32
Mackay Sugar Co-operative Association Limited ANNUAL REPORT 2004/05
Mackay Sugar Co-operative Association Limited
ANNUAL REPORT 2004/05
Mackay Sugar
Mackay Sugar
Co-operative
Association LimitedABN 12 057 463 671
Corporate Office
Peak Downs Highway,
Racecourse via Mackay
PO Box 5720,
Mackay Mail Centre,
Queensland 4741
Australia
Phone (07) 4953 8300
Facsimile (07) 4953 8340
Web:
www.mkysugar.com.au
Email:
Chief Executive Officer
J S (John) Pollock
General Manager
Finance &
Administration
C J (Clive) Desbois
Auditors
Bennett Partners
Corporate Solicitors
McCullough Robertson
S B Wright, Wright & Condie
Banker
Rabo Australia Limited
The Association
The Mackay Sugar Co-operative Association Limited was formed in1988 and produces more than 20 percent of Australia’s raw sugar atits four Mackay mills. Through a 25 percent interest in Sugar AustraliaPty Ltd and the New Zealand Sugar Company it is also a majorparticipant in sugar refining and marketing in Australia and NewZealand.
Directors
C E (Eddie) Westcott, Chairman
B B W (Barry) Sheedy, Deputy Chairman
A R (Andrew) Amer
A (Andrew) Barfield (to 26.11.2004)
A S (Andrew) Cappello
I L (Ian) Fraser (to 23.03.2005)
R S (Richard) Galea
S (Sydney) Gordon
V (Vince) Germanotta
R C (Rex) Stroppiana
M A (Albert) Volker (to 26.11.2004)
Contents
Summary .............................................................................1
Chairman’s Report ..................................................................2
Workplace Health & Safety ......................................................5
Operations Report ..................................................................6
Sugar Australia .....................................................................9
Six-year Financial Performance ..............................................10
Directors’ Report ..................................................................11
Auditor’s Independence Declaration.........................................18
Concise Financial Report .......................................................19
Directors’ Declaration ...........................................................26
Auditor’s Report ...................................................................27
Glossary .............................................................................28
Notice of MeetingNotice is hereby given that the
18th Annual General Meetingof the
Mackay Sugar Co-operative Association Limitedwill be held in the
Mackay Entertainment Centre,Gordon Street, Mackay
onTuesday 22nd November 2005,
commencing at9.00 a.m.
Annual Report 2004/05page one
Summary
Cane Milled(Million Tonnes)
01/02 02/03 03/04
5.0
16
6.2
53
5.1
28
5.7
84
Sugar Produced(`000 Tonnes IPS)
01/02 02/03 03/04 04/05
76
5
93
3
71
2
85
9
Average Sugar Price($/Tonne IPS)
01/02 02/03 03/04 04/05
33
1.6
27
6.7
23
1.9
25
5.8
4
Operating Profit/Loss($ Million)
01/02 02/03 03/04 04/05 05/06
-1.2
11
.59
-8.2
6.5
5• Tonnes Cane Processed – 5.784M
(5.128M in 2003/04).A slightly improved crop, but less than initially predicted, due tolower than average rainfall in the growing period immediatelybefore harvest. The dry conditions continued throughout the entireseason, with the final tonnage 12.78 per cent greater than 2003/04.Four mills were utilised to crush the crop.
• Sugar Content – 14.41 CCS(13.57 in 2003/04).Heavy frosts impacted the crop early in the season and prioritisedharvesting assistance was provided to remove this cane to minimisethe adverse effects on CCS and cane purity. The overall sugarcontent for the year was higher than the previous season andresulted in an average CCS for the group of 14.41, an improvementof 6.27 per cent on 2003/04.
• Tonnes sugar produced – 858 845(711 540 produced in 2003/04).The increased sugar production resulted from the increases of bothcane and sugar yields per hectare – a 20.7 per cent increasecompared with last year. This figure is approximately 80 per centof Mackay Sugar's manufacturing capacity, so although it is animprovement on last year, it is still disappointingly below potential.
Financial Performance• Operating Revenue – $255.2M
The final price per tonne IPS sugar was $255.84, a slightimprovement compared with last year’s price of $231.88. As aresult, operating revenue increased 29 per cent to $255.2 million.
• Operating Profit – $6.55MThis is a great improvement on last year (loss of $8.226 million)and is a most welcome result. This represents an impressiveturnaround of $14.8 million. The Association did not receive theexpected second $4 million sustainability grant from the FederalGovernment, due to delays in the government's approval of thenew sugar industry plan. The sale of land and buildings, whichearned $2.2 million, is included in the operating profit.
The Year Ahead• Forecast profit of $16M
An improved crop for crushing, up an estimated 500 000 tonneson 2004. This, combined with an even more significant improvementin the world sugar market outlook, will see a welcome return toconsecutive years of profit for the business - the first since thecrop and price-driven results from 1996 through to 1998.
04/05
5.1
28
6.2
50
(est
)
05/06
87
0 (
est
)
05/06
03/04
23
1.9
05/06
28
5 (
est
)1
6.0
(est
)
Chairman’s Reportpage two
It is very satisfyingto be able to beginthis report withthe outlook in theshort term farbetter than it hasbeen for severalyears. Given ar e a s o n a b l eseason, there isrenewed beliefthat the 'new'
varieties can perform to provide theproduction base we all need. The priceoutlook is also promising. There is stilla physical shortage of sugar on themarket which, coupled with a small cropagain in Thailand, will support prices inthe current range. The increasing demandfor ethanol across the world will helpabsorb the continued expansion of thesugar industry in Brazil.
The strengthening of the Braziliancurrency against the US dollar is alsoworking in our favour. These gains areobviously offset by rising import costs.The returns for the 2005 season andprobably the 2006 season should bemuch more reasonable than they havebeen. The influence of the giant Braziliansugar industry, however, will still havea major impact on our price by continuingto be the single greatest factor in settinga floor in the market price close to theircost of production.
Financial PositionThe increase in our crop by 12.8 percent from 2003/04 together with animprovement in the sugar price of $23.96per tonne sugar helped to produce aturnaround of $14.776 million in ourprofitability from a loss of $8.226 millionto a profit of $6.550 million.
During the year, the Board maintainedits focus on tightly controlling costs andwe expect to see some of the resultsfrom the Target 10 program producemore savings in the 2005/06 year. TheTarget 10 program for the introductionof driver-only trains is in developmentand we expect to be carrying out sometrials in the 2006 season. The move todriver-only trains will only happen whenwe are sure that the system is safe.Major projects affected during the
2004/05 period were:
1. Upgrading the high gradestat ion(pans and fugals) atRacecourse to reduce molasses loss.2. Instal l ing equipment andmonitoring systems to achieveefficiencies and labour savings at thePleystowe boiler station.3. Improvements to conveyors, canetippler, cane handling areas and sugarloading equipment to reduce labourrequirements at Marian.4. Combining operational roles in theFarleigh process area to achievefurther demanning.5. Modifying the cooling systems onfour large locomotives to increaseload limits on the Farleigh North Coastline to achieve savings and a reductionin labour.
In accordance with the accountingstandards the carrying value of theAssociation’s milling assets have beenrevalued and reduced by $74M. Thereduction reflects lower earnings withsmaller crops and lower sugar prices.
SafetyThe outstanding improvements that weremade in safety in 2003/04 have beenconsolidated. Mackay Sugar needed tochange its attitude to safety and the factthat the initial gains have beenconsolidated indicates that our safety'culture' is becoming more ingrained inour people. Once again, the Boardrecognises the leadership shown in thisarea by the One Team Alliance Managerfor Transfield Services, Bob Buckley.
Transfield Services AllianceWhile the delivered improvement in oursafety record has been better thanexpected, the systems to support thechanges to our work practices andplanning have not met our expectationsand that has made it difficult to progressas fast as we would have hoped.Transfield Services introduced their AssetManagement Group to assist with theprocess and some progress has beenmade. However, it is fair to report weare probably a year behind where wewould like to be with respect todeveloping longer term maintenance andequipment replacement p lans.
page three
A challenge for the businessBoth maintenance and operationalperformance have been affected by thesevere shortage of skilled and/orexperienced people. The mining boomcontinues to attract some of our bestpeople with financial packages we areunable to match. The mining boom hasalso attracted large numbers of farmersand harvester operators. This drain onour human resources, experience andknowledge has perhaps become thebiggest challenge that our business faces.This challenge can only be met wheneveryone's confidence in the future isrestored; when we have seasons thatassist the production of crops that reflectthe farmers' effort, so that prices andthroughput can generate sufficient cashfor improvement in the mills and on thefarms.
