentation
Mossman
Source: FIIG Securities, Company presentation
- Operational performance was poor, across the mills and in the cane supply area. There was significant increases in down time with hours lost to cane supply stops increasing from 306hrs 1H14 to 1,685hrs 1H15, and factory stops increasing from 1,998hrs to 2,995hrs in 1H15
- In response, the company will make several operational improvements and conduct an extensive capital and maintenance program to enhance operational performance in the coming year. Maintenance and capital expenditure is forecast at some $22m over the coming year
- The significant down time has led to grower discontent resulting in the call for a general meeting to remove two Growing Directors
- The forecast for full FY15 (ending 31 May 2015) is NPAT of $5.4m (forecasted up from $5.2m FY14) - a loss is incurred in the second half of the year as crushing occurs in the first half producing the majority on income, and capex or maintenance undertaken in the second
- The main credit strengths of MSL are its long stable trading history and significant asset backing in marketable, easily divestible assets. With a book value of $346m in property, plant and equipment and $134m in associated investments Mackay Sugar has a net asset position of $322m at 1H15 (up 18% from YE14)