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Investing for growth
Annual Report
2019
MIDWAY LIMITED
ABN 44 005 616 044
We are Australia’s largest high-quality woodfibre processor and
exporter. Founded in 1980, Midway is involved in the production
and export of high-quality woodfibre. Midway’s primary business
is the purchasing, processing, marketing and exporting of
woodfibre. Our operating environment consists of plantation
and land ownership, the procurement of timber resources within
Australia, processing, materials handling and exporting of
woodfibre, and the international woodfibre market.
Contents
Chairman’s Report
Managing Director’s Report
02
04
Remuneration Report (Audited)
31
Auditor’s Independence Declaration 41
Overview of Business Activities 08
Financial Report
Port and Processing Facilities
Operational Review
Sustainability
Directors’ Report
10
12
16
20
Directors’ Declaration
Independent Auditor’s Report
Additional Shareholder Information 90
Corporate Directory
93
42
84
85
01
$283.6M Revenue
$37.1M
EBITDA – S
18.0¢
17.6%
Fully franked dividend per share in
accordance with the prospectus guidance
FY19 return on capital
MIDWAY LIMITEDANNUAL REPORT 2019 02
Chairman’s Report
Greg McCormack
Chairman
The last 12 months have
been a year of expansion
and consolidation as Midway
restructured to adopt a new
business model that better
reflects its strategic growth
plans for the business.
I am pleased to report to shareholders that in the 2019 financial
year, Midway Limited produced its third consecutive year of profit
growth since listing on the Australian Securities Exchange (ASX),
as a result of improved operational performance and growing
tightness in the supply and demand balance for woodfibre.
In the 2019 financial year, Midway generated sales revenue
of $283.6 million, up 22.3 per cent on the previous year and
net profit after tax before significant items of $20.5 million,
up 19.9 per cent on the previous year. Net profit after tax and
significant items was $26.2 million, up 42.4 per cent on the
previous year.
Since listing on the ASX, Midway is pleased to provide strong
dividend returns to shareholders. The Directors were therefore
pleased to approve a fully franked final dividend of 9.0 cents
per share, to be paid on (28 October 2019). This means that
shareholders will receive a fully franked dividend for the 2019
financial year of 18.0 cents per share, including the fully franked
interim dividend of 9.0 cents per share, and continues a history
of strong dividends.
The last 12 months have been a year of expansion and
consolidation as Midway restructured to adopt a new business
model that better reflects its strategic growth plans for the
business, with a growing emphasis on plantation management
and forestry logistics.
On the back of a successful capital raising in September 2018,
Midway acquired several new businesses, including Softwood
Logging Services (SLS) (now Midway Logistics) and 40 per cent
of Bio Growth Partners (BGP) in Western Australia, and further
invested in the Tiwi Island operations of Plantation Management
Partners (PMP).
I am pleased to report that each of these acquisitions and new
investments have now been successfully integrated into the
Midway business and we expect them to generate incremental
earnings that will further improve shareholder returns over time.
The 2018 capital raising, supplemented by modest additional
bank debt and solid internal cash flow, will be used to build
on our strategic investments to meet future demand in Asia
for high-quality woodfibre. The investments will also look
to diversify our income flows and incrementally reduce our
US dollar currency exposure.
The Board is comfortable that the Midway growth strategy,
supported by a low debt to equity ratio and well-supported
bank covenants, represents a very prudent approach to growing
shareholder returns over time.
As part of the 2018 capital raising and further demand from
institutional investors in April 2019, the two substantial private
shareholders in Midway Limited, McCormack Timbers Pty Ltd
and Chebmont Pty Ltd, on behalf of the Gunnersen Investment
Trust, reduced their shareholding in the Company.
MIDWAY LIMITEDANNUAL REPORT 2019 03
Chairman’s Report
Both McCormack Timbers and Chebmont remain loyal long-term
investors in Midway, and fully support the growth strategy of the
Company. However, McCormack Timbers and Chebmont were
prepared to reduce their shareholdings to support a broader
shareholder base and increased trading liquidity in the Company
that will benefit all shareholders.
As part of the long-term Board development plan, a new Director,
Ms Leanne Heywood, was appointed as a Non-Executive Director
in March 2019. Ms Heywood brings a wealth of experience in
mining, the rural sector and government to the Midway Board.
Outlook
Market pulp prices have dropped significantly over the last few
months, largely due to Brazilian pulp mills over-producing and
carrying high inventories. These mills have announced that
measures have now been put in place to curtail production.
Also, Chinese traders and buyers have run their inventories
down to extremely low levels before they recommence buying,
and once this happens, it is expected pulp prices will improve.
The short-term imbalance between supply and demand in
the global pulp market is having a flow-on effect on the global
woodfibre market.
Midway has secured export shipments to China in the last few
months, but it is too early to be precise about the full impact
of current market conditions on export woodfibre volumes
and prices during the 2020 financial year.
Pulp mills in China and Japan
are still operating at full
production and while there has
been some deferral of vessels,
woodfibre prices are largely
set for the remainder of the
calendar year in both Japan
and China.
When production normalises and pulp stocks return to normal
levels in China, Midway is confident that positive long-term
trends for woodfibre exports and pricing in the Asia Pacific
region forecast by global forest industry experts will re-emerge.
On behalf of the Board, I thank our shareholders for your
continued support and our management team and employees
for their contribution.
Despite this issue, pulp mills in China and Japan are still
operating at full production, and while there has been some
deferral of vessels, woodfibre prices are largely set for the
remainder of the calendar year in both Japan and China.
Greg McCormack
Chairman
MIDWAY LIMITEDANNUAL REPORT 2019
04
Managing Director’s Report
Anthony Price
Managing Director
All key earnings drivers
moved in the right direction
for Midway in the 2019
financial year.
I am pleased to report that Midway Limited produced record
sales and earnings results in the 2019 financial year despite
significant management challenges including integrating new
acquisitions and investment in restructuring across all areas
of the business.
All key earnings drivers moved in the right direction for Midway
in the 2019 financial year, including overall volume growth,
solid price growth in Japan and China, good dry fibre content
and favourable currency movements.
As expected, export volumes from Midway Geelong have
trended lower, however, overall exports volumes were higher
with increased contributions from South West Fibre (SWF)
in Portland, QCE in Brisbane and from Midway Tasmania.
In December 2018, Midway secured an 11 per cent price
increase for woodfibre exports to China for the first half of
the 2019 financial year, and in 2019 Midway has entered sales
contracts with four new Japanese customers until December
2020. A fair proportion of these price gains are being passed
on to our timber suppliers in higher payments to ensure
sustainable investment in future timber resources.
As a result, underlying earnings before interest, tax, depreciation
and amortisation (EBITDA) before significant items was
$37.1 million, up 29.3 per cent on the previous year. Net profit
after tax and significant items was $26.2 million, up 42.4 per cent
on the previous year.
Growth strategy
During the 2019 financial year, the management team and
the Board of Directors worked together closely to develop an
expansion strategy that will enable Midway to tap into future
growth opportunities in the woodfibre market in the Asia Pacific
region including woodfibre processing, forestry logistics and
plantation management.
Woodfibre processing
Midway decided to consolidate woodfibre processing from all
of its manufacturing operations in Geelong, Portland, Brisbane,
Tasmania and the Tiwi Islands to highlight the overall volume
growth in our woodfibre export business.
Midway also invested significantly in the Tiwi Island operations
of Plantation Management Partners (PMP) in the 2019 financial
year so that it would have the capacity to expand exports into
the growing Asian woodfibre market.
We refurbished the existing machinery and invested in some
additional new harvesting equipment and new port infrastructure
on the Tiwi Islands. This meant we had to defer production and
exports for several months during the wet season, but that work
is now complete and the business has now resumed exports.
MIDWAY LIMITEDANNUAL REPORT 2019 05
Managing Director’s Report
$37.1M EBITDA before significant
items up 29.3 per cent
42.4% Increase in net profit after
tax and significant items
Midway also invested significantly in the Tiwi Island operations
of Plantation Management Partners (PMP) in the 2019 financial year
so that it would have the capacity to expand exports into the growing
Asian woodfibre market.
Woodfibre exports continue to be the engine room of Midway
and will remain a significant part of our business in the next few
years as demand for high-quality woodfibre continues to be
strong in key Asian countries, especially Japan and China.
both the Western Australian forestry sector and the emerging
biomass energy market that is growing rapidly both domestically
and in Japan and South Korea.
However, Midway has invested significantly in forestry logistics
and plantation management over the last 12 months because
we can see new and emerging earnings opportunities in both
of these business segments.
Forestry logistics
Midway acquired Softwood Logging Services (SLS) and 40 per cent
of Bio Growth Partners (BGP) in October 2018. These related
acquisitions provide Midway with an important footprint in
On the back of these acquisitions, Midway restructured the
business to better reflect these emerging growth opportunities.
SLS was renamed Midway Logistics, and along with BGP
(which is equity accounted), we created a new logistics division,
which includes the earnings from the ADDCO.
We are confident any integration issues have been resolved and
we expect the Forestry Logistics division to generate incremental
earnings growth in the 2020 financial year.
MIDWAY LIMITEDANNUAL REPORT 2019 06
Managing Director’s Report
Woodfibre
Processing
Forestry
Logistics
Midway Geelong (MW)
South West Fibre (SWF) (51%)
Queensland Commodity
Exports (QCE)
Plantation Management Partners
(PMP) (post restructure on
2 October 2018 and excluding
silviculture activities)
Midway Tasmania
(except for woodfibre
trading business)
Midway Logistics
(previously Softwood
Logging Services (SLS))
Bio Growth Partners (BGP)
(equity accounted)
ADDCO (equity
accounted)
Segment
Reporting
Plantation
Management
Midway Plantations (MWP)
Plantation Management
Partners Pte Ltd (PMP PTE)
Silviculture activities
Plantation Management
Partners (PMP)
(prior to restructure)
Ancillary
Capital raising costs
Marketing of third party
vessels (chip trading costs)
Business acquisition costs
Plantation management
Midway owns a small plantation estate and manages over
90,000 hectares of plantation estate in Australia and Asia. Its
Australian plantation estate includes 17,000 hectares of freehold
and leased land in the Otway Ranges, Upper Goulburn and
Ballarat regions in Victoria.
In early 2019, Midway decided to consolidate PMP and the
Midway plantation operations in South West Victoria into one
business to better leverage our PMP management capability.
This has resulted in immediate efficiency benefits across the
business and a more cohesive team to support future growth.
Future priorities
The Midway management team continues to look actively at
opportunities to add to our plantation management business and
to better manage our timber supply, both on and off the balance
sheet, potentially in conjunction with patient capital to maximise
our return on investment.
We are also looking to use our balance sheet flexibility to
make further bolt-on acquisitions and undertake investments
in Midway woodfibre processing and forestry logistics to take
advantage of growth opportunities that offer sustainable returns
to shareholders.
We have achieved much in the 2019 financial year and I am
excited by the opportunity before us. I thank the dedicated
people across our organisation for their sustained effort and
contribution, and shareholders for their continued support.
Anthony Price
Managing Director
MIDWAY LIMITEDANNUAL REPORT 2019 07
MIDWAY LIMITEDANNUAL REPORT 2019 08
Overview of Business Activities
Midway is an Australian forestry company based in Geelong,
Victoria, with majority shareholdings in South West Fibre Pty
Ltd (SWF) based in the Green Triangle (South West Victoria),
Queensland Commodity Exports Pty Ltd (QCE) based in
Brisbane, Plantation Management Partners (PMP) based in
the Tiwi Islands, Midway Tasmania based in Tasmania and
Midway Logistics based in Western Australia.
Midway’s core business is the production and marketing of
woodfibre for supply to producers of pulp, paper and associated
products in the Asian region. Woodfibre is primarily produced
from plantation hardwood, which represents the majority of the
Company’s export sales, with the balance comprising woodfibre
produced from plantation softwood logs and hardwood timber
residues generated from the harvest of sawlogs from native
hardwood forests. The Company has interests in three processing
and export facilities in mainland Australia.
Midway has diversified since it commenced exporting 32 years
ago in terms of geographical representation, product range, supply
source and customer base. Growing from one export facility, one
product, one customer and one supplier in 1986, today Midway:
• provides estate management, harvesting and transport
and forestry consulting services;
• has well-developed processing and export facilities in
three locations;
• supplies a diverse range of products in terms of species,
quality and certification levels;
• sources timber supply from numerous major timber
suppliers; and
• has strong relationships with key customers in the two
major importing countries of Japan and China.
Midway staff and contractors conduct mechanical harvesting
of logs in plantations, which are then transported to processing
mills. Woodfibre is produced by both fixed chippers and mobile
chippers, and is stockpiled at export facilities.
Woodfibre is used in the production of pulp, which is primarily
used for the production of paper products such as writing and
printing paper, newsprint, cardboard and tissue. Some hardwood
woodfibre is also used for the production of dissolving pulp and
chemi-thermomechanical pulp. Dissolving pulp is produced by
additional chemical refinement and is used in textile manufacture
such as rayon. The pulp and paper industry consumes the
majority of the total traded woodfibre volume, with the balance
being used in the production of reconstituted boards, speciality
pulps and, more recently, biomass.