Interestingly, one trend that hasdeveloped over the past couple ofseasons that could assist with ourresponse to this skills shortage is thatincreasing numbers of women are takingfactory-based jobs in our industry. Thishas brought the proportion of femalesemployed at Mackay Sugar to 19 percent. In line with this our EqualEmployment Opportunities (EEO)activities are targeting continued trainingfor EEO contact officers and newemployees. We are also encouragingwomen to apply for specialist positionsin the factories. Quite clearly, the labourshortage that we have experienced inthe recent past has uncovered a very
welcome resource of female employeeswho are working in our industry in adiverse range of roles that they perhapswould not have considered previously.
Sugar Industry ReformsIn 2003, the Federal Member for Dawson,Mrs Deanne Kelly, set up a Value AddedSugar Taskforce to encourage a moveaway from almost total reliance onrevenue from raw sugar production toimprove the financial position of theindustry. In early 2004, Mrs Kelly was amajor force behind the introduction ofthe Federal Government's reformpackage. At the time of writing(September 2005), the secondsustainability payment has only just beenannounced along with the second roundof applications (closing 18 November2005) for Regional and CommunityProjects funding.
Unfortunately, I believe the system haslet down both Mrs Kelly and the industry.The process to deliver the reform hasbeen extremely slow and, at times, overlybureaucratic. The good intent of theFederal Government has, in some cases,been lost because the intent of the reformcould not be delivered at a rate thatmatched the need to make commercialdecisions.
We indicated at our 2004 AGM that weintended to pursue cogeneration as arevenue base to help begin a move awayfrom our heavy dependence on revenuefrom raw sugar. We applied for financial
Pleystowe Cane Auditor Debbie Bates and Mackay Sugar Process Engineer Ken Griffin discuss settings for the NearInfa-Red (NIR) unit located along the milling train. Following successful trials of the NIR equipment in season2004, units are being used for payment purposes for the first time in the 2005 crushing season. As part of theirchanging role, the cane auditors oversee the calibration adjustments to the NIR units at each of the factories.
CE (Eddie) Westcott, Chairman
page four
Chairman’s Report (continued)
assistance from the Regional andCommunity Projects funding packagebefore the second round of the fundinghad been announced because theopportunity to lock in reasonableRenewable Energy Certificate (REC)prices with Ergon was slipping away. InDecember 2004, these REC's had amarket value of up to $42. Their valuehas now slipped by $10 to $15 belowthis level. Even with assistance fromGovernment, it is difficult to make ourcogeneration project work at those prices.As was the case when we investigatedthe purchase of the ED & F Man stakein Sugar Australia, it demonstrates thelimited access of a Co-operative tocapital. To be able to take advantage ofopportunities like these while we are aCo-operative, we need to be in a positionwhere we are generating substantialcash and have a lower debt to service.
Shareholder IssuesDuring the year the Board made twodecisions that had a major impact onshareholders.
We introduced a change to the canepayment formula that we believe moreclosely aligns the financial drivers of themilling and farming sectors. The Boardfavoured at least a two-year cane supplyagreement with the new paymentarrangements so that all parties have areasonable length of time to evaluatewhether the objective of better alignedmilling and growing sectors is being met.This change has been coupled with theuse of NIR as a more automated way ofmeasuring the sugar content of canewhich growers were supplying.
The Board also introduced a change tothe grouping policy. Its prime objectivewas to continue to provide growers withthe opportunity to harvest their owncane if they chose to do so but, at thesame time, organise the harvesters insuch a way as to reduce the numbers ofgroups we had to service each day. Thisreorganisation was directed at improvingour service to the harvest sector. It isfair to say that this change was notwelcomed by all in the harvesting sector.As promised, the Board will reviewprogress against the initial objectives of
the policy at the completion of the 2005crushing season.
The Board has continued to work wellwith Caneharvesters Mackay andCANEGROWERS Mackay through theMackay Sugar Industry Partnership. Wehave agreed to disagree on some issuesbut continue to work for what we allbelieve is the best for the local industry.
During the past year, three Directorshave left our Board and two have joinedit. Albert Volker, who was originallyelected in 1988, retired. Albert wasreliable and always brought to the Boardthe grassroots view of shareholders.Andrew Barfield failed to gain re-electionbut the Board does miss his analyticaland strategic thinking. Ian Fraser, oneof our external Directors resigned inMarch 2005. Ian's invaluable contributionto the Board was ensuring that we alwaystook stock of the bigger picture, ratherthan concentrating too narrowly on thedetail. We miss the different commercialperspective he brought to the Board.Balancing the departures from the Boardhave been the two new Directors electedto the Board at the last AGM. I welcomeRex Stroppiana and Vince Germanottaonto our Board and look forward to theircontinued input to the business.
Finally, I want to pay tribute to thededication and commitment of our chiefexecutive John Pollock and all 'our' peopleboth in the growing sector and in ourmilling operations. In each sector weare now very dependent on people whohave already earned the right to beenjoying their retirement. The industrywould be facing even bigger challengesif we had not been able to continue usingtheir resources.
The recent improvement in the sugarprices and seasonal conditions hasproduced renewed optimism in us alland I sincerely hope that this improvedoutlook will be consolidated in the comingseason.
Workplace Health & Safety
The One Team charter, encompassingour vision, joint key objectives andshared principles, marks safety as beingof utmost importance. Our aim is "ZeroHarm" to our people – including allemployees, contractors and visitors. In2004/05, we worked hard to achievethis goal. Mackay Sugar underwent anintegrated management systems auditin February conducted by personnel fromwithin Transfield Services Limited. Theaudit was conducted according to theAustralian Standards 4801, 9001 and14001 – the quality, safety andenvironmental management systemsstandards. This was the first such auditconducted at Mackay Sugar with thescore of 75 per cent achieved considereda very good result. A certification audit,conducted by a third party auditor, wascarried out in the 2005/06 financial yearand earned Mackay Sugar acommendation for its commitment toand achievements in safety andimplementation of supporting systems.Both results are a tribute to the hardwork of our people.
We are very pleased with theimprovement in our safety record. Atthe start of the Alliance (March 2003)our Lost Time Injury Frequency Rate(LTIFR) was 15.02. By the end of March2005, it had reduced to 2.14. In June2005, it was 2.97. This result putsMackay Sugar among the best in theAustralian sugar industry, as shown inthe chart below. Since August 2004, therate has flattened to a fairly consistentlevel. The group's All Injury FrequencyRate (AIFR) has also significantly reducedover the two-year period of the Alliance,from 389.78 in March 2003 to 298.85in June 2005. This has been achievedby the strong focus in engaging people'sattention to safety and engendering acommitment. Part of the culture changehas involved encouraging all employeesto take responsibility for their own safety,to report hazards and near misses andto accept that all accidents can beprevented. The Job Start and Job Analysisrisk assessment processes are key toolsused in the day-to-day management ofour workplace hazards. Job Observations,where we take the time to briefly engagepeople in on-the-job safety discussions,further support these processes.
Sugar Industry vs Mackay Sugar AllianceLost Time Injury Frequency Rate (LTIFR)
Industry LTIFR Alliance LTIFR
LTIF
R
25
20
15
10
5
0
18
.75
2002 2003 2004
15
.41
7.8
3
20
.03
2.8
4
15
.28
page five
page six
Operations Report
CropInitially a crop of between 6.5 and 7.0million tonnes was predicted given theimproved weather conditions followingthe completion of the 2003 crushingseason. Unfortunately less than averagerainfall in the period from March throughto June significantly depressed growingconditions resulting in a preseasonestimate of 6.25 million tonnes. Dryconditions throughout the harvestcontinued to impact on the crop with thefinal cut to estimate of 92.5 per centand a final tonnage of 5 783 601 tonneswhich, although again disappointing, wasa 12.78 per cent increase on the 2003crop.
The crop yield of 74.89 tonnes of caneper hectare was up on the 2003 yield of66.96 tonnes per hectare – an increaseof 11.84 per cent. In the early part ofthe season the crop was impacted byheavy frosts in some areas and prioritisedharvesting assistance was provided toremove this cane to minimise the effectof the frost on CCS and cane purity.Compensating to some extent for theagain lower than average crop size, theoverall sugar content for the year wasup on the previous season by 6.27 percent and resulted in an average CCS forthe group of 14.41.
