WORRIED: Cane grower Greg Plath.
WORRIED: Cane grower Greg Plath. Andrea Davy

Mackay Sugar recommendations leave many shellshocked

STRIKING a balance between making money and winning back the confidence of its growers will be the next hurdle for Mackay Sugar, after revealing drastic plans to help it claw back a $212m debt.

After weeks of anticipation, the milling company briefed shareholders on a report compiled by capital raising firm Kidder Williams at a three hour meeting Thursday night, that left many shellshocked.

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The 400-500 growers present were told the company had been advised to generate $140million immediately, to channel into spending on mills and reducing its debt.

After being warned "time was of the essence", a plan to sell its co-generation plant, and more controversially, to impose a $3 a tonne of cane levy on its growers, was also revealed.

The levy contained two parts; an amendment to the cane payment formula for $1 a tonne, which would pull it back into line with the formula used a decade ago, and "bringing in a $2 mill improvement charge".

But Queensland Canegrowers chairman Paul Schembri called on Mackay Sugar to "tell it as it is" -a $3 a tonne levy. That would cut the profitability of a cane grower by about 40% on average, delivering "a world of hurt".

For Te Kowai grower Greg Plath it would slash his annual earnings by $60,000; a big hit given poor milling performance this year left him with $70,000 worth of cane still in the paddock.

He also believed the levy would place an unfair burden on the mill's growers, particularly as not all of them were Mackay Sugar shareholders.

"Farmers cannot wear a $3 a tonne levy," Mr Plath said.

"I'm not prepared to risk my fourth generation cane farm to subsidise their actions.

"This is not right, not fair, not equitable."

Mackay Sugar has been warned
Mackay Sugar has been warned "time is of the essence". Mike Knott BUN210217NICK6

Even before the report was released, many growers had guessed it would recommend reverting to the cane payment formula used a decade ago, before it was changed to pay growers for molasses and fibre as well as sugar.

The payment system was criticised for pulling money out of the mill and putting it in cane growers pockets - to the tune of $71m over the past 10 years, Mackay Sugar chairman Andrew Cappello claimed. Even in the far less profitable 2016-2017 season - when poor milling performance and wet weather saw 350,000-400,000 cane left in the paddock - growers still took home an extra $5.6m.

But Mr Schembri flatly rejects any claim that Mackay Sugar growers were receiving the most generous cane payment formula in the industry, describing that as a "serious misrepresentation of the facts".

"There is this sentiment that's being touted by Mackay Sugar that suggests Mackay Sugar growers have been overpaid. I strongly reject that and the growers know that that's not right either," he said.

Mr Cappello went on to explain that according to advice in the report, growers would see a return on the levy by 2021, through improved mill performance and company profitability.

"We've had growers saying they're prepared to give us more, twice as much as that. They'd rather give us more money upfront to get the improvements," he said.

"At the end of the five year plan they'll have more than their contribution coming back to them."

Selling assets?

The Kidder Williams report also put forward selling Mackay Sugar's 25% stake in Sugar Australia.

While Queensland Canegrowers chairman Paul Schembri supported this plan, he noted it would be complicated, given the stake was a joint venture with Wilmar.

And as there would likely only be the one potential buyer, he said selling at the right price would be difficult.

Instead, he suggested a better plan would be to sell a broader suite of assets, even before charging growers a levy.

Selling 50% of the Mossman mill back to growers was suggested, but no further details about that plan were offered.

Mr Cappello would not disclose them before he was able to speak with Mossman representatives.

That left the co-generation plant, which would be sold as a priority, despite it returning steady profits to the business. When asked if he had an idea of who may buy the plant, believed to be worth $100-$140m, Mr Cappello said said he did but "I'm not going to put that in the press, that's crazy".

A board change?

Finally, a management restructure was advised, and that would include bringing in four independent directors with manufacturing experience to sit on the board, along with the current grower directors.

While Mr Schembri was still contemplating that idea on Friday morning, he did want to emphasise the importance of maintaining grower representation.

"Having farmers with real skin in the game and a little bit of emotional involvement in the business is sometimes better than a lot of independents," he said.

What next?

The plan set out by Kidder Williams is yet to be ratified, and Mackay Sugar plans to hold shed meetings about the changes in March.

Dates and times have not been put forward.

Despite his concerns, Mr Schembri emphasised that growers wanted Mackay Sugar to be a success, particularly as they saw the pressures on growers who were operating under different millers.

But he urged Mackay Sugar to prioritise grower confidence - "that thing that gets them out of bed in the morning" - as they contemplated their future.

"If the confidence of a grower is eroded or questioned it has a huge impact on the industry because they lose the confidence of growing cane," he said. He warned that if some of the ideas, like the $3 a tonne levy, pushed growers out of the industry it could move the company even further away from its goal of increasing throughput through the mills, and becoming profitable. The fact that the mills need to crush 5.8m tonnes of cane a year within 23 weeks, but have only been averaging 5.4 million tonnes, sits at the heart of Mackay Sugar's problems.

"And you say 'well you're only 400,000 tonne out'. (But) 100,000 tonne of cane to us is $2m of profit. And that's the difference," Mr Cappello said. But he also recognised that if growers were asked to contribute too much, some may simply walk away.

"That's the risk and that's the thing we're considering at the moment. That's exactly our concerns. What can growers afford?" he said.

The release of the report also brought one more grower out of the woodwork, although his name has not yet been revealed, to join the push for an alternate Mackay Sugar board.

This movement has been led by growers Noel Durnsford and Russell O'Neill, who by the end of the 2016-2017 crushing season had completely lost faith in the current directors.

If one more puts their hand up, they'll petition for the current board to resign.

Russell O'Neil said the Kidder Williams report revealed "no new ideas" and only added to his drive to see new management take over the milling company.

Despite the vast difference of opinion, one thing is clear - the idea uniting most in the industry is the need to fight to save Mackay Sugar.

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