The primary use of internationally traded woodfibre is for the
production of Kraft pulp. The Kraft process involves the chemical
breakdown of the woodfibre into lignin (usually used as a fuel
in the pulp mill) and cellulose fibre used for the production of a
wide range of paper products. The uses of hardwood Kraft pulp
are printing and writing papers, and in tissue products, whereas
softwood Kraft pulp is mainly used in packaging, but also in
tissue and to add strength to other paper grades.
In FY2019, Midway processed approximately 29 per cent of all
hardwood woodfibre exported from Australia and marketed
directly approximately 55 per cent of this volume. The demand
for woodfibre from China is expected to continue to grow with
YTD growth in CY2019 over 8 per cent year on year. New
projects continue to be announced, which should see growth
continue in subsequent years. In 2019, both Indonesia and Laos
quickly grew woodfibre imports. In mid 2019, both Laos and
Indonesia have overtaken Taiwan, India and South Korea to
become approximately 7 per cent of the total market demand,
up from zero demand one year earlier. Indonesia in particular
is expected to grow further again as infrastructure for handling
woodfibre imports is improved in the next few years.
Midway aims to expand its market share of hardwood woodfibre
exports through securing additional supply and seeking out
new opportunities to acquire businesses in key forestry areas
in Australia and overseas.
MIDWAY LIMITEDANNUAL REPORT 2019 09
Overview of Business Activities
In FY2019 Midway processed
approximately 29 per cent
of all hardwood woodfibre
exported from Australia and
marketed directly approximately
55 per cent of this volume.
EBITDA – S
2019 ($’000)
-793
2,123
-2,411
-4,572
EBITDA – S
2018 ($’000)
134
937
-35
-3,119
Woodfibre processing
Eliminations
Forestry logistics
Ancillary
Plantation management
42,728
30,776
Partnerships
Partner with local
landowners and
communities to
grow sustainable
woodfibre.
Planning and
Establishment
Site selection using
known and disciplined
parameters to plant
and grow the highest
quality woodfibre.
Plantations
Pulpwood is grown
and managed on
freehold, leasehold
and private land.
Harvest
Contractors harvest
pulpwood sourced from
Company-managed
plantations or third
party suppliers using
mechanical harvesters.
Haul
Haulage contractors
transport product
from plantations
to the mill.
Processing
Mills located at
Geelong, Myamyn,
Brisbane, Bell
Bay as well as
infield processing
on Melville Island
convert pulplogs
to woodfibre.
Stockpile
Chip stockpiles
located at mills
and ports.
Marketing
and Export
Ships carry woodfibre
for export from
GeelongPort, Port
of Portland, Port
of Brisbane, Port
Melville and Bell Bay.
MIDWAY LIMITEDANNUAL REPORT 2019 10
Port and Processing Facilities
Midway Geelong (Head Office)
QCE Brisbane
South West Fibre/Portland
Midway Tasmania
Midway Logistics
ADDCO Mt Maunganui (NZ)
Plantation Management Partners
Cambodia
Laos
Singapore
Melville Island
Midway Geelong
• 19 hectares of freehold land adjacent to GeelongPort.
• Two woodfibre mills (separate plantation and native
processing facilities).
• Three stockpiles including three reclaimers with 200,000
green metric tonnes (GMT) total capacity.
• Capacity to process and export up to 1.8 million GMT
per annum of hardwood.
QCE Brisbane
• Sole woodfibre exporter from Port of Brisbane – provides
geographic and marketing diversity.
South West Fibre Portland
• South West Fibre is the first plantation hardwood processing
and marketing operation in the Green Triangle – provides
geographic and future market diversity.
• Myamyn – 1.2 million GMT per annum current site capacity
plus in-field chipping and ‘upstream’ chip and log storage.
• 10-year x 1.2 million GMT per annum supply agreement
with Australian Bluegum Plantations, signed in July 2010.
• 51 per cent owned joint venture with Mitsui.
• Portside woodfibre receival, storage and loading facilities
contracted with GrainCorp.
• 80,000 GMT woodfibre stockpile capacity.
• 15-year leases on a four hectare site with the Port of Brisbane
• Woodfibre receival capacity of 1.8 million GMT per annum.
for producing, storing and loading.
• GrainCorp provides toll ship loading.
• 300,000 GMT per annum softwood export capacity.
• Hardwood exports commenced in 2016. Capacity of 300,000
GMT per annum.
• Stockpile capacity: 100,000 GMT of softwood and/or hardwood.
MIDWAY LIMITEDANNUAL REPORT 2019 11
Port and Processing Facilities
Plantation Management Partners
Melville Island
• Plantation Management Partners Pty Ltd (PMP) provides
exclusive forestry management services to the 35,000 hectare
Tiwi Islands’ forestry plantation project, and provides
woodchip marketing services to the project.
ADDCO Fibre Group Limited
• Midway holds 25 per cent shareholding in ADDCO.
• Forestry and logistics services business.
• The main focus for the business is providing harvesting,
haulage, processing and materials handling services.
• Acacia mangium woodchip exports commenced in
November 2015 out of Port Melville.
• Stockpile capacity 60,000 tonnes.
• 400,000 GMT per annum export capacity.
Cambodia, Laos
• PMP provides plantation management services to timber
investment management organisations in Cambodia
and Laos.
Singapore
• Office
Midway Tasmania Pty Ltd
• Marketing and sales.
• Native hardwood shipments commenced September 2017
from a chipping, stockpiling and loading facility at Bell Bay.
• 450,000 GMT per annum export capacity.
Midway Logistics
• Midway Logistics was established as Softwood Logging
Services Pty Ltd in 1988, after being awarded with a
30,000m3/pa contract with the Forest Products Commission
(WA). Since then, the company has grown to become
one of the most diverse and dynamic forestry harvesting
organisations in Australia, now producing in excess of
650,000m3/pa.
• The head office is based in Bunbury, Western Australia,
with an expansive range of operational locations all through
the South West of Western Australia. The company offers
a range of forestry services, including infield chipping,
conventional harvesting (cut to length), roadside processing,
bio-energy production, stump pulling, woodchip screening,
forestry consulting, transport/haulage (forest products)
and low loader hire.
MIDWAY LIMITEDANNUAL REPORT 2019 12
Operational Review
The last 12 months have been a period of expansion and
consolidation for the Midway business. The Company acquired
several new businesses, expanded existing operations and
restructured the way it managed and reported its business
results to better reflect its future growth strategy.
Midway now owns or manages over 90,000 hectares of
plantation estates in Australia and South East Asia. Its Australian
plantation land estate includes 17,000 hectares of freehold and
leased land in the Otway Ranges, Upper Goulburn and Ballarat
regions in Victoria valued at $74.6 million as at 30 June 2019.
Midway extended its footprint into Western Australia with the
acquisition in October 2018 of Softwood Logistics Services (SLS)
(now Midway Logistics) and 40 per cent of Bio Growth Partners
(BGP). This has given Midway access to new forestry areas
across the country and the emerging biomass energy market
in Australia and overseas.
The Company also expanded the operations of Midway Tasmania
to include timber sourcing and woodchip processing, on top
of the third party chip trading on behalf of other businesses
through the Bell Bay port.
These acquisitions and investments have extended Midway’s
position as one of Australia’s leading forest products producers
and exporters with processing plants and export facilities on
the east and west coast of Australia and strategic investments
in the Tiwi Islands and across South East Asia.
Midway additionally invested $19.8 million in restructuring
the Plantation Management Partners (PMP) business in the
Tiwi Islands in 2019. We upgraded existing equipment and
purchased some additional machinery to improve production
on the Tiwi Islands. This meant we had to defer production and
exports for several months during the wet season, but that work
is now complete and the business has now resumed exports.
Midway has strategically located processing and export facilities
at a number of key sites including Geelong, Portland, Brisbane
and the Tiwi Islands that allow it to maximise its competitive
advantage in shipping quality woodfibre from Australasia to
our key customers in Japan and China.
The increased geographic footprint of Midway and strategic
diversification of production sites allows the Company to increase
overall sales revenue and earnings despite lower sale volumes
at some sites in particular years.
New business structure
Woodfibre Processing
At the end of the financial year, total woodfibre processing assets
were $137.4 million. The segment generated total revenue of
$297.3 million, up 34 per cent on the previous year. EBITDA
after significant items was $44.7 million, up 45 per cent on the
previous year. Midway incurred $2.0 million in significant items
in woodfibre processing.
In January 2019, Midway announced that it would consolidate
all of its woodfibre processing facilities in one division, including
Midway Geelong, the South West Fibre (SWF) joint venture in
Portland, the QCE joint venture in Brisbane and its processing
operations in Tasmania and the Tiwi Islands.
This highlights the expanded footprint of the Midway business
and the flexibility to source woodfibre from a range of timber
areas across the country. This enables Midway to increase
total export volumes and vary the quality of the woodfibre
mix even though some areas may be resource constrained
at certain times. This makes Midway a more reliable supplier
for our major customers in Japan and China.
Midway is progressing a range of options to increase available
timber supply in the medium to longer term to all operations,
with a particular focus in South West Victoria. We are also
exploring alternative commodity export arrangements through
the Geelong site to maintain capacity utilisation.
Plantation Management
At the end of the financial year, total plantation management
assets were $138.2 million. The segment generated total revenue
of $15.9 million, which was down 1 per cent on the previous year.
Midway recorded an EBITDA of $9.7 million after the annual fair
value adjustment of biological assets.
As part of the PMP restructure, Midway has consolidated the
plantation management business of PMP with the Midway
plantation operations in South West Victoria. The consolidation
MIDWAY LIMITEDANNUAL REPORT 2019
13
Operational Review
In January 2019, Midway
announced that it would
consolidate all of its
woodfibre processing
facilities in one division.
of all our plantation assets in one business allows Midway
to leverage our PMP management capability and experience.
This has resulted in immediate efficiency benefits across
the business.
As a result, Midway now owns or manages over 90,000 hectares
of plantation estate in Australia and Asia, including 17,000
hectares of freehold and leased land in the Otway Ranges,
Upper Goulburn and Ballarat regions in Victoria.
The Midway management team is now well positioned to actively
pursue opportunities to add to our plantation management
business and to better manage our timber supply, both on and
off the balance sheet, potentially in conjunction with patient capital
to maximise our return on investment.
Forestry Logistics
At the end of the financial year, total forestry logistics assets
were $5.8 million. This segment generated total revenue
was $6.1 million in its first year as part of the Midway group.
The segment recorded a EBITDA loss of $2.4 million before
significant items.
As part of the January 2019 restructure, Midway decided
to consolidate all of its logistics operations in one business
division, including SLS, BGP and the earnings from its
investment in ADDCO.
The integration of SLS and BGP within the Midway business
was successfully completed in the first half of the 2019 calendar
year, and the new division is expected to contribute incremental
profit growth in the 2020 financial year.
MIDWAY LIMITEDANNUAL REPORT 2019
14
Operational Review
Ancillary Businesses
Marketing of third party woodfibre continues to be a valuable
business opportunity for Midway. The bulk of this business to date
has been utilising our marketing and shipping capacity to sell
wood on behalf of third party producers. However, more recently
Midway has employed a local manager who has been procuring
wood in our own right direct from forest owners and utilising
a throughput arrangement with a wood processor at Bell Bay
in North East Tasmania.
Midway remains committed
to continuous improvement
in safety of our staff and
contractors.
Employment and safety
Following the acquisitions of SLS and BGP, and the expansion
of the woodfibre processing and plantation management
businesses in Tasmania and the Tiwi Islands, the total number
of Midway management and staff increased from 149 in 2018
to 265 in 2019.
• updates to the incident management system and training; and
• Midway, along with industry associations Australian Forest
Products Association (AFPA) and Australian Forest Contractors
Association (AFCA), has signed up to a charter of the Life
Saving Commitments and essential training standards for
the workforce.
Midway recorded a Lost Time Injury Frequency Rate (LTIFR)
of 8.7 in FY2019, slightly higher than the previous year due to
injuries related to slips, trips and falls. A Slip and Trip prevention
plan has been implemented to address this issue.
Midway remains committed to continuous improvement in safety
of our staff and contractors, and undertook a range of safety
initiatives during the year including:
• updates to ‘emergency response plans’ and drills;
• lone work solutions for workers exposed to the risks of working
alone by using satellite devices and a monitoring centre;
• improvements to contractor engagement and management;
• external audits of harvesting and haulage contractors;
In late May 2019, Midway lodged its first report with the
Workplace Gender Equality Agency of the Federal Government.
Despite the traditional reliance on heavy manual labour in the
forestry industry, Midway is committed to employing as many
women as possible in the business. Seven of the top 30 managers
in the business are women, and 19 of Midway’s non-managerial
workforce are women.
Midway also recognises the importance of developing managerial
and leadership capability across the business. Retention and
development of talented employees is a key initiative in the
Company’s strategic plan, and has been identified as a means
of being able to ensure that the organisation is able to effectively
deliver on its outcomes through its people.