Sugar ProducedThe increase of both cane and sugaryields per hectare accounted for a finalsugar make of 858 845 tonnes of IPSsugar. This was a 20.7 per cent increaseon the previous year of 711 540 tonnesof IPS sugar. The CCS level of 14.41 was0.84 of a unit above the 2003 seasonand 0.16 units lower than that achievedin 2002. The sugar production of858 845 tonnes was approximately 80per cen t o f Mackay Sugar ' smanufacturing capacity.
Crushing Rate & Lost TimeA four-mill operating strategy wasselected for the 2004 season in view ofpreseason estimate of 6.25 milliontonnes. This required the re-commissioning of the Pleystowe plant,which had been mothballed for theprevious two seasons. Pleystowecommenced operations one week in
advance of the other factories to ensureadequate resources were available toassist in the re-commissioning process.
Factory stops decreased by 16.97 percent on the previous season and thiscontributed to an improved groupaverage lost time of 7.5 per cent of theavailable time. This was, however, onlymarginally better than that of theprevious season of 7.88 per cent andfell short of Mackay Sugar's bestperformance by 3.95 per cent.
The Farleigh factory had a significantreduction in factory stops from 7.78 percent in 2003 down to 5.66 per cent in2004. This reduction was targeted withcapital improvements around the feedingstation where the installation of anautomatic uncoupling device, antirollback stops and modification to theshredder feed chute providing a moreuniform product flow to the milling train.The elimination of gaps at the feedingstation had positive flow-on effectsthroughout the factory.
Factory stops at Marian was 6.6 per centof available time, which was equal tothat achieved in the 2003 season. Thesingle highest contributor to the losttime in the factory was the failure of thebagasse slat conveyor which necessitatedthe shutdown of the factory for morethan 12 hours to replace the majority ofthe conveyor timber slat components.Further protection devices have sincebeen installed to prevent a similar failureof this equipment.
The re-commissioning of the Pleystoweplant in 2004 provided significantchallenges for both staff and equipment.Pleystowe last operated as a crushingplant in 2001 and recorded factory losttime as 2.23 per cent of available time.The lost time in 2004 accounted for 8.43per cent of the available time. Severalsingular events impacted on the losttime with the most significant of thesebeing the failure of a superheater andconvection bank tube in No.2 boiler thataccounted for 42 hours lost processingtime. The general increase in lost timewas associated with the large percentageof new operators and staff and the
page seven
Operations Report
Operational PerformanceSeason 2004 2003(Financial Year) (2004-05) (2003-04) Change
ProductionTonnes cane milled 5 783 601 5 128 009 +12.78%Sugar Content - CCS (i) 14.41 13.57 + 6.27%Tonnes sugar produced - IPS (ii) 858 845 711 540 + 20.7%
Field PerformanceCane production area (ha) (iii) 101 353 101 550 - 0.2%Cane area harvested (ha) 77 224 76 583 + 0.8%Tonnes cane/ha 74.89 66.96 +11.84%Tonnes sugar/ha (iv) 11.17 9.29 +20.23%% crop harvested green 97.57 96.88 + 0.7%
Factory PerformanceMilling rate (tonnes cane/hr) 2 205 1 685 +30.86%Milling loss - in bagasse (v) 3.41 3.96 - 13.9%(% sugar) - in mud (vi) 0.56 0.45 + 24.4%
- in molasses (vii) 8.68 7.90 + 9.87%Time loss - cane supply stops 61 34 + 79.4%(hours) - factory stops 225 271 - 16.97%
- industrial stops 0 0* Note - All four of Mackay Sugar’s factories processed cane during the 2004 harvest.
(i) CCS (Commercial Cane Sugar) is the percentage of cane sugar recoverable as pure sugar.(ii) IPS (International Pol Scale) is a measure of the commercial value of raw sugar.(iii) Cane Production Area (Assignment) is the particular area within a grower’s land description from which he is entitled
to supply cane to a mill.(iv) Sugar Yield expressed as tonnes CCS.(v) Bagasse is the residue remaining after the extraction of juice in one or more mills in a sugar mill.(vi) Mud is the residue discharged from mud filters after clarification of cane juice.(vii) Molasses is a by-product of the sugar milling and refining processes. It is a brown viscous syrup and is used for stockfeed
and fermentation purposes.
recommissioning of control equipmentthroughout the factory, in particular themilling train.
Racecourse had a slight rise in lost timefrom 9.2 per cent in 2003 to 9.3 percent in 2004. Blackouts on five separateoccasions accounted for more than 33hours of the lost time. These failureswere associated with the 7MW generator.High speed event tracking devices havenow been installed to improve the faultfinding capability with this equipment toassist in determining the source of thosefailures.
A major failure of the juice clarifierscraper drive shaft also contributed 34hours of lost time to the total atRacecourse.
The overall crushing rate of 2205 tonnesper hour for 2004 was 30.86 per centhigher than that achieved in 2003, largelyattributed to the change from the three-mill to the four-mill operating strategy.The high levels of CCS did, however,impact on the ability of all factories tomaintain high crushing rates towardsthe end of the season.
Factory EfficiencyThe overall sugar recovery (measure ofsugar recoverable from the cane supply)in 2004 was 89.62 per cent. This wasmarginally higher than in the 2003season, when the recovery was 89.26per cent. A significant reduction in lossesfrom bagasse of more than 0.5 per centwas again overshadowed by the increasein the losses in final molasses. Similarlyto the 2003 season the increased lossesin final molasses were associated withlower cane purity.
Sugar QualitySugar quality premiums earned were ahighlight of the season, with an averagebonus of $3.96 per tonne of sugar beingachieved. The maximum attainable is$5 per tonne.
Farleigh performed the best in the statewith 91 per cent of samples complyingwith all quality criteria and earning abonus of $4.55 per tonne. Marian,Pleystowe and Racecourse compliancewith standard were respectively rankedfifth, sixth and 13th in the state. MackaySugar's average compliance was 80.6per cent.
page eight
Operations Report
Molasses ProductionThe seasonal molasses production was236 289 tonnes including 9 768 tonnesfrom the refinery. This was anextraordinarily high molasses makerepresenting 3.92 per cent cane.Exports totalled 68 343 tonnes in fourshipments, most of which were in excessof our original export plan. Fortunatelyexport prices were good. Molassesproduction was high throughout the stateand there was considerable competitionfor export ships. The situation was wellmanaged by Australian Molasses Tradingbut harbour stocks were often tight.
End of season stock was 13 121 tonnes,which was all sold by June 2005.The construction of a 40 000 tonne in-
ground molasses storage bladder hasbeen approved by the Mackay SugarBoard and should be ready to receivemolasses for the last few weeks of the2005 season. This will allow moreflexibility in matching timing of productionand sales demand. It will also ensureadequate supplies of molasses areavailable during the non-crush to fulfilthe full potential of the stock feed market.
An agreement has been reached withChampion Liquid Feeds to construct aliquid stock feed plant at Marian Mill andto market Mackay Sugar molasses. Thisfacility is expected to be open by the2006 season and will include a centralisedautomatic weighbridge sales centre forall molasses and molasses products.
Mackay Sugar One Team Alliance Rail Operations Co-ordinator Sandy Strong, left, is briefed on daily trainmovements by Team Leader Gerry Sullivan, centre, and Field Operations Officer Geoff White. Gerry and Geoffoperate from within the Mackay Sugar Communications Centre. They plan and direct, via the Traffic Office, themovement of an average eighty trains per 24-hour period throughout the crushing season.
Good financial results were again achievedby the 25 per cent owned Sugar Australia/ New Zealand Sugar Company businessesin the 2004/05 operating year.
The directors and management of bothbusinesses are very focused on safetyand this has resulted in a 47 per centreduction in the injury frequency rate atNew Zealand Sugar and a 41 per centreduction at Sugar Australia. Of furthernote, New Zealand have gone four anda half years without a lost time injuryand Australia did not have a lost timeinjury for the year.
This improvement in personal safety ispositive, however a major incident at theSydney-based Glebe Island facilityidentified a need to increase the focuson explosion risk across both businesses.This has resulted in a significant numberof operational procedure changes andthe commencement of major riskreduction investment program, which willcontinue for several years.
