Release Date: February 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Midway Ltd (ASX:MWY, Financial) achieved a positive underlying EBITDA-S of $2.6 million, an increase of $2.3 million over the previous corresponding period.
- The company completed a refinancing with CBA, enhancing funding flexibility and business resilience.
- A binding MOU was signed with CHS Broadband for the sale of 5.15 hectares of the Geelong site for $15.5 million, contributing to a revaluation of the property to $45 million.
- Midway Ltd (ASX:MWY) paid a fully franked special dividend of $0.05 per share in December.
- The company has developed a strong carbon and plantation business, with significant progress in assisting large corporations with their carbon obligations.
Negative Points
- Midway Ltd (ASX:MWY) experienced a sharp downturn in pulp prices, leading to lower volumes in the first half.
- South West Fibre's high-value Eucalyptus globulus sales volumes suffered a 63% decline in GMT shipped.
- The Tiwi operation faced lower production volumes and increased supply costs due to higher stoppages and supply chain costs.
- Operating cash flow was negative $17.4 million due to sluggish market demand and a buildup of net working capital.
- The company faced low demand and deferral of contracted sales, resulting in a 7% decline in volumes excluding South West Fibre.
Q & A Highlights
Q: On Slide 16 of the presentation, it said plantation forestry and environmental plantings ACCUs trade at a premium. Can you clear the leverage on this and how the ACCUs are traded at premium?
A: Sure. For example, last week, plantation forestry ACCUs traded in a range between $43 and $59. Savanna Fire Management ACCUs traded at $32 to $39, and Landfill gas ACCUs traded at $36. So there is a consistent week-on-week demonstration that the market genuinely sees the value of plantation ACCUs. (Anthony Mckenna, CEO)
Q: On Slide 29, in the NPAT statement, insurance (fire) is listed as blank. Can you please explain bio-risk management and mitigation? Under the MEAG sale, the real obvious stage, is the primary risk now a loss of supply?
A: In terms of our bio-risk management strategies, each company in the forestry industry has to have a grade. We have trained operators to fight fires when developing a plantation and installed rigs upfront to manage the risk of fire. Since the sale of the estate to MEAG, we now have about $8 million worth of trees on our balance sheet, greatly reducing the risk, which is primarily loss of supply from third parties. (Michael Mckenzie, CFO)
Q: The report emphasizes NTA of $1.64 per share. Can you outline anything complicating or prohibiting a takeover? And under what specific circumstances would you consider further asset sales and return capital to investors?
A: There is nothing major complicating or prohibiting a takeover. We have long-term leases, supply agreements, and take-or-pay arrangements that require continuation of operations. We are open to asset sales and constantly monitor the environment for opportunities. Our strategy focuses on lifting operating performance, maximizing asset value, and pursuing the carbon growth strategy. (Anthony Mckenna, CEO)
Q: Can you talk through why P&P has made a loss for the first half year? And the plantation management expense of $3.2 million was higher than PCP of $2.8 million. Is this due to a lag reimbursement from MEAG or does this expense relate to other plantations or carbon initiatives?
A: The $3 million in plantation management expenses reflects the work we do for MEAG, with corresponding income in other revenue. The P&P losses were due to lower production and sales volumes, with sales secured at lower prices for the biomass market. (Michael Mckenzie, CFO)
Q: In relation to exchange rate, is there an average foreign exchange rate locked away for the remainder of the financial year?
A: Yes, we have 70% to 80% locked away in the second half at around $0.65, which will provide a benefit over the first half. (Michael Mckenzie, CFO)
Q: Can you give an update on progress towards the Tiwi's second rotation? And are there any further expected biomass shipments this year?
A: We are talking with several customers about biomass shipments from Tiwi for the year, which we expect to come to fruition. We have appointed an adviser to raise equity to bridge the gap for the full 30,000-hectare project to proceed. (Anthony Mckenna, CEO)
Q: Inventory increased $5 million half-on-half, yet pretax operating cash flow was negative $15.5 million for lease repayments. Can you please reconcile these with EBITDA being positive $2.6 million?
A: It's a net working capital position. At 30 June, there were no receivables for vessels, but at 31 December, we had a receivable for about $8 million from vessels and a lag in trade payables of about $8 million, resulting in a net trade working capital build of around $17 million to $18 million. (Michael Mckenzie, CFO)
Q: Can you explain the remaining valuation applied to the Geelong site?
A: The $45 million valuation for the entire site, including the portion held for sale, was done based on comparable sales around the region. When the sale goes through at $15.5 million, there will be a small uplift of $2 million to $3 million compared to the book value. (Michael Mckenzie, CFO)
Q: What is the new carbon offering being developed for 2025? Can you please elaborate?
A: We are working on several exciting carbon projects, including aggregation carbon and plantation products, and projects with large emitters to address their emission needs. This is a new market with a lot of opportunities, and we are positioning ourselves at the forefront to capitalize on them. (Anthony Mckenna, CEO)
Q: Roughly what percentage or amount of income do you think will come from the carbon business in, say, 1, 3, or 5 years from now?
A: In the immediate term, the income numbers will not be huge, but we expect to see meaningful contributions to net profit before tax from the carbon business in the next financial year. Ideally, in 5 years, we aim for the carbon business to contribute as much as our wood fiber business. (Anthony Mckenna, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