MIDWAY LIMITEDANNUAL REPORT 2019 15
Operational Review
Our fibre is used to create:
Kraft Pulp
Printer and specialty stock
Packaging and coatings for high-quality containers including
the food industry
Magazines and brochures
Smooth, strong stock for beautiful detail and colour reproduction.
Tissue and toilet paper
Hygiene uses where high strength and softness is required.
Bleached Chemi-Thermomechanical Pulp
High-end product packaging
Beautiful specialty boards for cosmetics, electronics and luxury
brand products.
Dissolving Pulp
Viscose and high-grade cellulose
Perfect for clothing, personal hygiene, textiles, food industry
and pharmaceuticals.
MIDWAY LIMITEDANNUAL REPORT 2019 16
Sustainability
Midway takes pride in being an industry leader in the sustainable
growth of forest products and working closely with the
communities in which we operate to provide employment,
income and growth opportunities.
Certification
Midway’s certification includes:
• Sustainable Forest Management: AS 4708-2013;
• Chain of Custody for Forest Products AS 4707:2014;
• Occupational Health and Safety Management Systems
AS/NZS 4801:2001;
• Quality Management Systems – Requirements AS/NZS ISO
9001:2016;
• Chain of Custody Certification FSC-STD-40-004 V3-0;
• Requirements for Sourcing FSC® Controlled Wood FSC-
STD-40-005 V3-1; and
• FSC Controlled Wood Standard for Forest Management
Enterprises FSC-STD-30-010 Version 2-0.
External certification covers Quality, Safety and Environment;
and external audits of systems and operations are conducted
on an annual basis. PMP was included in the scope of the
AS4707 and AS4708 certificates during the year.
Midway
SWF
QCE
PMP
Safety
(AS4801)
Quality
(ISO9001)
Forestry
(AS4708)
Implementation
planned 2019/20
Midway Logistics
Midway Tasmania
Implementation
planned 2019/20
Implementation
planned 2019/20
Implementation
planned 2019/20
Implementation
planned 2019/20
AFS CoC
(AS4707)
(PEFC)
FSC CW,
CoC and FM
For plantation sources
FSC-STD-30-010 – Tiwi Is.
FSC FM – Grandis Timber
and Mekong Timber
MIDWAY LIMITEDANNUAL REPORT 2019
17
Sustainability
Community initiatives
The Midway group is a significant employer in regional
communities, with 265 direct employees and over 1,000 indirect
contractor employees. Our policy is to support communities in the
areas where we conduct our business and where our employees
live. In addition to our direct economic support for employment
and the local economy, we provide sponsorship to a range of
community organisations in these areas.
Midway freehold land and forestry activities are centred around
the Geelong region of Victoria including the Otway Ranges
and Heytesbury regions. Midway is a major sponsor of many
community organisations including residents groups, charity
clubs and events, car truck and bike shows, business clubs,
peak industry organisations, industry awards, local schools,
scouts groups and local festivals.
Midway is particularly proud of our association with the
Tiwi people. Tiwi consistently represent over 30 per cent of
our labour workforce working on the Tiwi Island Forestry Project.
We look forward to working with the Tiwi people in achieving
their long-held vision.
The Company’s certification to Responsible Wood Standard
AS4708 and the FSC Controlled Wood Standard
FSC-STD-40-005 provide a framework for stakeholder
consultation with both interested and affected parties,
systematic approaches to take into account concerns raised
by stakeholders, and independent review of the process.
Environmental initiatives
The Tiwi people have a vision of an independent and resilient
Tiwi society built on the orderly and well-managed utilisation
of their natural and human resources through reliance upon
their own management, maintenance and protection of unique
cultural and natural resource values for the enjoyment and
benefit of future generations of Tiwi.
Air quality monitoring
Annual ambient air quality monitoring was conducted for
SWF and Midway Geelong in March 2019. Combustible matter
(woodfibre) results from all Geelong and South West Fibre
sites were compliant with the EPA Victoria air quality guideline
of 4 g/m2/month as a monthly average.
Environmental performance
Midway places a priority on compliance with its environmental
legislation and community obligations for a clean environment.
One tannin discharge event was recorded at Port Melville in
the 2019 wet season due to an extreme weather event and
flash flooding, and reported to the EPA. Apart from this incident,
there were no other environmental incidents that had to be
notified to the regulatory authorities in the 2019 financial year.
There were 17 environmental inquiries for the 2019 financial
year. Inquiries related to noise and controlled wood sourcing.
Midway managed to successfully resolve 82 per cent of inquiries
in 2019.
Midway engages with key stakeholders in the communities in
which we operate to manage our activities and mitigate adverse
impacts on those communities. We also invite stakeholders to
communicate concerns regarding high conservation values and
other environmental and community values associated with
Midway’s wood supply area.
The Company’s Stakeholder Engagement Plan outlines the
process for recording and responding to stakeholder concerns
relevant to these areas. There were 1,405 stakeholder
communications during the 2019 year.
Noise monitoring
A noise model has been developed for Midway’s Geelong site to
assist with scheduling plant operation, in conjunction with use of a
real-time noise logging station in order to improve the effectiveness
of administrative controls, meet legislative requirements and
to better investigate and address community amenity.
Fire management
Fire protection works in Victoria including firebreak slashing
and track spraying were completed by Midway Plantations on
schedule. No fire prevention works notices were received from
councils. Fuel reduction burning was undertaken pre-fire season.
Below-average rainfall and well-above average temperatures
resulted in consistent High to Very High Fire Danger Ratings
through the fire season. Contractors were placed on fire standby
for a total of 2,894 man-hours; however, crews were fortunate
that there were no fires within managed plantations. There were
no fire-related safety incidents reported for Midway Plantations.
PMP operates an annual savannah-burning program to prevent
the risk of wildfires destroying plantation assets. The program is
run in conjunction with the Tiwi Land Rangers program that aims
to reduce carbon emissions by conducting cool, mosaic burning
to minimise the occurrence of hot, late season fires.
MIDWAY LIMITEDANNUAL REPORT 2019
18
Sustainability
PMP’s annual program is completed by 31 July each year
along with annual mapping of fire scars. PMP and the Tiwi
Land Rangers work together on fire management, including
sharing resources when needed or requested. PMP also
participates in the annual fire planning though representation
on the Tiwi Island Weeds and Fire Management Committee,
which meets twice a year.
Waste management
Midway sponsored a research project with Melbourne’s RMIT
University to investigate beneficial uses for bark by-product
separated from woodchip in the manufacturing process.
Following literature review and experimental work, five
potential future options for use of the material were assessed
as potentially feasible options. These options are high solid
anaerobic digestion (Dry AD), Briquetting, Alkali or Acid
pre-treatment for cellulosic ethanol, Biorefining and composting.
Soil and water
A total of 16 internal audits and five external audits were
conducted against the Responsible Wood Standard and FSC
Controlled Wood Standards. One major non-conformance was
identified relating to road maintenance, although this was closed
before the issue of the report.
Midway is an active member of the Forest Pest Management
Research Consortium. This group is funded by growers
and Forest and Wood Products Australia Limited (FWPA).
It both sponsors and conducts forestry-specific research to
control forest-invasive species in cooperation with chemical
manufacturers, forest growers and other collaborators.
The potential for declining soil nutrition is the subject of research
in another FWPA and grower-funded project to establish a
nutrition trial network. Information from past research and the
trial network will be used to develop tools that allow hardwood
plantation managers to better target their fertiliser management
on a site-specific basis.
The upgraded stormwater management system for the Geelong
site was successfully commissioned during significant rainfall
events without stormwater runoff into Corio Bay. The project
stores and reuses captured water on site for irrigation of
native tree plantings. Providing for a one in five-year storm event,
the project includes installation of increased pumping and dam
storage capacity, a back-up power supply, changes to the chip
stockpile stormwater drainage, and an increased area of irrigated
tree plantings.
A stockpile drainage and recirculation system was installed
at the QCE site to minimise risk of stormwater runoff. Works
at SWF included upgrading and maintenance to roadways,
pavements and hardstands.
Tannin water management at Port Melville is contained on site
and no discharge is permitted into the Apsley Strait. Works are
ongoing at the conclusion of each wet season to improve the
drainage and any areas identified after heavy rainfall. Current
works are underway to increase the pumping capacity with the
installation of a new pump, power infrastructure and the purchase
of a standby pump for high flows during peak rainfall or cyclone
events. One tannin discharge event was recorded in the 2019
wet season due to an extreme weather event and flash flooding.
Energy and climate
The current carbon storage of plantation trees within Midway’s
defined forest area is estimated to be 8.194 million tonnes of
CO2 equivalents. This includes 1.366 million tonnes managed
by Midway Plantations and 6.828 million tonnes of CO2
equivalents managed by Plantation Management Partners.
Midway is actively seeking partners to develop new plantations
in the Otways, Green Triangle and Tiwi regions, which will
promote carbon sequestration. Of wood that is harvested,
MIDWAY LIMITEDANNUAL REPORT 2019 19
Sustainability
most of the stored CO2 from tree growth goes into products
that are either stored (warehoused, hoarded, filed, libraried)
or recycled ensuring most of the CO2 captured during tree
growth remains stored or recycled.
Biodiversity management
Training was conducted in the courses Koala Welfare and
Handling Training, and Koala Management and Protection, and
included Midway staff, koala spotters and harvesting crews.
Midway also aims to minimise fossil fuel emissions in its forest
operations and at its processing sites. Cartage of wood from
the forest to the mill is the major contributor to greenhouse gas
emissions. Calculated estimates of CO2 emissions for wood
delivered by our cartage contractors to the mills is in the order
of 18,000 t CO2 equivalent.
Midway supports
The Ultimate Renewable™ –
an industry campaign to
promote the sustainability
and environmental advantages
of Australia's forest and
wood products industry.
Midway conducts a biodiversity monitoring program on freehold
land based on an estate level review in 2017 and ongoing
monitoring of vegetation condition and aquatic habitat.
Tiwi Plantations Corporation (TPC) and Charles Darwin University
(CDU) have entered into a partnership to support small mammal
research in the Tiwi Islands. TPC provides in-kind support by
providing accommodation at Yapilika Forestry Centre to two
PhD candidates and their volunteers during their dry season
field studies 2018 –2020. This partnership has resulted in
data sharing for biodiversity monitoring.
MIDWAY LIMITEDANNUAL REPORT 2019 20
Directors’ Report
The Directors present their report together with the consolidated financial statements of the Group comprising of Midway Limited
(the Company) and its subsidiaries for the financial year ended 30 June 2019 and the auditor’s report thereon.
Directors
The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows:
Name
Directors
Gregory McCormack
Anthony Price
Anthony Bennett
Gordon Davis
Leanne Heywood
Nils Gunnersen
Thomas Keene
Tom Gunnersen
Position held
Employment status
Non-Executive Chairman
Managing Director and CEO
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Appointed as a Director 01/03/2019
Non-Executive Director
Independent Non-Executive Director
Non-Executive Director
All of the Directors have been in office for the entire period unless otherwise stated.
Directors information
Gregory McCormack
Non-Executive Chairman
Mr McCormack was the founding Director of Midway in 1980. Mr McCormack holds a Bachelor of Business and has a long-term
commitment to the Australian forest products industry, holding senior positions with both the National and the Victorian Association
of Forest industries (having served as President of both associations). Mr McCormack is the current President of the Australian Forest
Products Association. Mr McCormack is a member of the Audit and Risk Management Committee.
Anthony Price
Managing Director and CEO
Mr Price holds a Bachelor of Science (Forestry) and a Post Graduate Diploma in Business Management, has attended the International
Executive Programme at INSEAD in France and is a graduate member of the Australian Institute of Company Directors. Before joining
Midway, he held a number of senior management positions in the hardwood plantation sector and has also run his own consultancy
business. Mr Price has over 30 years’ experience in the forestry sector. He is also currently a Chairman of Forestworks Ltd, an organisation
that provides training packages to the forest industry, and a Director of ADDCO Pty Ltd, a logistic business in which Midway holds a
25 per cent interest.
Anthony Bennett
Independent Non-Executive Director
Mr Bennett holds a Diploma in Civil Engineering and a Graduate Diploma in Industrial Management and is graduate of the Melbourne
University School of Business. He has extensive background in production management, particularly in the manufacture of high-volume
low-margin products for use in civil engineering construction. His executive experience was gained in both the public company sphere
as well as operating his own construction materials business for some 25 years. Mr Bennett has been a member of the Occupational
Health and Safety and Management Systems Committee since 13 December 2017.
MIDWAY LIMITEDANNUAL REPORT 2019
21
Directors’ Report
Gordon Davis
Independent Non-Executive Director
Mr Davis holds a Master of Business Administration, a Master of Agricultural Science, and a Bachelor of Forest Science. Mr Davis is
currently a Non-Executive Director of Nufarm Limited, where he chairs the Health, Safety and Environment Committee and serves on
the Audit and Risk, and Human Resources Committees. He is also a Non-Executive Director of Healius Limited, where he is the Chair of
the Audit Committee. Mr Davis was Managing Director and CEO of AWB Limited from 2006 to 2011. He was also Chair of VicForests
from 2011 to 2016. He is currently the Chair of Greening Australia, and was a Trustee of The Nature Conservancy from 2013 to 2018.