Sugar Australia increased its profitability,cash flow and return on funds employedover the previous year (financial yearApril 2004 to March 2005). This was dueto increased sales into the food andbeverage channel, the branded retailmarket, and bulk exports through theBIBO ship the MV Pioneer.Volumes have increased, but marginshave de c r ea sed due t o t hecompetitiveness of the Australian market.The business has an aggressiveoperational improvement program toreduce costs. However, this will not keeppace with the decrease in margins if thecurrent trends continue. In response tothis, the business is working withcustomers to increase prices graduallyover the next few years. These initiativeswill result in a slightly reduced profit for2005/06, with a return to the 2004/05levels the following year.
New Zealand Sugar's profitabilitydecreased slightly compared with theprevious financial year. Volumes wereconsistent with the previous 12 months,
but downward pressure on margins,particularly in the retail channel, was themain reason for the change. This pressureis expected to continue over the next fewyears, so it is anticipated that the 2005/06result will be less than 2004/05. NewZealand Sugarcont inues top r o v i d esha reho lde r swith excellentreturns on fundsemployed.
Both businessesa r e m a r k e tleaders in theirr e s p e c t i v ecountries. Theyboth providee x c e l l e n tcustomer serviceand high levelsof on-time delivery performance. In theAustralian retail market a significant familyof new products was released, under thebanner of "Smart", which is a combinationof sugar and artificial sweetener. Initialsales of these new products have beenvery encouraging.
It is planned to increase new productdevelopment and a steady stream of newofferings will continue to be released tomarket.
The strong Australian and New Zealandcurrencies and surplus supplies of sugarblends in Japan have had a negativeshort-term effect on both businesses'export blend sales. This is expected tocontinue for most of 2005/06 beforeimproving. The strong currencies haveslowed containerised export sugar salesas well.
The directors and management of bothbusinesses continue to explore growthopportunities, markets and new products,in addition to implementing cost reductionprograms to grow the profitability andimprove returns to shareholders.
page nine
Sugar Refining
Six-year Financial Performance
Production 2004/05 2003/04 2002/03 2001/02 2000/01 1999/00Tonnes cane milled 5 783 601 5 128 009 6 252 708 5 015 670 4 662 553 6 627 533
Sugar content - CCS (i) 14.41 13.57 14.57 14.77 12.60 13.50
Tonnes sugar produced - IPS (ii) 858 845 711 540 933 347 755 866 590 845 915 597
Profit & Loss ($’000)Operating revenue 255 161 197 810 290 546 272 115 167 056 256 082
Net interest 4 804 5 451 4 470 5 441 6 389 4 255
Depreciation 9 756 9 154 10 841 17 376 17 082 16 479
Operating profit/(loss) (iii) 6 550 (8 226) 11 595 (1 219) (14 285) (7 104)
Retained profits 190 574 184 024 192 250 179 672 180 891 195 176
Balance Sheet ($’000)Current assets 41 782 41 361 52 020 34 223 32 526 46 791
Non-current assets 245 785 326 038 339 357 358 086 459 080 440 061
Total assets 287 567 367 399 391 377 392 309 491 606 486 852
Current liabilities 63 464 57 485 112 795 104 957 99 967 69 460
Non-current liabilities 24 931 43 292 3 734 25 082 41 122 52 590
Total liabilities 88 395 100 777 116 529 130 039 141 089 122 050
Total members’ equity 199 172 266 622 274 848 262 270 350 517 364 802
Capital Expenditure ($’000)Expenditure 5 986 2 295 2 688 5 344 5 631 18 686
RatiosNet interest cover (times) 2.36 (0.51) 3.59 0.78 (1.24) (0.67)
Return on members’ equity 3.29% (3.09)% 4.58% (0.46)% (4.08)% (1.95)%
Net debt : members’ equity 26.40% 23.17% 21.97% 32.00% 28.60% 20.74%
Current assets : current liabilities 0.66 0.72 0.46 0.33 0.33 0.67
Members’ equity : total assets 0.69 0.73 0.70 0.67 0.71 0.75
Total assets : total liabilities 3.25 3.65 3.36 3.02 3.48 3.99
(i) CCS/Commercial Cane Sugar is the percentage of cane sugar recoverable as pure sugar.(ii) IPS: International Pol Scale, a measure of the commercial value of raw sugar.(iii) Operating profit/(loss) before additional price paid for cane and Income Tax.
Fugal Operator Tom Barfield scoops a handful of another batch of premium sugar being made at Mackay Sugar’s Pleystowe Millwhile Production Chemist Bruce Stevenson looks on. Mackay Sugar’s factories were prominent among Queensland’s leadingpremium quality sugar producers during 2004 season and have started the 2005 season in similar vein. Premium quality sugarattracts a bonus of $5 per tonne above the general price paid for sugar.
page ten
page eleven
Director’s Report
The Directors present their report andthe financial statements of the MackaySugar Co-operative Association Limitedfor the year ended 30 June 2005.
In terms of the Cooperatives Act 1997(Qld), the Association has complied withthe requirements of the CorporationsAct 2001 in the presentation of thisreport and the associated financialstatements.
DirectorsThe names and profiles of Directors inoffice from 1 July 2004 to the date ofthis report follow. A record of BoardMeeting attendance during the yearunder review is set out below.
CE (Eddie) Westcott (Chairman)
Elected Director since incorporation andChairman since December 2002. Caneproducer for more than 30 years withwide experience in co-operative sugarmilling matters. Alternate Director ofSugar Australia Pty Ltd, New ZealandSugar Company Ltd and director ofQueensland Sugar Ltd. Also MackaySugar's representative on the AustralianSugar Milling Council and, with MSCAstaff, the Mackay Sugar Manufacturers'Association.
BB (Barry) Sheedy FCPA (Ret.) (DeputyChairman)
Elected Director since 1996. Varied sugarindust ry exper ience inc lud ing
management of the Farleigh Co-operativeSugar Milling Association Ltd andManager Finance & Administration ofMackay Sugar. Chairman Great BarrierReef Marine Park Authority AuditCommittee.
AR (Andrew) Amer BA, MSc, MBA,FAICD
Independent Director since October2003. Extensive business experienceacross Australia and Asia Pacific inmanufacturing, banking insurance andinvestment, retail, and managementconsulting, including Managing Directorof Amoco Australia, Group ManagerStrategy & Marketing of Suncorp, GMService Development of Myer Grace Brosand Management Consultant in StrategyMarket ing and Organ isat iona lRestructuring for Price WaterhouseUrwick. Currently also a Director ofAinsworth Game Technology Limited.
A (Andrew) Barfield B.Ag.Sc MBAGAICD (to 26 November 2004)
Elected Director since 2001. Caneproducer for 15 years. Deputy Chairmanof Sugar Research and DevelopmentCorporation. In June 2003 appointed tothe Farleigh, Marian, Pleystowe andRacecourse Cane Production Boards.1998 Nuffield Scholar. Former Chairmanof Canegrowers Pleystowe AreaCommittee. Appointed inauguralChairman of Mackay Area ProductivityServices in May 2004.
Board Meeting AttendanceSpecial MeetingsRegular Meetings
Held (a) Attended (b) Held (a) Attended (b)Director
C E Westcott 11 11 9 9A R Amer 11 11 9 5A Barfield* 5 5 2 2A S Cappello 11 11 9 9I L Fraser# 8 7 3 3R S Galea 11 11 9 9V Germanotta~ 6 6 7 6S Gordon 11 11 9 8B B W Sheedy 11 11 9 6R C Stroppiana~ 6 6 7 7M A Volker* 5 5 2 2
(a) Meetings held while a member, (b) Meetings attended.*retired 26/11/04, #retired 23/03/05, ~elected 26/11/04
Director’s Report
AS (Andrew) CappelloElected Director since 2001. Caneproducer for 20 years. Chairman ofPioneer Valley Water Board, Member ofthe SunWater Customer Council, RuralWater Use Efficiency Management Group,the Cooperat ive Federat ion ofQ u e e n s l a n d . M a c k a y S u g a rrepresentative on the Board of MackayArea Productivity Services.
IL (Ian) Fraser FCPA FAICD
(to 23 March 2005)
Independent Director since February1999. Extensive business experienceincluding Managing Director of PioneerSugar Mills Ltd, Clyde Industries Ltd,Australian Chemical Holdings Ltd andTNT Australia Pty Ltd. Currently Chairmanof The Gas Market Company Ltd,Environmental Recovery Services Ltd,Forest Place Group Ltd, Hudson TimberProducts Ltd and a Director of PMP Ltdand Structural Systems Ltd.
RS (Richard) Galea B.Com CA, GAICD
Elected Director since February 2003.After qualifying as a CharteredAccountant returned to manage hisfamily’s diverse farming interests in1994.
V (Vince) Germanotta(elected 26 November 2004)
Elected to the Board in November 2004.Has been growing cane in the Mackaydistrict for more than 30 years. Growers'representative from 1992 to 2003 onthe Marian Mill Suppliers' Committeeand joined the Mackay Area ProductivityServices board as a Mackay Sugarrepresentative in 2004.
S (Sydney) GordonDip. Fin. Markets, GAICD
Has been growing cane in the MackayDistrict for 32 years and was elected tothe Board in November 2003. He is amember of the SunWater CustomerCouncil.
RC (Rex) Stroppiana Adv. Dip. Ag.(elected 26 November 2004)
Elected Director November 2004. Has20 years' experience as a sugar canegrower/harvester. Holds an AdvancedDiploma in Agriculture (Rural BusinessManagement).
MA (Albert) Volker(to 26 November 2004)
Elected Director since incorporation.Cane producer for 35 years with wideexperience in co-operative sugar millingmatters. Mackay Sugar representativeon the Board of Mackay Area ProductivityServices. Member of Mackay RegionalWater Resources Committee.
Mackay Sugar’s Board of Directors take a break from a recent monthly Board meeting. The Board meets regularlyon a monthly basis and in addition from time to time as circumstances demand. Pictured from left to right are:Andrew Cappello, Andrew Amer, John Pollock (CEO), Eddie Westcott (Chairman), Syd Gordon, Vince Germanotta,Richard Galea, Rex Stroppiana and General Manager Finance Clive Desbois. Absent at the time this photographwas taken is Deputy Chairman Barry Sheedy.
page twelve
Primary Activities of theAssociationPrimary activities of the Co-operativeare:(a) to acquire, transport and processsugar cane to produce raw sugar, rawsugar products and by-products and tomanufacture, transport, store, marketand distribute those products and by-products;
(b) to manufacture, transport, store,market and distribute refined sugar,syrups, raw sugar for human consumption and similar products andby-products; and
(c) to produce, market and distributeelectricity and other value-addedcommodities through the use of productsand by-products arising from the activitiesin (a) and/or (b) above.
There was no significant change in thenature of the Association's primaryactivities during the financial year.
Review of Operat ionsA detailed review of the operations ofthe Association during the year underreview, and the results of theseoperations, are included in the‘Operations Report’ on pages 6 to 8 ofthis report.
Operating ResultThe 2004 crop showed signs of recoveryfrom extended drought, producing 5.784million tonnes (2003 5.128 milliontonnes). Average sugar content (CCS)improved to 14.41 (2003 13.57) andproduced 858 845 tonnes IPS sugar(2003 711 540 tonnes). This result wasstill well below the district's potentialand well short of the 933 347 tonnesachieved in 2002.
The final price per tonne IPS sugar was$255.84, slightly improved on 2003/04($231.88). Accordingly, operatingrevenue rose 29 per cent to $255.2million. The operating profit of $6.550million is a welcome result, representinga turnaround of $14.776 million on the2003/04 loss of $8.226 million.
In 2004-05 the Association did notreceive the expected second $4 millionsustainability grant, due to delays in theFederal Government granting approvalof the new sugar industry plan.
A profit of $2.2 million was realised fromthe sale of land and buildings and thisis included in the operating profit.
The Financial Statements at pages 21to 26 of this Report and the Discussion& Analysis regarding those statementson pages 19 and 20 further explains theAssociation's operating result for theyear under review.
Changes in State of AffairsThere was no significant change in thestate of affairs of the Association otherthan those advised in other sections ofthis report, or in the accounts or in thenotes thereto.
After Balance Date EventsIn the opinion of Directors, no matter orcircumstance has arisen in the intervalbetween the end of the financial yearand the date of this report, which hassignificantly affected, or may significantlyaffect the operation of the Association,the results of those operations, or thestate of affairs of the Association insubsequent financial years.
Future Deve lopmentsFollowing a detailed investigation duringthe previous 12 months, approval wasgiven to the Board at an ExtraordinaryGeneral Meeting on 4 July 2005, toproceed with a Cogeneration projectsubject to several conditions beingsatisified. It became clear subsequentlythat several of these conditions couldnot be fulfilled within the timeframe setand on 29 August 2005 the Chairmanadvised shareholders that the projectwas being deferred. The Association iscontinuing to explore opportunities toadvance the project.
Also the Board continues to explore otherideas and projects to advance theAssociation. Until any such idea becomesa firm commercial proposal, however,untimely and early disclosure could result
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Director’s Report
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Director’s Report
in unreasonable prejudice to theAssociation.
Proceedings on behalf of theAssociationNo person has applied for leave of Courtto bring proceedings on behalf of thecompany or intervene in any proceedingsto which the company is a party for thepurpose of taking responsibility on behalfof the company for all or any part ofthose proceedings. The company wasnot a party to any such proceedingsduring the year.
Environmenta l IssuesMackay Sugar's amended environmentallicense came into effect on 11 November2004. It includes not only sugar millingor refining activities and fuel burning,but also the Environmentally RelevantActivities (ERA) of motor vehicleworkshops and chemical storage. Theaddition of these latter two activities tothe license provisions will place additionalobligations on Mackay Sugar and actionplans are in place to address these newconditions. Associated with these newERA's are new license conditions relatingto bunding, waste oil collection, wastehandling, oil separators and pits, andvehicle cleaning.
Mackay Sugar's commitment tominimising the risk of environmentalharm caused by contaminant releasesto air, water or land has focused on twomajor areas in 2004-05:
1. minimising stack and water emissions; and
2. varying the environmental licenseapplications for Mackay Sugar'sfour sites to achieve realistic goals.
Efforts to improve factory plant associatedwith emissions have focused onupgrading the dust collectors at Pleystoweand Farleigh. Farleigh plant hasundergone significant improvementswhich have produced good emissionresults. In fact, during the 2005 crushingseason, tests showed that Farleigh wasemitting below its license limit.
Pleystowe's stack emissions will requirefurther improvement. Mackay Sugar is
applying for a new EnvironmentalManagement Plan (EMP) to replace theformer plan which expired in May 2005.The draft plan aims to reduce that site'semissions to below the license limit overthe next three years.
The amended license under negotiationwill set lower limits for Racecourse andMarian, as both these sites now operatewell under their emission limits andMarian mill's three chimneys will beconsidered as a single source.
A focus on minimising water usage hasseen Farleigh and Pleystowe mills obtaina meaningful reduction in their annualwater usage, which is now well withinlicense. Efforts to reduce water usageat Marian mill have also producedexcellent results. Marian's water usagehas reduced from 770 megalitres (33.5MLper week) two years ago to 338 ML(18.8ML per week) for the 2004 season.This represents a 56 per cent decreasein water consumption. For the 2005season, consumption was originallybudgeted at 320ML or 17.9ML per weekand due to further improvementmeasures the current forecast usage is200 ML. Unfortunately improvements atRacecourse mill have not been assuccessful and we are continuing toaddress this situation.
Corporate GovernanceThe Board of Directors of Mackay Sugaris responsible for the corporategovernance of the Association and thefollowing statement outlines the principalgovernance practices in place during thefinancial year under review.
(a) Board of DirectorsIn accordance with the rules of theAssociation the Board is comprised ofnine non-executive Directors, seven ofwhom are elected by shareholders andtwo "... with special skills, whose servicesare considered to be of benefit to theAssociation ..." appointed by the electedBoard members. At the time of reportingthere is only one “independent” Directorwith the Board still to consider theappointment of another external Director.
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Director’s Report
Elected Directors serve on the Board forthree years, with elections being held ineach consecutive year of each three-year period for the two directors, twodirectors, and three directors respectivelywho shall have been longest in office.Elections are conducted at each AnnualGeneral Meeting.