Mr Davis is the Chairman of the Remuneration and Nomination Committee, and a member of the Audit and Risk Management and
Occupational Health and Safety and Management Systems Committees.
Leanne Heywood
Independent Non-Executive Director
Ms Heywood is an experienced ASX Non-Executive Director, Audit and Risk Committee and Nominations and Remuneration
Committee Chair with broad general management experience gained through an international career in the mining, rural, government
and not-for-profit sectors. She has extensive international and domestic marketing experience and brings international customer
relationship management, stakeholder management (including governments and investment partners) and team leadership experience
in China, Japan, Mongolia, Singapore, South America, Europe and India. Ms Heywood is an experienced leader of transformational
change having lead organisational restructuring, disposals and acquisitions, including integration. She has strong skills across
marketing, business analysis, contracts, procurement, logistics, accounting and business improvement along with an advanced ability
to facilitate complex negotiations. Having worked extensively in high-corruption jurisdictions such as Mongolia and China, Ms Heywood
has developed a strong risk and compliance focus. She is a Non-Executive Director, Chair of the Audit Committee and member
of the Nominations and Remuneration for Orocobre, an ASX200 lithium miner with operations in Argentina. She is also a Director
and Chair of the Audit Committee for Quickstep, an ASX manufacturing company delivering advanced composite solutions to the
global aerospace, defence, automotive and other advanced manufacturing sectors, and a Director and Chair of the Nominations
and Remuneration Committee for the Australian Meat Processor Corporation (AMPC). Ms Heywood is a member of the New South
Wales Council for Women’s Economic Opportunity and winner of the 2019 NSW Business Woman of the Year Award.
Nils Gunnersen
Non-Executive Director
Mr Nils Gunnersen holds a Bachelor of Business (Agricultural Commerce) and is a graduate of the Australian Rural Leadership
Programme. He was previously Executive Director and then Managing Director of Gunnersen Pty Ltd. He continues as a Trustee of the
JWGottstein Trust. He has over 25 years’ management experience in forest industries businesses across resources, operations, finance,
IT, compliance, sales and marketing within Australia and overseas. He was appointed a Director on the Board of Midway Limited in
2012, and is currently a Director of Chebmont Pty Ltd. Mr Nils Gunnersen is Chairman of the Occupational Health and Safety and
Management Systems Committee and has been a member of the Remuneration and Nomination Committee since 13 December 2017.
Thomas Keene
Independent Non-Executive Director
Mr Keene holds a Bachelor of Economics and is a Fellow of the Australian Institute of Company Directors. He has a strong commercial
and agribusiness background, having held the position of Managing Director of GrainCorp Ltd between 1993 and 2008. In 2007, Mr Keene
was awarded the NAB Agribusiness Leader of the Year. He was appointed a Director of Midway Limited in 2008. He is the former
Chairman of Allied Mills Ltd and Grain Trade Australia and also a former Director of Cotton Seed Distributors Ltd. He is currently
a Director of AACo Ltd. Mr Keene is Chairman of the Audit and Risk Management Committee, is a member of the Remuneration
and Nomination Committee and was a member of the Occupational Health and Safety and Management Systems Committee until
13 December 2017.
Tom Gunnersen
Non-Executive Director
Mr Tom Gunnersen holds a Bachelor of Arts from the University of Melbourne and an MBA (Finance) from Bond University. He has
15 years of corporate, investment and capital markets experience, more recently in Asia, which will significantly complement the skills
of existing Board members. Mr Tom Gunnersen is also a Director of Chebmont Pty Ltd.
MIDWAY LIMITEDANNUAL REPORT 2019 22
Directors’ Report
Committee membership
As at the date of this report, the Company has an Audit and Risk Management Committee (ARMC), a Remuneration and Nomination
Committee (RNC) and an Occupational Health and Safety and Management Systems Committee (OHS) of the Board of Directors.
Name
Directors
Gregory McCormack
Anthony Price
Anthony Bennett
Gordon Davis
Leanne Heywood
Nils Gunnersen
Thomas Keene
Tom Gunnersen
ARMC
OHS
RNC
Comments
CEO
Chair RNC
Chair OHS
Chair ARMC
Meetings of Directors
The number of meetings of the Company’s Board of Directors and of each Board committee held during the year and the number
of meetings attended by each Director were as follows:
Directors
Gregory McCormack
Anthony Bennett
Gordon Davis
Nils Gunnersen
Tom Gunnersen
Leanne Heywood*
Thomas Keene
Anthony Price
Board
ARMC
RNC
OHS
Held
13
Attended
13
Held
6
Attended
6
Held
–
Attended
–
Held
–
Attended
–
13
13
13
13
3
13
13
13
13
13
13
3
12
13
–
6
–
–
–
6
–
–
6
–
–
–
5
–
–
3
3
–
–
3
–
–
3
3
–
–
3
–
4
4
4
–
–
–
–
4
4
4
–
–
–
–
* Leanne Heywood was appointed to the Board on 1 March 2019.
Principal activities
The principal activities of the Group during the 2019 financial year are based on the reportable segments of the Group as below:
Reportable segments
Products/services
Woodfibre Processing
Includes primary processing facilities whereby the Group processes and sells woodfibre to third parties.
SWF is also proportionally consolidated at 51 per cent for segment reporting, which reflects how
management views and makes decisions of its operations.
Forestry Logistics
Forestry logistics provides support services to third parties engaged in growing woodfibre including
harvest and haul.
Plantation Management
Plantation management is the provision of silviculture services including on Group-owned trees.
The segment also holds any Group-owned plantation land and trees.
Ancillary
Includes income earned from the marketing of third party woodfibre and other aggregated costs that
are not individually significant.
MIDWAY LIMITEDANNUAL REPORT 2019
23
Directors’ Report
Operating and finance review
Financial results
Full year results in line with consensus forecasts
• The full year 2019 financial results were in line with expectations, achieving earnings before interest, tax, depreciation and amortisation
(EBITDA) before significant items of $37.1 million (2018: $28.7 million).
• Net profit before tax (NPBT) was $33.1 million and NPAT was $26.2 million.
• Shareholders will receive a fully franked final dividend of $0.09 per share. This means a total dividend for the year of $0.18 per share.
Segment performance
• Woodfibre processing performed strongly against prior period due to increased sales prices, higher bone dry percentage, and a
favourable foreign exchange rate.
• Acquisition of Softwood Logging Services (now Midway Logistics) contributed $5.6 million revenue to the Forestry Logistics segment.
• The plantation management segment had a $10.5 million uplift in fair value for the standing trees on the balance sheet.
• The Ancillary segment contributed $2.1 million EBITDA – S (2018: $0.9 million), primarily due to increased volume of woodfibre trading.
Good progress against strategic objectives
• The Company has continued to maximise long-term supply by replanting seedlings where commercially viable.
• Midway continues to assess opportunities to acquire value-accretive businesses in key forestry areas in Australia and overseas.
• The Group maintains a disciplined approach to capital management to ensure shareholder wealth maximisation.
A summary of the financials has been provided below to the previous corresponding period:
$’000
Revenue and other income
Sales revenue
Other income
Less: expenses
2019
2018
Change
283,645
231,912
5,642
4,162
289,287
236,074
51,733
1,480
53,213
Changes in inventories of finished goods and work in progress
Raw materials, consumables and other procurement expenses
12,500
(1,536)
(172,436)
(134,998)
Employee benefits expense
Plantation management expenses
Freight and shipment costs
Repairs and maintenance costs
Other operating expenses
Share of profit/(loss) of equity accounted investments
EBITDA – S (underlying)
Depreciation and amortisation
EBIT – S (underlying)
Net finance expense
Net profit before tax – S (underlying)
Income tax expense
Net profit after tax – S (underlying)
(24,556)
(977)
(53,021)
(9,099)
(11,464)
6,841
37,075
(8,633)
28,442
(1,995)
26,447
(5,959)
20,488
(14,402)
(1,061)
(48,207)
(3,633)
(7,400)
3,856
28,693
(4,459)
24,234
(2,130)
22,104
(5,538)
16,566
14,036
(37,438)
(10,154)
84
(4,814)
(5,466)
(4,064)
2,985
8,382
(4,174)
4,208
135
4,343
(421)
3,922
MIDWAY LIMITEDANNUAL REPORT 2019
24
Directors’ Report
Operating and finance review continued
Non-IFRS measures
Throughout this report the Group has used certain non-IFRS measures, predominately EBIT and EBITDA. The non-IFRS measures have
been deemed useful for recipients in measuring the underlying performance of the Group. The non-IFRS measures have not been audited.
Non-IFRS measure
Description
EBIT
EBITDA
Earnings, before interest and tax
Earnings, before interest, tax, depreciation and amortisation
Underlying NPAT – S
Statutory net profit after tax adjusted to remove impact of one-off or non-recurring items and the net
fair value gain/(loss) on biological assets
Underlying EBITDA – S
Earnings, before interest, tax, depreciation and amortisation adjusted to remove impact of one-off
or non-recurring items and the net fair value gain/(loss) on biological assets
Reconciliation of underlying net profit after tax to statutory net profit after tax (NPAT)
NPAT (underlying)
Net fair value increment on biological assets2
Non-cash interest expense (AASB 15 strategy impact)1,2
Reversal of contingent consideration on business combinations2
Gain on bargain purchase of Softwood Logging Services2
Transaction costs incurred2
Group NPAT statutory
30-Jun-19
$’000
20,488
7,373
(4,829)
3,291
149
(314)
26,158
1. Non-cash interest expense is incurred on the liability created on 1 July 2018 to repurchase trees under the Strategy arrangement, which was deemed a financing
arrangement upon the adoption of AASB 15 Revenue from Contracts with Customers. The Strategy arrangement is a contractual obligation to repurchase hardwood
trees the Group sold in February 2016.
2. Balances disclosed net of tax.
Performance against prior corresponding period
Woodfibre processing
Revenue
EBITDA – S
EBITDA
2019
$’000
2018
$’000
297,293
221,576
42,728
44,690
30,776
30,776
Δ
34%
39%
45%
Woodfibre processing has performed strongly throughout the year primarily due to:
• Sales prices increased by 11 per cent on average from the prior corresponding period.
• Favourable foreign exchange rate impact (on average 5 cents on a segment basis) leading to increased sales.
• Better bone dry percentage than the previous financial year (+1.4 per cent).
Midway has maintained strong relationships with its key customer base in China and Japan, with steady demand for product expected
to continue into FY2020.
Offsetting the positive impacts was a negative contribution from the restructured Plantation Management Partners (-$4.8 million
EBITDA). Existing equipment was upgraded and new machinery was purchased to improve production on the Tiwi Islands. This meant
production and exports were deferred for several months during the wet season, but that work is now complete and the business
has now resumed exports.
MIDWAY LIMITEDANNUAL REPORT 2019 Forestry logistics
Revenue
EBITDA – S
EBITDA
25
Directors’ Report
2019
$’000
5,637
(2,411)
(933)
2018
$’000
–
(35)
(35)
Midway Logistics was purchased in October 2018 and through the use of Midway’s relationships with key resource owners in Western
Australia is looking for a strong contribution in FY2020. FY2019 had unplanned customer shutdowns, meaning planned volumes were
not achieved. Management has put in place processes to achieve further growth opportunities in FY2020.
Plantation management
Revenue
EBITDA – S
EBITDA
2019
$’000
15,885
(793)
9,740
2018
$’000
16,089
134
2,749
Δ
-1%
-692%
254%
The EBITDA increase is driven largely by fair value gain on biological assets, particularly due to increased sales prices.
The majority of the plantation management activity occurs in South West Victoria, Tiwi Islands, Laos and Cambodia.
Ancillary
Revenue
EBITDA – S
EBITDA
2019
$’000
2,166
2,123
1,744
2018
$’000
1,007
937
937
Δ
115%
127%
86%
Midway markets third party woodfibre to its customers and the increase in EBITDA is due to an increased trading volume, particularly
from Tasmania.
Financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
2019
$’000
71,322
205,712
277,034
38,844
95,530
134,374
142,660
2018
$’000
52,928
135,413
188,341
37,017
52,096
89,113
99,228
Highlights
• Strong cash flow for the year (operating +$5.6 million).
• Strong working capital position.
• Biological asset net fair value increment of $10.5 million indicating the favourable fundamentals underpinning the treecrop valuation,
as a result of improved woodfibre pricing.
• Strong balance sheet to support future business growth opportunities.
MIDWAY LIMITEDANNUAL REPORT 2019
26
Directors’ Report
Operating and finance review continued
Net debt
Borrowings – current
Borrowings – non-current
less cash
Cash and cash equivalents
Net debt
Highlights
• Refinancing and extension of term debt maturity to 30 September 2021.
• As at 30 June 2019, the Group was well within its covenant limits.