(b) Board ResponsibilitiesThe Board of Directors guides andmonitors the business and affairs ofMackay Sugar on behalf of shareholdersensuring they are conducted in a propermanner. The Board is responsible toshareholders for:• the overall performance of Mackay
Sugar and the charting of itsdirection and objectives;
• developing the strategies and policyguidelines to achieve theseobjectives;
• monitoring key performanceindicators of the business;
• maintaining a high standard foraccountability for all activities ofMackay Sugar including compliancewith laws and ethical behaviour;
• ensuring that risks are identifiedand that appropr iate r iskmanagement procedures are inplace; and
• protecting shareholders' interestsand ensuring they are kept fullyinformed.
In fulfilling this role the Board overseescompliance with the requirements of theregulators and ensures that appropriaterisk management and associated internalcontrols are in place. The Board maydelegate authority to management, butnot responsibility. Current practice callsfor the Board to meet 11 times duringthe year at approximately monthlyintervals. However this may be variedby the Directors who can also add othermeetings when deemed necessary.
(c) Board CommitteesAlthough the Board generally operatesas a whole across the range of itsresponsibilities, Directors also serve onone or more of the nine committees setup to support the Board in its work andto provide a more detailed focus for itsgovernance responsibilities.
The role of these committees is toconsider in advance or in more detail,matters subsequently addressed by thewhole Board.
The membership of these committees
NIR analyst Barbara Simpson shown here collecting a fibre sample from the milling train at Pleystowe Mill. Barbarais one of the team of analysts who collect and process samples to ensure the calibration integrity of the NIRmeasuring units installed at each of Mackay Sugar’s factories. Being able to measure fibre with the NIR unitsmeans that growers are now paid for cane on the basis of their actual fibre rather than the traditional classaverage system.
as at 30 June 2005 and a brief descriptionof their respective roles follows. Seniormanagement also serve whereappropriate.
• The Audit Committee is comprisedof Messrs BB Sheedy, S Gordon,RC Stroppiana and V Germanotta andhelps the Board fulfill its financialresponsibi l i t ies relat ing to theAssociation's general accountingpractices. The committee serves as anindependent and objective reviewer offinancial information presented byMackay Sugar to shareholders, regulatorsand the general public and determinesthe adequacy of the Association'soperating, accounting and audit controls.
• The Finance Committee establishescorporate governance of the Association'sfinancial functions not covered by theAudit Committee. Director members areMessrs CE Westcott, BB Sheedy,AS Cappello and RS Galea. Thecommittee reviews operating and capitalbudgets prior to submission to the Boardand monitors Mackay Sugar's overallfinancial position regarding net debt,borrowing and interest rates. Its long-term planning responsibilities includeensuring financial forecasts are consistentwith the Strategic Plan, and that sufficientfunding is available to meet Associationneeds.
• The Compliance Committeecomprises Messrs AR Amer, S Gordon,V Germanotta and RC Stroppiana andassists the Board of Directors to fulfilli t s governance and overs ightresponsibilities for occupational healthand safety and for environmentalmanagement.
• The Remuneration Committeemembership includes MessrsCE Westcott, BB Sheedy and AS Capelloand reviews remuneration policies andprocedures and establishes staff salarypackages.
• The Water Conservation Committeeincludes Messrs AS Cappello,RC Stroppiana and RS Galea as Directormembers and works to increase suppliesof affordable irrigation water for theMackay Sugar area.
• The Siding Committee comprisesMessrs S Gordon and V Germanotta andaddresses issues such as themaintenance and construction of sidings.
• The Housing Committee hasBB Sheedy and S Gordon as membersand was formed to oversee the sale ofsurplus mill houses and land.
• The Cogeneration Committeeincludes Directors CE Westcott andBB Sheedy working with variousmembers of the Association's seniorstaff. The role of the committee is toassist the Board of Directors fulfill itsgovernance and oversight responsibilitiesfor the decision on the RacecourseCogeneration project and to identify andquantify the risks associated with theproject.
• The Harvest Advisory Committeeincludes CE Westcott, BB Sheedy andRC Stroppiana and maintains a watchingbrief on harvest-related issues andassesses their impact on the Association'sactivities.
(d) Risk ManagementIn order to ensure that key business andfinancial risks which could affect MackaySugar are effectively managed, theAssociation has in place a managementprogram for Mackay Sugar's people,processes and property. This is operatedin conjunction with Transfield Services.
(e) Management StructureThe management of the Association, itsoperations and administration, isdelegated by the Board to the ChiefExecutive, who is supported by a teamof managers.
This team operates within an agreedframework of strategic plans, budgets,targets, standards and policies approvedby the Board which maintains appropriateservices, procedures and internalmechanisms to ensure that managementand employees act efficiently and in thebest interests of shareholders.
(f) Code of EthicsMackay Sugar is committed tomaintaining the highest ethical standards
page sixteen
Director’s Report
page seventeen
Director’s Report
BB SheedyDeputy Chairman
Signed at Mackay on behalf of the Board this third day of October 2005.
CE WestcottChairman
in all of its operations. Directors andemployees are expected to act with theutmost integrity and objectivity tomaintain the Association's reputation.
E q u a l E m p l o y m e n tOpportunitiesMackay Sugar is committed to theprovision of equal employmentopportunities, and in 2004-05 madesignificant progress in the field. Thenumber of female employees hasincreased markedly and women nowrepresent 19 per cent of the workforce.Mackay Sugar's EEO committee iscontinuing to work in areas ofimportance, including continued trainingfor EEO contact officers and continuedtraining on EEO in recruitment andselection to ensure Mackay Sugar'srecruitment policy consistently appliesEEO principles.
Indemnification of OfficersThe Association has paid premiums toinsure Directors and Officers againstliabilities for costs and expenses incurredby them in defending any legalproceedings arising out of their conductwhile acting for the Association, otherthan conduct involving a willful breachof duty in relation to the Association.
Rounding of AmountsThe Association has applied the reliefavailable to it in Australian SecuritiesInvestment Class Order 98/100 and,accordingly, amounts in this report andassociated financial statements havebeen rounded to the nearest thousanddollars where appropriate.
Auditor's IndependenceDeclarationA copy of the auditor's independencedeclaration as required under section307C of the Corporations Act 2001 isset out on page 18.
page eighteen
Auditor’s Independence Declaration
I declare that, to the best of my knowledge and belief, during the year ended 30June 2005, there have been:
1. no contraventions of the auditor independence requirements as set out in theCorporations Act 2001 in relation to the audit; and
2. no contraventions of any applicable code of professional conduct in relation tothe audit.
BENNET PARTNERSChartered Accountants
DARRYL CAMILLERIPartner
Dated: 3rd October 2005At: First Floor,
122 Wood StreetMackay. Qld 4740
Under Section 307C of the Corporations Act 2001To the directors of Mackay Sugar Co-operative AssociationLimited:
page nineteen
Concise Financial Report
Discussion & Analysis of Financial StatementsThis discussion and analysis is provided to assist members to understand the followingfinancial report.
Statement of Financial PerformanceThe net profit after income tax for the 2004/05 financial year is $6.550 million, whichwas an improvement of $14.776 million on the previous year's result. The assetrevaluation reserve was reduced by $74.0 million.
An increase in the crop and sugar price in the period significantly boosted incomefrom the milling business compared with the previous year. The 2004 season cropof 5.784 million tonnes was up 12.8 per cent on the 2003 season crop. QueenslandSugar Limited paid $255.84 per tonne IPS sugar for the 2004 season, an increaseof $23.96 per tonne compared with the 2003 season price of $231.88 per tonne.
Molasses sales earned greater income in 2004/05, increasing by $3.2 million comparedwith the previous year as a result of higher world export prices, the improved crop,and historically high molasses production. Other revenue was down on last yearmainly because the first tranche of the Federal Government's sustainability grant of$4.09 million was included in the previous year's results. Included in other revenuewas profit on the sale of land and houses of $2.2 million.
Reductions in sales and margins put pressure on the refining business in both Australiaand New Zealand, resulting in slightly decreased earnings compared with the previousyear.
Overhead costs increased slightly compared with the previous year, while borrowingexpenses reduced due to lower interest rates and lower levels of debt.
Depreciation for the 2004/05 financial year of $9.756 million was up 6.6 per centcompared with the previous year. This occurred due to the increase in tonnes of caneon which the depreciation rates are based. This method of calculating depreciationis used rather than a time basis to reflect a more realistic depreciation level, particularlyin years of smaller crops or mill closures.