2019
$’000
6,637
38,356
44,993
2018
$’000
7,304
35,422
42,726
(15,518)
29,475
(10,356)
32,370
Outlook
The Group’s corporate strategy includes a number of initiatives aimed at long-term sustainability and growth including:
• securing existing supply stocks through active engagement with major plantation managers;
• continuing investment in replanting, where appropriate, on existing and newly acquired land portfolio to maximise supply
in the long term; and
• seeking out new opportunities to acquire businesses in key forestry areas in Australia and overseas.
Market
Market pulp prices have dropped significantly over the last few months, largely due to Brazilian pulp mills over producing and carrying
high inventories. These mills have announced that measures have now been put in place to curtail production.
Also, Chinese traders and buyers have run their inventories down to extremely low levels before they recommence buying. Once this
happens it is expected pulp prices will improve.
The short-term imbalance between supply and demand in the global pulp market is having a flow-on effect on the global woodfibre market.
Midway has secured export shipments to China in the last few months, but it is too early to be precise about the full impact of current
market conditions on export woodfibre volumes and prices during the 2020 financial year.
Despite this issue, pulp mills in China and Japan are still operating at full production and while there has been some deferral of vessels,
woodfibre prices are largely set for the remainder of the calendar year in both Japan and China.
When production normalises and pulp stocks return to normal levels in China, Midway is confident that positive long-term trends
for woodfibre exports and pricing in the Asia Pacific region forecast by global forest industry experts will re-emerge.
MIDWAY LIMITEDANNUAL REPORT 2019
27
Directors’ Report
Key risks and business challenges
The principal risks and business challenges for the Group are:
• Security of supply – There is a risk that Midway may not be able to secure sufficient timber supply necessary to meet growing
customer demand.
• Customer demand – As most sales are achieved on a short-term contractual basis, there can be no guarantee that these relationships
will continue.
• Exposure to foreign exchange rates – As most sales are denominated in USD whilst costs are in AUD, any adverse exchange rate
fluctuations would have an adverse effect on its future financial performance and position.
• Banking facilities – There is a risk that Midway may not be able to refinance its existing or future bank facilities as and when they
fall due, or that the terms available to Midway on refinancing may not be as favourable as the terms of its existing or future bank
facilities. In addition, Midway has a debt facility that is subject to various covenants. Factors such as a decline in Midway’s
operations and financial performance (including any decline arising from any adverse foreign exchange rate fluctuations) could
lead to a breach of its banking covenants. If a breach occurs, Midway’s financier may seek to exercise enforcement rights under
the debt facility, including requiring immediate repayment, which may have a materially adverse effect on Midway’s future financial
performance and position.
• Excess system capacity – Midway is subject to a number of contracts that contain minimum annual volume commitments.
Financial costs are imposed if these volume commitments are not met.
• Contamination of product – Woodfibre export contracts all contain similar contamination requirements. There is a risk of financial
recourse in the event of a breach of contract.
• Costs – Midway’s profitability could be materially and adversely affected by changes in costs, which are in many respects beyond
its reasonable control.
• Sale of freehold plantation land – In the event freehold plantation land is sold after harvest of the current rotation of trees, there is a
risk Midway may not be able to achieve sales for some or all of the estate within its optimal timeframe at or in excess of book value.
• Vessel chartering – An increasing proportion of Midway’s export sales is executed on a cost, insurance and freight (CIF) basis,
and there is a risk that Midway may not be able to finalise an export sale contract, rendering the vessel idle.
• Employee recruitment risk and retention – There is a risk the Group may not be able to attract and retain key staff, particularly
in remote regions.
• Port of Brisbane tenure – There is a risk that QCE will be unable to renew the lease expiring in 2022 and, therefore, would need
to seek access to an alternative export facility.
• Risk of fire affecting timber supply – Loss of plantation resource and therefore supply due to fire is an ever-present industry risk.
• Risk of extreme weather events occurring in remote regions such as the Tiwi Islands.
• Other risks facing the Company include: failure to comply with laws, regulations and industry standards generally (and environmental
matters and industry accreditations specifically); risk of litigation, claims and disputes; and bribery and corruption in foreign jurisdictions.
In order to manage these challenges, the Company hedges a significant proportion of its forward sales through foreign exchange
hedging contracts and continues to maintain and strengthen its business relationships including entering into strategic alliances with
key suppliers. Additionally, imposing a strong control environment focusing on preventative controls acts to further manage these
business challenges.
Dividends
Dividends declared in respect of the financial year 2019:
Interim dividend (fully franked)
Final dividend (fully franked)
Cents per
share
9.0
Total
amount
($)
7,854,410
Date of
payment
18/04/2019
9.0
7,854,410
28/10/2019
Corporate governance
The Group has adopted a range of charters and policies aimed at ensuring that the Group’s business is conducted in an ethical manner
and in accordance with the highest standards of corporate governance.
MIDWAY LIMITEDANNUAL REPORT 2019 28
Directors’ Report
Significant changes in the state of affairs
Capital raising
In September 2018, the Company completed a placement to institutional investors raising $33.7 million at $3.00 per share,
resulting in an additional 11,235,289 shares on issue.
Furthermore in October 2018, the Company completed a share purchase plan (SPP) of $3.1 million at $3.00 per share.
Some of the proceeds of the placement and SPP (collectively the capital raising) were used to partially fund the PMP restructure,
fund acquisition and investment of Softwood Logging Services Pty Ltd and Bio Growth Partners Pty Ltd respectively, and will be
used for future investments based on the Group’s growth strategy.
Acquisition of Softwood Logging Services and interest in Bio Growth Partners
On 15 October 2018, the Company made two acquisitions in Western Australia:
• 100 per cent of Softwood Logging Services (SLS) (now Midway Logistics), a harvest and haul business in Western Australia.
SLS provides Midway with access to equipment, management expertise and contracts for the harvesting and delivery of biomass
and other forest products in South West Western Australia; and
• 40 per cent of Bio Growth Partners, a biomass procurement and marketing business that supplies woodfibre to the Western
Australian biomass market. Bio Growth Partners is not controlled by the Group and as such is equity accounted.
Plantation Management Partners (PMP) restructure
The Group restructured the operations of Plantation Management Partners (PMP) during the period. The restructure means that the
Company will control the entire woodfibre supply chain and deliver to market an additional three to five vessels per annum by renegotiating
contractual arrangements between PMP and its customer Tiwi Plantations Corporation (TPC).
PMP entered into agreements to perform the harvest, haul, processing and marketing of woodfibre on behalf of the customer. This change
transforms the business from a labour hire planation management business to a woodfibre marketer and processer in line with other
Group entities. As at 30 June 2019, the Group invested $19.8 million for the purchase of additional property, plant and equipment
and assignment of loan receivable from TPC’s existing financiers.
Significant events subsequent to the end of the financial year
A final dividend of $7.9 million was declared on 27 August 2019 for 9.0 cents per share.
The Directors are not aware of any other matter or circumstance that has arisen since 30 June 2019 that has significantly affected or
may significantly affect the operations of the Group in subsequent financial years, the results of those operations, or the state of affairs
of the Group in future financial years.
Likely developments and expected results of operations
Midway will continue to pursue further growth opportunities through:
• securing additional supply to meet expected unfulfilled demand from existing and potential customers, including through strategic
supply arrangements with large plantation managers and collaboration with other interested parties;
• proactively seeking new opportunities to utilise spare capacity at the three processing and export facilities utilised by Midway;
• continuing to evaluate the potential acquisition of existing Australian woodfibre production and exporting businesses; and
• exploring complementary business opportunities that utilise our marketing, plantation management, processing and supply chain
management skills.
Environmental regulation
The Chief Executive Officer reports to the Board on any environmental and regulatory issues at each Directors meeting, if required.
During the year, no significant incidents happened.
MIDWAY LIMITEDANNUAL REPORT 2019 29
Directors’ Report
Greenhouse gas and energy data reporting requirements
The Company is not subject to the reporting requirements of either the Energy Efficiency Opportunities Act 2006 or the National
Greenhouse and Energy Reporting Act 2007.
Share Option Plan
The Company has adopted a Long Term Incentive Plan (LTIP) under which it has issued 229,000 performance rights to Key Management
Personnel (KMP) and other senior managers. 82,000 of these rights vested in the 2019 financial year. Refer to the Remuneration Report
for details on the rights issued to KMP.
Indemnification and insurance of Directors and Officers
Indemnification
The Company has indemnified the Directors and officeholders of the Company for costs incurred, in their capacity as a Director
or officeholder, for which they may be held personally liable, except where there is a lack of good faith.
Insurance of Directors and Officers
During the year the Company paid a premium for a Directors and Officers Liability Insurance Policy. This policy covers Directors
and Officers of the Company and the Company. In accordance with normal commercial practices under the terms of the insurance
contracts, the nature of the liabilities insured against and the amount of the premiums are confidential.
Insurance of auditor
No payment has been made to indemnify the Company’s auditor during or since the financial year.
Proceedings on behalf of the Company
There are no legal proceedings currently outstanding.
Non-audit services
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise
and experience with the Company are important.
The Board of Directors has considered the position and, in accordance with the advice received from the Audit and Risk Management
Committee is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out
below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:
• all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the
impartiality and objectivity of the auditor; and
• none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making
capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards.
KPMG Australia
Audit and assurance services
Statutory audit fees
Other services
Non-assurance services – other advisory services
Agreed upon procedures
2019
$
2018
$
233,807
163,000
9,225
20,500
25,400
–
MIDWAY LIMITEDANNUAL REPORT 2019
30
Directors’ Report
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 in relation to the audit
for the financial year is set out on page 15 and forms part of this report.
Rounding off
The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191b and in accordance
with that Instrument, amounts in the consolidated financial statements and Directors’ Report have been rounded off to the nearest
thousand dollars, unless otherwise stated.
Signed in accordance with a resolution of the Directors.
G H McCormack
Chairman
Melbourne
28 August 2019
MIDWAY LIMITEDANNUAL REPORT 2019 Remuneration Report (Audited)
31
Introduction
The Directors are pleased to present the FY2019 Remuneration Report, which forms part of the Midway Limited (Company) Directors’
Report. It outlines the Board’s remuneration philosophy and remuneration information for the Company’s Non-Executive Directors,
Executive Directors and other Key Management Personnel (KMP) in accordance with the requirements of the Corporations Act 2001
and its regulations.
For the purposes of this report, KMP is defined as those persons having authority and responsibility for planning, directing and controlling
the major activities of the Company, directly or indirectly, including any Director (whether executive or otherwise) of the Company.
Executive Remuneration represents remuneration for the Executive KMPs and other members of senior management. This report discloses
remuneration as it relates to Executive KMPs; however, the framework is applied more broadly to other members of senior management.
The information provided in this Remuneration Report, which forms part of the Directors’ Report, has been audited as required by
section 308(3C) of the Corporations Act 2001.
Key Management Personnel disclosed in this Report
Name
Directors
Greg McCormack
Anthony Bennett
Gordon Davis
Leanne Heywood
Nils Gunnersen
Thomas Keene
Tom Gunnersen
Executives
Anthony Price
Ashley Merrett
Position held
Employment status
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Managing Director and CEO
Chief Financial Officer
Appointed 01/03/2019
Principles used to determine nature and amount of remuneration
The performance of the Group depends upon the quality and performance of its Directors and executives. To this end, the Company
embodies the following principles in its remuneration framework:
• Provide competitive rewards to attract high-performing executives;
• Link executive rewards to shareholder value;
• Have a portion of executive remuneration variable, dependent upon meeting performance benchmarks; and
• Establish appropriate and demanding performance benchmarks in relation to variable executive remuneration.
This section of the Remuneration Report outlines the Company’s remuneration framework and philosophy, which is designed to attract,
motivate and retain highly skilled Directors and executives.
MIDWAY LIMITEDANNUAL REPORT 2019
32
Remuneration Report (Audited)
Remuneration and Nomination Committee
The Board has established a Remuneration and Nomination Committee to assist the Board in reviewing and making recommendations
to the Board in relation to the Company’s remuneration policy, and remuneration arrangements for the Directors and executives.
The Remuneration and Nomination Committee assesses the appropriateness of the nature and amount of remuneration of executives
on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder
benefit from the retention of high-quality, high-performing Directors and executives.
The Remuneration and Nomination Committee is comprised of Non-Executive Directors, the majority of whom are independent in
accordance with the Remuneration and Nomination Committee Charter. The Board considers that having a separate remuneration
committee serves as an efficient and effective mechanism to bring the transparency, focus and independent judgement needed on
remuneration decisions.
The Board has also adopted a number of key policies to support the Company’s remuneration framework. The Company’s policies
and the Remuneration and Nomination Committee Charter, which sets out the functions and responsibilities of that committee, are
available at www.midwaylimited.com.au.
Remuneration framework
In accordance with best practice corporate governance standards, the Company’s remuneration policies and practices regarding the
remuneration of Non-Executive Directors are separate and distinct from the remuneration of Executive Directors and other senior executives.
These policies and practices appropriately reflect the different roles and responsibilities of Non-Executive Directors compared with
Executive Directors and other senior executives of the Company.
Use of remuneration consultants
The Remuneration and Nomination Committee may, from time to time, engage external remuneration consultants to provide it with
advice, information on current market practices, and other matters to assist the committee in the performance of its duties.
The Remuneration and Nomination Committee engaged KPMG to provide a report to benchmark CEO and CFO remuneration. The cost
for this service was $9,225.
Non-Executive Director remuneration
Objective
Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors.
The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain Directors
of the highest calibre, whilst incurring a cost that is acceptable to shareholders.
Framework
Under the Company’s Constitution, the Non-Executive Directors as a whole may be paid or remunerated for their services a total amount
or value not exceeding $1 million per annum or such other maximum amount fixed by the Company in general meeting. An amount not
exceeding the amount determined is then divided between the Non-Executive Directors as approved by the Board upon recommendation
from the Remuneration and Nomination Committee.
The remuneration may be by way of salary or commission or participation in profits or by all or any of these modes, but may not be
by commission on, or a percentage of, operating revenue.
Non-Executive Directors’ fees and payments are reviewed periodically by the Remuneration and Nomination Committee.
Directors may also be reimbursed for expenses properly incurred by the Directors in connection with the affairs of the Company
including travel and other expenses in attending to the Company’s affairs.
MIDWAY LIMITEDANNUAL REPORT 2019 33
Remuneration Report (Audited)
Current structure
The current structure of fees paid to Non-Executive Directors includes:
Non-Executive Director
Chairman
Chairman – Audit and Risk Management Committee
Chairman – Remuneration and Nomination Committee
Board base
fee
$
120,000
220,000
Additional
fee
$
11,000
11,000
The aggregate remuneration of Non-Executive Directors for the year ended 30 June 2019 was $881,000.
Executive remuneration
In determining the level and make-up of executive remuneration, the Remuneration and Nomination Committee uses a combination
of business experience, comparisons with executive remuneration of comparable companies and comparative remuneration in the
market and makes its recommendations to the Board.
The executive remuneration and reward framework includes both fixed and ‘at risk’ reward components. ‘At risk’ reward includes
short and long-term incentives that are based on performance outcomes. The structure has four components:
• base pay and non-monetary benefits;
• short-term performance incentives;
• long-term share-based performance incentives; and
• other remuneration such as superannuation and long service leave.
From time to time the Remuneration and Nomination Committee may consider ‘one-off’ payments to executives, as part of their
remuneration, in relation to specific events.
The combination of these comprises each executive’s total remuneration.
Fixed remuneration
Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, is reviewed annually by the Remuneration
and Nomination Committee, based on individual and business unit performance, the overall performance of the Company, relevant
comparative remuneration externally and internally and, where appropriate, external advice on policies and practices.
The level of fixed remuneration is set so as to provide a base level of remuneration that is both appropriate to the position and
is competitive in the market.
Variable remuneration
Objective
The objective of the variable remuneration component of executive remuneration, comprising short-term performance incentives and
share-based performance incentives, is to link the achievement of the Company’s targets with the remuneration received by the executives
charged with meeting those targets, and to reward executives in a manner that is consistent with the interests of shareholders.
The total potential variable component is set at a level so as to provide sufficient incentive to the executive to achieve the targets and
such that the cost to the Company is reasonable in the circumstances.
MIDWAY LIMITEDANNUAL REPORT 2019
34
Remuneration Report (Audited)
Executive remuneration continued
Variable remuneration continued
Structure
Actual variable incentives granted to each executive depend on the extent to which specific targets set at the beginning of the
financial year are met. The targets consist of a number of key performance indicators (KPIs) covering both financial and non-financial
measures of performance. Typically included are measures such as contribution to operational profit, occupational health and safety
and risk management, leadership and team contribution. The Company has predetermined benchmarks that must be met in order
to trigger payments.
The type of variable incentives and performance against KPIs of the Company and the individual performance of each executive are
taken into account when determining the amount, if any, of the variable incentive that is to be awarded to each executive. Any variable
incentives to be awarded to executives across the Company are subject to the approval of the Remuneration and Nomination Committee.
2019 Executive remuneration
Total remuneration for the CEO and CFO includes a combination of fixed remuneration, short-term incentives and long-term incentives
in the form of issued performance rights.
In assessing whether the KPIs for each variable component have been met, the Company measures actual results against internal targets.
A summary of contractual arrangements is provided below:
Chief Executive Officer
Chief Financial Officer
1. Includes superannuation and car allowances.
The remuneration mix is outlined below:
Base salary1
$
499,700
Maximum
STI
$
162,500
333,125
100,000
Eligibility
LTIP
Termination
notice
3 months
3 months
Restraint
of trade
provisions
CEO
CFO
72%
28%
78%
22%
Fixed
At risk
Short Term Incentive Plan
The Company’s KMP and other members of senior management are eligible to participate in the Company’s Short Term Incentive Plan
(STI Plan).
Participants in the STI Plan have a maximum cash payment, which is set as a percentage of their total fixed remuneration (TFR).
Actual short-term incentive payments in any given year are dependent on the achievement of financial and non-financial criteria as
set by the Remuneration and Nomination Committee. No incentive payment is payable if the threshold performance target is not met.
MIDWAY LIMITEDANNUAL REPORT 2019
35
Remuneration Report (Audited)
FY2019 short-term incentives
In FY2019, an offer to participate in the STI Plan was made to the Company’s executives including Executive KMP and other senior
managers. Under the offer, employees will receive a short-term incentive (STI) payment calculated as a percentage of their TFR
conditional on achieving performance measures including:
• Board-approved Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) Actual vs Budget measured annually;
• Lost Time Injury Frequency Rate (LTIFR) Actual vs Previous Year measured annually; and
• agreed and documented objectives specific to each executive’s position measured annually.
EBITDA represents how the Company monitors its performance against budget, including achieving its strategic goals. Achieving the
targeted EBITDA has a linkage to shareholder returns and therefore is an appropriate measure to incentivise executive performance.
LTIFR is an appropriate operational performance target as it is critical to the Company on two fronts: (1) It ensures the occupational
health and safety measures implemented by the Company are first class to ensure employees are appropriately protected from any
hazards in the workplace and; (2) By having limited downtime due to workplace injuries ensures maximum operational time of the
Company’s equipment.
A summary of the key terms of the Company’s FY2019 STI Plan is set out as follows:
Term
Objective
Description
To reward participants for achieving targets linked to the Company’s business strategy.
Participants
All Executive Key Management Personnel and selected senior management members.
Performance period
Financial year ended 30 June 2019.
Performance measures
STI is assessed against both financial and non-financial measures with the following weighting:
Measure
EBITDA1
LTIFR
Individual performance measures
Weighting CEO
40%
Weighting CFO
40%
20%
40%
20%
40%
Payment
Upon final endorsement by the Board.
A sliding scale exists for each KPI target in relation to percentage of STI paid as set out below:
EBITDA CEO
EBITDA CFO
LTIFR CEO
LTIFR CFO
% of target KPI maximum STI
120% max. $65,000
120% max. $40,000
200% max. $48,750
200% max. $40,000
% of target KPI minimum STI
100%1
100%1
100%1
100%1
1. No incentive will be paid if the minimum percentage of the KPI target is not met.
FY2019 Short-term incentive outcomes
The following is a breakdown of the short-term incentive outcomes achieved by Key Management Personnel at the end of the
2019 financial year:
KMP
CEO
CFO
Maximum STI
162,500
100,000
% of Maximum STI achieved
49.4%
51.9%
MIDWAY LIMITEDANNUAL REPORT 2019
36
Remuneration Report (Audited)
2019 Executive remuneration continued
Long Term Incentive Plan
Objective
The Company has established and adopted a Long Term Incentive Plan (LTIP), which is intended to assist in the motivation, retention and
reward of certain executives. The LTIP is designed to align the interests of executives more closely with the interests of shareholders by
providing an opportunity for senior executives to receive an equity interest in Midway through the granting of awards including shares,
options and performance rights, subject to satisfaction of certain conditions.
In FY2019, only the performance rights issued to the Chief Executive Officer have performance-based conditions. The Bonus Rights
issued to Executive KMP and other senior managers are not at risk, as the Rights were issued subject to the Company listing on the
ASX, which was seen by the Remuneration and Nomination Committee as a significant milestone worthy of recognition. The Bonus
Rights have all now vested. It is anticipated that all future LTIP arrangements will include elements of performance-based metrics.
Structure
The key terms of the LTIP are summarised below.
Term
Administration
Description
The Board has the discretion to determine which Directors and employees of Midway or any related
Company are eligible to participate in the LTIP (Eligible Employees).
Eligibility
The awards (Awards) that may be issued under the LTIP currently include:
• shares;
• options; and
• performance rights.
Awards
The Board may determine that the Awards will be subject to performance, service or other conditions
(Vesting Conditions) and, if so, will specify those Vesting Conditions in the offer. Vesting Conditions may
include conditions relating to continuous employment, performance of the participant or the occurrence
of particular events.
Vesting conditions
Subject to the satisfaction of any applicable Vesting Conditions, Awards held by a participant will vest
on the date specified in the terms of the offer for those Awards, which are to be determined by the
Board at the time of offer and advised to the participant in individual offer documents.
Vesting date
Shares allocated on vesting of an Award carry the same rights and entitlements as other issued Shares,
including dividend and voting rights.
Shares as an Award,
or on vesting of an Award
Depending on the terms issued, the Shares may be subject to disposal and/or forfeiture restrictions,
which means that they may not be disposed of or dealt with for a period of time and/or may be forfeited
if certain further conditions are not satisfied.
Dividend and voting
entitlements
Change of control
Awards, other than Shares, are not entitled to dividend or voting rights.
Upon the occurrence of a change of control of Midway, the Board may at its discretion and subject
to such terms and conditions as it determines, resolve that the Vesting Conditions applicable to any
unvested Awards be waived.
Restrictions
Without the prior approval of the Board or as expressly provided in the LTIP:
• options and performance rights may not be disposed of, transferred or encumbered; and
• unvested Shares may not be disposed of, dealt with or encumbered or transferred in any way whatsoever
until the first to occur of the following: (i) the satisfaction of the applicable Vesting Conditions; and
(ii) the time when the Participant is no longer employed by the Company or a related company.
MIDWAY LIMITEDANNUAL REPORT 2019 37
Remuneration Report (Audited)
Term
Loans
Amendments
Other terms
Description
At the direction of the Board, the Company or a related company may offer a participant a loan for the
purpose of acquiring any Shares offered to the participant under the LTIP.
To the extent permitted by the Listing Rules, Midway may amend all or any of the provisions of the
LTIP rules.
The LTIP also contains customary and usual terms having regard to Australian law for dealing with the
administration, variation, suspension and termination of the LTIP.
2019 Long-term incentives
The LTIP offered to Midway’s Executive KMP and other senior executives, is summarised below:
(a) IPO Bonus Rights
On 8 December 2016, following successful completion of Midway’s IPO and ASX listing, a number of IPO Bonus Rights were issued
to the Chief Executive Officer and other senior executives under the LTIP, as summarised in the table below. The IPO Bonus Rights
were issued to the executives in order to:
• reward them for the significant additional work exerted in enabling the Company to achieve the milestone of listing on the ASX;
• align their interests with shareholder interests through the provision of equity; and
• act as a retention mechanism in the period following Midway’s ASX listing.
Term
Eligibility
Description
Chief Executive Officer, Chief Financial Officer and other senior management personnel
Consideration for grant
Nil
Instrument
Performance Rights issued on 9 February 2017
Number of rights granted
164,000
CEO (80,000); CFO (48,000); Other (36,000)
Service conditions
Remain in employment over designated period (see vesting conditions)
Performance conditions
Nil
Fair value at grant date
2.591
Vesting of
Performance Rights
The Performance Rights will vest as follows:
50 per cent of the Performance Rights issued to the Participant will vest on the date that is 12 months
after Completion of the IPO provided the Participant remains in continuous employment with the
Company until the vesting date; and
50 per cent of the Performance Rights issued to the Participant will vest on the date that is 24 months
after Completion of the IPO provided the Participant remains in continuous employment with the
Company until the vesting date.
If the Participant ceases to be an employee or Director of the Company or any of its subsidiaries by
reason of:
(a) the termination of the Participant’s employment because of a breach by the Participant of the terms
of the Participant’s employment; or
(b) resignation of the Participant as employee or Director for a reason other than death, illness or injury,
those Options or Rights held by the Participant which could not have been exercised on or before the
date the Participant ceased to be an employee or director shall thereupon lapse and terminate unless
the Board determines otherwise.
Board discretion
Vesting Conditions may be reduced or waived in whole or in part at any time by the Board.
Entitlement
Each Performance Right entitles the participant, on vesting of the Performance Right, to receive
(at the discretion of the Board, other than as provided in the Plan Rules) by issue or transfer,
one fully paid ordinary share in the capital of the Company (Share).