The Directors have a responsibility to ensure that the value of the assets in theaccounts is not overstated and, based on the continued downturn in the crop andsugar price, the value of the milling assets was reduced by $74.0 million to $160.9million. This reduction effectively reverses previous valuation increases and leaves$8.6 million in the asset revaluation reserve. It should be emphasised that thedevaluation is not a loss and is only shown in the Statement of Financial Performancedue to reporting requirements.
Statement of Financial PositionNet debt decreased by $9.2 million to $52.6 million. Net debt was made up of RaboBank Loans of $40.0 million and IBDs of $26.8 million, offset by Grower Loans of$0.5 million and Cash of $13.7 million. Total Members' Equity decreased by $67.5million to $199.2 million as at the 30th June 2005. This resulted from offsetting theyear's profit of $6.5 million against the asset devaluation of $74.0 million. Otherthan this, there were no major changes to the Statement of Financial Position.
Statement of Cash FlowsCash flows from operating activities increased by $15.3 million to $13.8 million, duemainly to the improved crop and sugar price. Capital expenditure was again tightlycontrolled at $3.0 million compared with the previous year at $2.1 million.
page twenty
The Sugar Australia joint venture's cash flow was $1.6 million less than its profitcompared with the previous year's figure of $4.2 million in excess of its profit. Thisshows in the cash flow as an investing activity, as it increases the value of ourrefining investment.
Movements from financing activities were made up of repayments by shareholdersof plant loans of $2.8 million, repayment of term debt of $14.0 million, and anincrease in Interest Bearing Deposits of $0.8 million. Cash on hand decreased by$1.2 million to $13.7 million.
Concise Financial Report
Pleystowe Mill production manager Paul Stuart walks along the milling train at the factory. Pleystowe was required,once again, to be used as a crushing mill in 2004 after having not crushed cane during the 2002 and 2003seasons. It is again in full production during the 2005 season.
Note 2005 2004$'000 $'000
Sales 2 240 143 180 375Cane purchases and allowances (146 958) (109 576)
---------------------------------------- --------------------------------------
Gross Profit 93 185 70 799
Other revenues 2 7 342 9 625Maintenance (31 030) (29 690)Operating (27 052) (23 267)Overheads (27 775) (27 711)Borrowing expenses (6 040) (6 638)Depreciation (9 756) (9 154)Share of net profits of associates and jointventures accounted for using the equity method 7 676 7 810
---------------------------------------- --------------------------------------
Profit (Loss) from ordinary activities 6 550 (8 226)and before income tax
Income tax expense relating to ordinary activities - ----------------------------------------- --------------------------------------
Net Profit (Loss) from ordinary activitiesafter income tax expense attributable tomembers of the Co-operative 6 550 (8 226)
---------------------------------------- --------------------------------------
Net increase (decrease) in asset revaluation reserve (74 000) ----------------------------------------- --------------------------------------
Total changes in equity other than thoseresulting from transactions withowners as owners (67 450) (8 226)
--------------------------------------- --------------------------------------
The accompanying notes form part of this concise financial report.
page twenty-one
Concise Financial Report
Statement of Financial Performancefor the year ended 30 June 2005
2005 2004$'000 $'000
ASSETSCurrent AssetsCash 13 715 14 916Receivables 16 960 17 245Inventories 11 040 9 071Other 67 129
---------------------------------------- --------------------------------------
Total Current Assets 41 782 41 361---------------------------------------- --------------------------------------
Non-Current AssetsReceivables 340 354Property, plant and equipment 160 949 242 085Other financial assets 16 797 16 797Investments accounted for using the equity method 65 833 64 309Intangibles 1 866 2 493Other - -
---------------------------------------- --------------------------------------
Total Non-Current Assets 245 785 326 038---------------------------------------- --------------------------------------
TOTAL ASSETS 287 567 367 399---------------------------------------- --------------------------------------
LIABILITIESCurrent LiabilitiesPayables 17 392 16 253Interest bearing liabilities 44 773 39 966Provisions 1 299 1 266
---------------------------------------- --------------------------------------
Total Current Liabilities 63 464 57 485---------------------------------------- --------------------------------------
Non-Current LiabilitiesPayables 274 822Interest bearing liabilities 22 000 40 000Provisions 2 657 2 470
---------------------------------------- --------------------------------------
Total Non-Current Liabilities 24 931 43 292---------------------------------------- --------------------------------------
TOTAL LIABILITIES 88 395 100 777---------------------------------------- --------------------------------------
NET ASSETS 199 172 266 622---------------------------------------- --------------------------------------
MEMBERS' EQUITYContributed equity 1 1Asset revaluation reserve 8 597 82 597Retained profits 190 574 184 024
---------------------------------------- --------------------------------------
TOTAL MEMBERS' EQUITY 199 172 266 622---------------------------------------- --------------------------------------
The accompanying notes form part of this concise financial report.
Statement of Financial Positionas at 30 June 2005
page twenty-two
Concise Financial Report
2005 2004$'000 $'000Inflows Inflows
(Outflows ) (Outflows)
Cash flows from operating activities
Receipts from sugar sales and other sales 237 656 181 302Payments to members for cane supplied (147 827) (109 116)Payments to suppliers and employees (79 908) (81 549)Distributions received from associated entities 7 711 7 651Interest received 1 236 1 187Other revenue 969 5 645Interest paid (6 040) (6 638)
---------------------------------------- --------------------------------------
Net cash provided by (used in) operating activities 13 797 (1 518)---------------------------------------- --------------------------------------
Cash flows from investing activities
Distributions received from associated entities (1 558) 4 193Payments for property, plant and equipment (5 986) (2 295)Proceeds on sale of property, plant and equipment 2 997 240
---------------------------------------- --------------------------------------
Net cash provided by (used in) investing activities (4 547) 2 138---------------------------------------- --------------------------------------
Cash flows from financing activities
Payments for borrowing costs (44) (2 003)Repayment of borrowings (14 000) (12 000) Decrease in growers’ loans 2 786 3 156Increase in unsecured deposits 807 (142)
---------------------------------------- --------------------------------------
Net cash provided by (used in) financing activities (10 451) (10 989) ---------------------------------------- --------------------------------------
Net decrease in cash held (1 201) (10 369)Cash at 1 July 2004 14 916 25 285
---------------------------------------- --------------------------------------
Cash at 30 June 2005 13 715 14 916---------------------------------------- --------------------------------------
The accompanying notes form part of this concise financial report.
page twenty-three
Concise Financial Report
Statement of Cash Flowsfor the year ended 30 June 2005
Notes to the Concise Financial Reportfor the year ended 30 June 2005
Note 1: Basis of preparation of the Concise Financial Report
The concise financial report has been prepared in accordance with AccountingStandard AASB1039:Concise Financial Reports, and the Corporations Act2001.
The financial statements, specific disclosures and other information includedin the concise financial report are derived from and are consistent with thefull financial report of Mackay Sugar Co-operative Association Limited. Theconcise financial report cannot be expected to provide as detailed anunderstanding of the financial performance, financial position and financingand investing activities of the co-operative as the full financial report.
The accounting policies have been consistently applied and are consistentwith those of the previous financial year.
Impact of Adoption of Australian Equivalents to InternationalFinancial Reporting StandardsThe economic entity is preparing and managing the transition to AustralianEquivalents to International Financial Reporting Standards (AIFRS) effectivefor financial years commencing 1 January 2005. The adoption of AIFRSwill be reflected in the Association’s financial statements for the year ending30 June 2006. On first time adoption of AIFRS, comparatives for thefinancial year ended 30 June 2005 are required to be restated. The majorityof the AIFRS transitional adjustments will be made retrospectively againstretained earnings at 1 July 2004.
The Co-operative’s management, along with its auditors, have assessedthe significance of the expected changes and are preparing for theirimplementation. The impact of the alternative treatments and electionsunder AASB 1 : First Time Adoption of Australian Equivalents to InternationalFinancial Reporting Standards, has been considered where applicable.
The directors are of the opinion that the key differences in the economicentity’s accounting policies on conversion to AIFRS and the financial effectof these differences where known are as follows. Users of the financialstatements should, however, note that the amounts disclosed could changeif there are any amendments by standard-setters to the current AIFRS,or interpretation of the AIFRS requirements change.
Defined benefit plansMackay Sugar Co-operative Association Ltd sponsors one defined benefitplan. Contributions to the plan are expensed when due and payable andno assets or liabilities are recognised in relation to this plan in the financialreport of the entity as the entity has no legal or constitutional obligationto fund any shortfall nor does it control any surplus assets. Under AIFRS,the entity will be required to recognise the surplus or deficit of the planin its balance sheet, with the resulting movement recognised in its incomestatement. This change in policy is anticipated to have an effect on thefinancial statements, both on transition and on an ongoing basis, and islikely to introduce more volatility in the income statement.