1. Fair value represents the share price at grant date 9 February 2017.
MIDWAY LIMITEDANNUAL REPORT 2019 38
Remuneration Report (Audited)
2019 Executive remuneration continued
2019 Long-term incentives continued
(b) Performance Rights
In December 2016, following the successful completion of the IPO, the Board granted the Chief Executive Officer 65,000 Performance
Rights, subject to vesting conditions (see below). Following satisfaction of the vesting conditions, the rights will automatically vest
and the underlying shares will be issued. The performance period is until 30 June 2019. The offer was accepted on 9 February 2017
(Grant Date).
Term
Eligibility
Description
Chief Executive Officer
Consideration for grant
Nil
Instrument
Performance rights issued on 9 February 2017.
Number of rights granted
65,000
Service conditions
Participant must maintain continuous employment over the performance period.
Performance period
From the date of listing until 30 June 2019.
Performance measure
Entitlement
Restrictions
The percentage of performance rights that will vest will depend on the Midway’s total shareholder
return (TSR) over the performance period, relative to the comparator company (companies in the
S&P/ASX 300 Index excluding mining and energy companies). Performance rights will only vest
on the following conditions:
• less than median of the comparator company, no performance rights will vest;
• at median of the comparator company, 50 per cent of the performance rights will vest;
• between median and the 75th percentile of the comparator company, a straight-line pro rata
vesting between 50 per cent and 100 per cent of the performance rights will occur; and
• greater than 75th percentile of the comparator company, 100 per cent of the Performance Rights
will vest.
Each Performance Right entitles the participant, on vesting of the performance right, to receive (at the
discretion of the Board, other than as provided in the Plan Rules) by issue or transfer, one fully paid
ordinary share in the capital of the Company (Share).
Performance rights are subject to the restrictions set out in the Plan Rules. In particular the participants
must not:
• dispose of any performance rights without the prior consent of the Board or otherwise in connections
with the Plan Rules; or
• enter into any arrangement for the purpose of hedging, or otherwise affecting the participants
economic exposure to the Performance Rights.
Fair value at grant date
1.491
1. Represents the fair value as calculated using a Monte Carlo Simulation model, which incorporates the TSR performance conditions.
MIDWAY LIMITEDANNUAL REPORT 2019 39
Remuneration Report (Audited)
Relationships between Company remuneration policy and Company performances
The relationship between remuneration policy and Company performance is only assessed for the current financial year and the prior
two comparative periods, as the Company was not previously a disclosing entity.
Key performance indicator
$’000
Revenue
EBITDA
Dividend paid (cents per share)
1. Pro forma figures have not been audited.
FY2019
actual
$
283,645
50,669
18
FY2019
pro forma1
$
283,645
37,075
18
FY2018
actual
$
FY2018
pro forma1
$
FY2017
actual
$
FY2017
pro forma1
$
231,912
231,912
213,369
213,369
31,308
28,693
24,916
28,367
18
18
18
18
Key Management Personnel remuneration
The statutory remuneration disclosures for the year ended 30 June 2019 are detailed below and are prepared in accordance with
Australian Accounting Standards (AASBs).
Short-term benefits
Post-
employment
Long-term
benefits
Share-
based
payments
Total
Salary
and fees
STI1
Non-
monetary2
Super-
annuation
Other3
201,563
182,428
109,944
100,383
120,022
109,703
109,944
100,408
35,888
–
120,022
104,372
116,983
34,682
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
421,238
408,536
284,882
276,499
80,202
105,043
51,885
64,642
52,704
52,704
23,000
23,000
18,437
17,572
10,056
9,617
10,978
10,297
10,056
9,592
3,112
–
10,978
15,628
3,017
995
23,686
24,950
24,082
24,940
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
220,000
200,000
120,000
110,000
131,000
120,000
120,000
110,000
39,000
–
131,000
120,000
120,000
35,677
21,750
(14,706)
1,369
(1,600)
60,697
135,346
13,709
58,499
660,277
711,873
398,927
445,980
Directors
Greg McCormack
Anthony Bennett
Gordon Davis
Nils Gunnersen
Leanne Heywood4
Thomas Keene
Tom Gunnersen
Executives
Anthony Price
Ashley Merrett
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
1. Relates to the 2019 performance STI accrued but not paid until FY2020.
2. Relates to vehicle allowance paid by the Group.
3. Includes the movement in annual leave and long service leave provisions.
4. Commenced as a Director 1 March 2019.
MIDWAY LIMITEDANNUAL REPORT 2019
40
Remuneration Report (Audited)
Key Management Personnel remuneration continued
Equity instruments
KMP
Gregory McCormack
Anthony Bennett
Gordon Davis
Nils Gunnersen
Thomas Keene
Tom Gunnersen
Leanne Heywood
Anthony Price
Ashley Merrett
Held at
1 July 2018
13,038,379
2,795,356
65,000
6,200
224,378
–
–
Shares
acquired
–
Shares sold
3,533,779
5,000
40,000
–
3,409
5,000
–
–
–
9,609
–
–
–
56,000
45,000*
–
24,000**
5,000
Other
changes
–
Held at
30 June 2019
9,504,600
–
–
–
–
–
–
–
–
2,760,356
65,000
–
229,378
–
–
101,000
19,000
* 40,000 shares issued upon vesting of Performance Rights issued under the Company’s Long Term Incentive Plan.
** Shares were issued upon vesting of Performance Rights issued under the Company’s Long Term Incentive Plan.
Details of equity incentives affecting current and future remuneration
The table below outlines each KMP’s unvested performance rights at the end of the reporting period. Details of vesting profiles of the
performance rights held by each KMP are detailed below:
Anthony Price
Instrument
Performance Rights
Number
Grant date
65,000 09/02/2017
% Vested
in year
0%
% Forfeited
in year
–
Financial
year in which
grant vests
2020
The 65,000 performance rights issued will vest in financial year 2020, as Midway’s total shareholder return over the performance
period was greater than 75 per cent of the comparator companies.
Other transactions with KMP
There are no other transactions between any of the KMP with any of the companies that are related to or provide services to the Company
unless disclosed in this Remuneration Report.
MIDWAY LIMITEDANNUAL REPORT 2019
Auditor’s Independence Declaration
41
Liability limited by a scheme approved under Professional Standards Legislation.KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Midway Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Midway Limited for the financial year ended 30 June 2019 there have been: i.no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii.no contraventions of any applicable code of professional conduct in relation to the audit. KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Vicky Carlson Partner Melbourne 28 August 2019 MIDWAY LIMITEDANNUAL REPORT 2019 42
Financial Report
Introduction
This is the Financial Report of Midway Limited
(the Company) and its subsidiaries (the Group).
The Company is a for-profit entity for the
purposes of preparing a Financial Report.
Accounting policies and critical accounting
judgements applied to the preparation of the
Financial Report are included throughout the
Financial Report with the related accounting
balance or financial statement matters to allow
them to be easily understood by the users of
this Report.
Contents
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Section 1: Our performance
1.1 Segment reporting
1.2 Individually significant items
1.3 Income tax
1.4 Earnings per share
1.5 Dividends
1.6 Business acquisitions
Section 2: Our asset base
2.1 Property, plant and equipment
2.2 Biological assets
2.3 Commitments
2.4 Working capital
2.5 Intangible assets
Section 3: Funding structures
3.1 Net debt
3.2 Financial risk management
3.3 Contributed Equity
Section 4: Other disclosures
4.1 Subsidiaries
4.2 Interest in joint ventures
4.3 Midway Limited – parent entity
4.4 Share-based payments
4.5 Related parties
4.6 Contingent liabilities
4.7 Remuneration of auditors
4.8 Other income
4.9 Deed of Cross Guarantee
4.10 Subsequent events
4.11 Basis of preparation
Directors’ Declaration
Independent Auditor’s Report
43
44
45
46
47
47
49
50
52
52
52
55
55
57
61
61
63
64
64
66
70
72
72
72
74
74
75
76
76
77
77
79
79
84
85
MIDWAY LIMITEDANNUAL REPORT 2019 Consolidated Statement of Comprehensive Income
For the Year Ended 30 June
43
Revenue and other income
Sales revenue
Other income
Less: expenses
Changes in inventories of finished goods and work in progress
Materials, consumables and other procurement expenses
Depreciation and amortisation expense
Employee benefits expense
Biological assets net fair value increment
Plantation management expenses
Freight and shipping expense
Repairs and maintenance expense
Other expenses
Finance expense
Finance income
Net finance expense
Share of net profits from equity accounted investments
Profit before income tax expense
Income tax expense
Profit for the period
Items that will not be reclassified to profit and loss
Revaluation of land fair value adjustment, net of tax
Items that may be reclassified subsequently to profit and loss
Cash flow hedges effective portion of changes in fair value, net of tax
Foreign operations – foreign currency translation differences
Equity accounted investees – share of OCI
Other comprehensive income for the period
Total comprehensive income for the period
Profit is attributable to:
Owners of Midway Limited
Non-controlling interests
Total comprehensive income is attributable to:
Owners of Midway Limited
Non-controlling interests
Earnings per share for profit attributable to equity holders:
Basic earnings per share
Diluted earnings per share
Notes
1.1
4.8
2019
$’000
2018
$’000
283,645
231,912
9,082
4,162
292,727
236,074
2.1/2.5
2.2
3.1
4.2
1.3
2.1
12,500
(1,536)
(172,436)
(134,998)
(8,633)
(24,556)
10,533
(977)
(53,021)
(9,099)
(11,843)
(4,459)
(14,402)
2,615
(1,061)
(48,207)
(3,633)
(7,400)
(257,532)
(213,081)
(9,911)
1,017
(8,894)
6,841
33,142
(6,984)
26,158
(2,181)
51
(2,130)
3,856
24,719
(6,322)
18,397
(5)
3,618
(34)
1
7
(31)
(432)
4
(167)
3,023
26,127
21,420
25,787
371
26,158
25,768
359
26,127
18,360
37
18,397
21,383
37
21,420
$0.31
$0.31
$0.25
$0.25
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
MIDWAY LIMITEDANNUAL REPORT 2019
44
Consolidated Balance Sheet
As at 30 June
Current assets
Cash and cash equivalents
Receivables
Inventories
Biological assets
Current tax receivable
Other assets
Total current assets
Non-current assets
Biological assets
Investments accounted for using the equity method
Intangible assets
Loan receivables
Property, plant and equipment
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Current tax payable
Borrowings
Strategy financial liability
Derivative financial liability
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Strategy financial liability
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Contributed equity
Share capital
Reserves
Retained earnings
Notes
3.1
2.4
2.4
2.2
2.2
4.2
2.5
2.1
2.4
3.1
2.2
3.2
3.1
2.2
1.3
3.3
3.3
Equity attributable to owners of Midway Limited
Equity attributable to non-controlling interests
Total equity
The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.