On transition the financial effect of this impact will be the recognition ofa liability of $100 000 being the deficit of the defined benefit plan as at1 July 2004. This will also result in an equivalent decrease in retained
page twenty-four
Concise Financial Report
page twenty-five
Concise Financial Report
earnings at 1 July 2004. For the year ended 30 June 2005 an increase inprofit amounting to $706 000 will be required after the recognition of anasset of $606 000 for the surplus of the defined benefit plan as at 30 June2005. It should be noted that the surplus/deficit to be recognised is unlikelyto be the exact amounts above as the method of determining the surplusunder AIFRS is not the same as required to be disclosed under currentAustralian GAAP.
Impairment of assetsUnder AASB 136: Impairment of Assets, the recoverable amount of anasset is determined as the higher of fair value less costs to sell, and valuein use. In determining value in use, projected future cash flows are discountedusing a risk adjusted discount rate and impairment is assessed at theindividual asset or at the “cash generating unit” level. Under AASB 136,an impairment loss is allocated first against goodwill and then pro rataagainst other assets. This change in policy may result in the write-off ofthe 2005 carrying value of the goodwill disclosed in the Association’s financialstatements ($792 000).
GoodwillGoodwill is currently amortised over a 20-year period. AIFRS does notpermit goodwill to be amortised, but instead requires the carrying amountto be tested for impairment at least annually. Goodwill currently recognisedin the balance sheet, adjusted if necessary on the optional restatement ofbusiness combinations, must be allocated to individual cash-generatingunits (or groups of cash-generating units) and tested for impairment at theallocated level. This change in policy may result in increased volatility inthe profit and loss, where impairment losses are likely to occur.
Deferred ExpensesDeferred expenses are currently amortised over the period during whichthe related benefits are expected to be realised. The deferred expenses areborrowing costs associated with the refinancing of term debt. AIFRS doesnot permit borrowing costs to be amortised unless they relate to a specificasset. As these borrowing costs do not relate to a specific asset, they mustbe expensed in the period incurred.
The financial effect of this change on transition will be the write-off of thedeferred expenses asset of $2 003 000 and accumulated amortisation of$435 000. This will result in a reduction in retained earnings of$1 568 000 at 1 July 2004. For the year ended 30 June 2005, the amortisationof $537 000 will be reversed. This will result in an increase in profitamounting to $493 000 after accounting for additional borrowing expensesof $44 000 incurred during the year.
Employee benefitsUnder AIFRS, the Co-operative will no longer be able to recognise provisionsfor annual leave on a nominal basis, regardless of when the leave is expectedto be taken, but will instead be required to discount the portion of annualleave liabilities expected to be taken more than 12 months from the reportingdate. This change in accounting policy is likely to reduce the aggregateprovision for annual leave, but is unlikely to significantly affect the incomestatement.
Notes to the Concise Financial Reportfor the year ended 30 June 2005
page twenty-six
Concise Financial Report
The directors of Mackay Sugar Co-operative Association Limited declare that the concisefinancial report of the Co-operative for the financial year ended 30 June 2005, as set out onpages 11-26:
(a) complies with Accounting Standard AASB 1039: Concise Financial Reports; and(b) has been derived from and is consistent with the full financial report of Mackay Sugar
Co-operative Association Limited.
This declaration is made in accordance with the resolution of the Board of Directors.
Directors’ Declaration
C E WestcottChairman
Dated this third day of October 2005
Note 2: Revenue 2005 2004$’000 $’000
Operating ActivitiesSales 240 143 180 375Share of associated companies operating profit 3 111 3 227Share of joint ventures operating profit 4 565 4 583
---------------------------------------- --------------------------------------
247 819 188 185
Interest received 1 236 1 187Profit on sale of property held for resale 2 154 -Other revenue 3 952 8 438
---------------------------------------- --------------------------------------
Total Other Revenues 7 342 9 625---------------------------------------- --------------------------------------
Total revenue per Statement of Financial Performance 255 161 197 810---------------------------------------- --------------------------------------
BB SheedyDeputy Chairman
Notes to the Concise Financial Reportfor the year ended 30 June 2005
page twenty-seven
Bennett Partners
MackayFirst Floor, 122 Wood StreetPO Box 92, Mackay Q 4740
e-mail: [email protected]: www.bennettpartners.com.au
Partners:Darryl CamilleriDavid WattsChris SammutPaul Hinton
Bennett & Camilleri Pty.
ACN 010 430 314
ABN 65 010 430 314
Chartered AccountantsABN 59 281 397 611
4 October, 2005
Independent Audit Report to the Members of
Mackay Sugar Co-operative Association Limited
Scope
We have audited the concise financial report of Mackay Sugar Co-operative Association Limited for thefinancial year ended 30 June 2005 in order to express an opinion on it to the members of the co-operative.The Association’s Directors are responsible for the concise financial report.
Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonableassurance whether the concise financial report is free of material misstatement. We have also performedan independent audit of the full financial report of Mackay Sugar Co-operative Association Limited forthe year ended 30 June 2005. Our audit report on the full financial report was not subject to anyqualification.
Our procedures in respect of the audit of the concise financial report included testing that the informationin the concise financial report is consistent with the full report, and examination on a test basis, of evidencesupporting the amounts, discussion and analysis, and other disclosures which were not directly derivedfrom the full financial report. These procedures have been undertaken to form an opinion whether, inall material respect, the concise financial report is presented fairly in accordance with Accounting StandardAASB 1039: Concise Financial Reports.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In our opinion, the concise financial report of Mackay Sugar Co-operative Association Limited complieswith the Accounting Standard AASB 1039: Concise Financial Reports.
BENNETT PARTNERS DARRYL CAMILLERI
Auditor’s Report
Partner
Phone: (07) 4951 4155Fax (07) 4951 4824
Phone: (07) 3394 3855Fax: (07) 3394 3573
Brisbane4/633 Logan Road GreenslopesPO Box 7, Greenslopes Q 4120
Glossarypage twenty-eight
BagasseThe fibrous residue after extraction of juices from cane in one or more mills in asugar factory.
CaneThe raw material delivered to a sugar factory by a farmer for processing into rawsugar and molasses.
Cane Production Area (assignment)A cane production area entitles a grower to enter a supply agreement with aparticular millowner for the supply of cane grown on a particular number of hectaressituated within the boundaries of land of a particular description.
CCSCommercial Cane Sugar or CCS is a measure of the percentage of cane sugarrecoverable as pure sugar. Each delivery of a farmer's cane is sampled and analysedto determine its CCS content.
CogenerationThe process of generating electrical power simultaneously with other processes,such as thermal energy. A sugar factory, for instance, burns fuel and producesfactory steam and simultaneously produces electricity for internal use and sale tothe grid.
IPS (International Pol Scale)IPS is a measure of the commercial value of raw sugar.
MolassesMolasses is a by-product of the sugar milling and refining processes. It is a brownviscous syrup and is used for stockfeed and fermentation purposes.
Molasses Percent CaneMolasses Percent Cane is the tonnage of molasses produced from each 100 tonnesof cane.
Mud/mill mudMud/mill mud is the residue discharged from the mud filters in a sugar factory afterthe clarification of cane juice.
Polarisation/polThe sucrose content of sugar, e.g. "98 pol" sugar, would contain about 98 per centsucrose.
Raw sugarRaw sugar is the straw-coloured impure crystalline sugar produced by a sugarfactory. It usually contains 98-99 per cent sucrose and is not considered fit forhuman consumption.
Refined sugar/white sugarRefined or white sugar is produced by the further processing of raw sugar to food-grade standards and contains almost 100 per cent sucrose. Refined sugar is theproperty of the refiner and is marketed direct to customers.
Mackay Sugar Co-operative Association LimitedABN 12 057 463 671
Peak Downs Highway,Racecourse, via Mackay
PO Box 5720,Mackay Mail Centre,
Queensland 4741 AustraliaPhone (07) 4953 8300
Facsimile (07) 4953 8340Web: www.mkysugar.com.auEmail: [email protected]
Principal Photography: Daryl Wright • Print Co-ordinator: Jane Reid • Printing: Payne Print
MackaySugar