2019
$’000
15,518
22,752
22,689
2,408
1,907
6,048
71,322
50,608
15,294
9,241
3,200
127,369
205,712
277,034
27,282
–
6,637
434
483
4,008
38,844
38,356
40,210
129
16,835
95,530
134,374
142,660
64,791
74,710
1,614
141,115
1,545
142,660
2018
$’000
10,356
19,457
6,146
12,172
–
4,797
52,928
3,868
12,948
10,749
–
107,848
135,413
188,341
24,642
614
7,304
–
484
3,973
37,017
35,422
–
117
16,557
52,096
89,113
99,228
29,045
66,983
1,614
97,642
1,586
99,228
MIDWAY LIMITEDANNUAL REPORT 2019
Consolidated Statement of Changes in Equity
45
Share
capital
28,833
Reserves
59,049
Retained
earnings
1,614
Non-
controlling
interests Total equity
91,045
1,549
$’000
Balance as at 1 July 2017
Profit for the year
Revaluation of land, net of tax
Cash flow hedges effective portion of changes in fair value,
net of tax
Foreign operations – foreign currency translation differences
Total comprehensive income for the year
Other transactions:
Issuance of performance rights
Share-based payments expense
Transfers to profits reserve
Transactions with owners in their capacity as owners:
Dividends
Total other transactions
Balance as at 30 June 2018
Balance as at 1 July 2018
Adjustment on adoption of AASB 15 (note 2)
–
–
–
–
–
212
–
–
–
212
29,045
29,045
–
Restated total equity at the beginning of the financial period
29,045
Profit for the year
Revaluation of land, net of tax
Cash flow hedges effective portion of changes in fair value,
net of tax
Foreign operations – foreign currency translation differences
Total comprehensive income for the year
Other transactions:
Issuance of ordinary shares, net of transaction costs
Issuance of performance rights
Share-based payments expense
Transfers to profits reserve
Transactions with owners in their capacity as owners:
Dividends
Total other transactions
Balance as at 30 June 2019
–
–
–
–
–
35,534
212
–
–
–
35,746
64,791
–
18,360
3,618
(599)
4
3,023
(212)
238
–
–
–
18,360
–
–
18,360
(18,360)
(13,475)
–
4,911
(18,360)
66,983
66,983
(3,319)
63,664
–
(5)
(15)
1
(19)
–
(212)
86
1,614
1,614
–
1,614
25,787
–
–
–
25,787
–
–
–
25,787
(25,787)
37
–
–
–
37
–
–
–
–
–
1,586
1,586
–
1,586
371
–
(12)
–
359
–
–
–
–
18,397
3,618
(599)
4
21,420
–
238
–
(13,475)
(13,237)
99,228
99,228
(3,319)
95,909
26,158
(5)
(27)
1
26,127
35,534
–
86
–
(14,596)
11,065
74,710
–
(25,787)
1,614
(400)
(400)
(14,996)
20,624
1,545
142,660
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
MIDWAY LIMITEDANNUAL REPORT 2019
46
Consolidated Statement of Cash Flows
For the Year Ended 30 June
Cash flow from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax paid
Net cash provided by operating activities
3.1
Cash flow from investing activities
Proceeds from sale of property, plant and equipment
Payment for property, plant and equipment
Payment for non-current biological assets
Acquisition of Softwood Logging Services (now Midway Logistics), net of cash
Acquisition of Plantation Management Partners, net of cash
Acquisition of equity accounted investees
Dividends received from associates
Payment deferred consideration Plantation Management Partners
Restructure of Plantation Management Partners
Net cash provided by investing activities
1.2
Cash flow from financing activities
Proceeds from share issue, net of costs
Net finance lease payments
Dividends paid
Proceeds from bank borrowings
Repayment of bank borrowings
Net cash used in financing activities
Reconciliation of cash
Cash at beginning of the financial period
Net increase/(decrease) in cash held
Cash at end of financial period (net of overdrafts)
Notes
2019
$’000
2018
$’000
295,444
228,296
(280,902)
(210,029)
184
(1,495)
(7,641)
5,590
218
(4,182)
–
(322)
–
(3,697)
8,670
(1,500)
(8,964)
(9,777)
34,996
(4,698)
(14,596)
–
(6,353)
9,349
51
(1,663)
(3,490)
13,165
156
(7,025)
(6,853)
–
(5,387)
(459)
4,590
–
–
(14,978)
–
(856)
(13,475)
14,000
(2,525)
(2,856)
10,356
5,162
15,518
15,025
(4,669)
10,356
3.1
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
MIDWAY LIMITEDANNUAL REPORT 2019
Notes to the Consolidated Financial Statements
47
Section 1: Our performance
This section provides an insight into the performance of Midway and its subsidiaries including highlights of:
• Net Profit After Tax (NPAT) of $26.2 million, exceeding the prior corresponding period on both NPAT and revenue;
• Increase in statutory earnings per share (EPS) to $0.31 per share (increase of $0.06); and
• Fully franked dividend of $0.18 in line with the current dividend policy.
1.1 Segment reporting
(a) Description of segments
The Group reports segment information based on the internal reporting used by management for making decisions and assessing
performance. The operating segments are reported in a manner consistent with internal reporting provided to the chief operating
decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the
operating segments, is the Chief Executive Officer.
In January 2019, the Group announced changes to its reportable segments, effective 31 December 2018. The revised reporting structure
reflects the manner in which the Group now manages each product/service offered.
Reportable segments
Products/services
Woodfibre Processing
Includes primary processing facilities whereby the Group processes and sells woodfibre to third
parties. SWF is also proportionally consolidated at 51 per cent for segment reporting, which reflects
how management views and makes decisions of its operations, as opposed to equity accounted for
statutory reporting purposes.
Forestry Logistics
Forestry Logistics provides support services to third parties engaged in growing woodfibre including
harvest and haul.
Plantation Management
Plantation Management is the provision of silviculture services including on Group-owned trees.
The segment also holds any Group-owned plantation land and trees.
Ancillary
Includes income earned from the marketing of third party woodfibre and other aggregated costs that
are not individually significant.
The Group evaluates the performance of its operating segments based on net sales (net of insurance and freight costs). Net sales for
geographic segments are generally based on the location of customers. Earnings before interest, tax, depreciation and amortisation
(EBITDA) for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the
segment. EBITDA for each segment excludes other income and expense and certain expenses managed outside the operating segments.
Key adjustment items relate to the gross up of revenue and operating and other expenses to reflect cost, insurance and freight (CIF)
sales and principal sales. Management accounts are prepared on a segment basis with 51 per cent share of SWF joint venture
included in Woodfibre Processing. For statutory accounts, SWF is equity accounted with revenue and expenses of SWF eliminated.
Prior period comparative information has been restated to reflect the revised structure.
MIDWAY LIMITEDANNUAL REPORT 2019 48
Notes to the Consolidated Financial Statements
Section 1: Our performance continued
1.1 Segment reporting continued
(b) Segment information provided to senior management
2019
($’000)
Sales revenue
Inter segment sales
Other income
Total revenue and other income
Share of equity accounted profits/(loss)
EBITDA – S1
Significant items
Fair value gain on biological assets
EBITDA
Depreciation and amortisation
EBIT
Net finance expense
Net profit before tax
Income tax expense
Net profit after tax
Segment assets
Equity accounted investees
Capital expenditure
Segment liabilities
2018
($’000)
Sales revenue
Inter segment sales
Other income
Total revenue and other income
Share of equity accounted profits
EBITDA – S1
Significant items
Fair value gain on biological assets
EBITDA
Depreciation and amortisation
EBIT
Net finance expense
Net profit before tax
Income tax expense
Net profit after tax
Segment assets
Equity accounted investees
Capital expenditure
Segment liabilities
Forestry
logistics
Plantation
management
Ancillary Eliminations
Woodfibre
processing
297,293
–
4,168
301,461
35
42,728
1,962
–
44,690
(6,138)
38,552
(2,245)
36,307
(11,261)
25,046
137,432
11,361
(18,071)
(65,470)
5,637
–
458
6,095
(639)
(2,411)
1,478
4,834
11,051
1,346
17,231
–
(793)
–
–
10,533
9,740
(912)
8,828
(6,920)
1,908
(364)
1,544
(933)
(1,282)
(2,215)
(21)
(2,236)
923
(1,313)
5,806
3,933
–
–
–
2,166
2,166
–
2,123
(379)
–
1,744
(1,760)
(16)
–
(16)
75
59
(24,119)
(11,051)
944
Total
283,645
–
9,082
(34,226)
292,727
7,445
(4,572)
–
–
(4,572)
1,459
(3,113)
292
(2,821)
3,643
822
6,841
37,075
3,061
10,533
50,669
(8,633)
42,036
(8,894)
33,142
(6,984)
26,158
138,246
3,424
(7,874)
277,034
–
(3,559)
–
–
–
324
15,294
(21,306)
(6,252)
(75,284)
(18)
12,650
(134,374)
Woodfibre
processing
221,576
Forestry
logistics
–
Plantation
management
8,026
Ancillary Eliminations
2,310
–
–
2,949
224,525
–
30,776
–
30,776
(4,364)
26,412
(2,082)
24,330
(7,742)
16,588
134,324
12,948
(2,546)
(65,953)
–
–
–
(35)
(35)
–
(35)
–
(35)
–
(35)
–
(35)
–
–
–
–
8,063
1,430
17,519
–
134
–
2,615
2,749
(691)
2,058
(18)
2,040
(534)
1,506
111,376
–
(5,084)
(30,919)
–
1,007
1,007
–
937
–
937
(885)
52
–
52
286
338
–
–
–
–
Total
231,912
–
4,162
236,074
3,856
28,693
–
2,615
31,308
(4,459)
26,849
(2,130)
24,719
(6,322)
18,397
(8,063)
(1,224)
(6,977)
3,891
(3,119)
–
(3,119)
1,481
(1,638)
(30)
(1,668)
1,668
–
(57,359)
188,341
–
238
7,759
12,948
(7,392)
(89,113)
1. EBITDA – S: Earnings before interest, tax, depreciation and amortisation, significant items and net fair value gain/(loss) on biological assets.
MIDWAY LIMITEDANNUAL REPORT 2019
49
Total
11,747
213,786
56,852
1,260
Total
7,073
190,233
33,653
953
(c) Revenue by geographic region
The presentation of geographical revenue is based on the geographical location of customers.
2019
Revenue by geographic region
($’000)
Australia
China
Japan
South East Asia
2018
Revenue by geographic region
($’000)
Australia
China
Japan
South East Asia
2,536
204,164
90,593
–
Woodfibre
processing
–
181,578
39,998
–
221,576
Woodfibre
processing
Forestry
logistics
Plantation
management
Ancillary Eliminations
5,637
14,625
–
–
–
–
–
1,260
15,885
(11,051)
9,622
(33,741)
–
–
–
–
–
–
297,293
5,637
(35,170)
283,645
Forestry
logistics
–
Plantation
management
15,136
Ancillary Eliminations
(8,063)
–
–
–
–
–
–
–
953
16,089
–
–
–
–
8,655
(6,345)
(5,753)
231,912
For the financial year ending 30 June 2019 there were three (2018: four) customers in China and Japan that individually made up
10 per cent or above total sales for the Group.
Policy
Revenue
Sales revenue is recognised on settlement of each performance obligation. Export woodfibre sales are generally on Cost, Insurance,
Freight (CIF) or Free on Board (FOB) shipping terms, with revenue recognised when last goods are loaded on board at the point when
the performance obligation is settled under the shipping terms. All other sales are generally recognised as revenue at the time of delivery
of the goods to the customer.
Revenue from the rendering of services is recognised over time as the performance obligations within each contract are settled.
1.2 Individually significant items
Individually significant items before tax
Reversal of contingent consideration1
Gain on bargain purchase of Softwood Logging Services (now Midway Logistics)
Transactions costs2
Impact of individually significant items
1. Relates to the reversal of all contingent consideration for the PMP, SLS and BGP acquisition.
The reversal has arisen as the earnings targets set at acquisition time are unlikely to be achieved.
2019
$’000
3,291
149
(379)
3,061
2018
$’000
–
–
–
–
2. Transaction costs incurred on acquisition of SLS and Bio Growth Partners (BGP), and restructuring the operations of Plantation Management Partners (see below).
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
50
Notes to the Consolidated Financial Statements
Section 1: Our performance continued
1.2 Individually significant items continued
Plantation Management Partners (PMP) restructure
The Group restructured the operations of Plantation Management Partners (PMP) during the period. The restructure means that
the Company will control the entire woodfibre supply chain and deliver to market an additional three to five vessels per annum by
renegotiating contractual arrangements between PMP and its customer Tiwi Plantations Corporation (TPC).
PMP entered into agreements to perform the harvest, haul, processing and marketing of woodfibre on behalf of the customer. This change
transforms the business from a labour hire plantation management business to a woodfibre marketer and processer in line with other
Group entities. As at 30 June 2019, the Group invested $19.8 million for the purchase of additional property, plant and equipment
and assignment of loan receivable from TPC’s existing financiers.
1.3 Income tax
(a) Current tax reconciliation
Current tax
Deferred tax
Over provision in prior years
(b) Prima facie tax payable
The prima facie tax payable on profit before income tax is reconciled to the income tax expense
as follows:
Prima facie income tax payable on profit before income tax at 30.0% (2018: 30.0%)
– Effect of taxes in foreign jurisdictions
Add tax effect of:
– Other non-allowable items
Less tax effect of:
– Over provision for income tax in prior years
– Reversal of contingent consideration on business combinations
– Share of profits/(losses) in joint ventures
Income tax expense attributable to profit
(c) Deferred tax
Deferred tax assets
Payables
Blackhole expenditure
Capital loss1
Other
Deferred tax liabilities
Biological assets
Property, plant and equipment
Intangible assets1
Net deferred tax liabilities
1. Related to businesses acquired.
2019
$’000
5,198
1,770
16
6,984
9,943
(61)
157
10,039
16
987
2,052
3,055
6,984
929
918
1,499
6
3,352
2,141
16,177
1,869
20,187
16,835
2018
$’000
4,935
1,387
–
6,322
7,416
(80)
153
7,489
–
–
1,167
1,167
6,322
737
744
1,499
11
2,991
1,711
15,499
2,338
19,548
16,557
MIDWAY LIMITEDANNUAL REPORT 2019
(d) Deferred income tax (revenue)/expense included in income tax expense comprises
Decrease/(increase) in deferred tax assets
(Decrease)/increase in deferred tax liabilities
(e) Deferred income tax related to items charged or credited directly to equity
Increase in deferred tax liabilities
51
2019
$’000
186
1,585
1,771
2018
$’000
447
940
1,387
1,972
(1,366)
Policy
Current income tax expense or benefit is the tax payable on the current period’s taxable income based on the applicable income tax
rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax base of assets
and liabilities and their carrying amounts in the financial statements.
A balance sheet approach is adopted under which deferred tax assets and liabilities are recognised for temporary differences at the
applicable tax rates when the assets are recovered or liabilities are settled. No deferred tax asset or liability is recognised in relation to
temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments
in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable
that the differences will not reverse in the foreseeable future.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.
Tax consolidation
The parent entity Midway Limited and its subsidiaries have implemented the tax consolidation legislation and have formed a tax
consolidated group from 1 July 2002. The parent entity and subsidiaries in the tax consolidated group have entered into a tax funding
agreement such that each entity in the tax consolidated group recognises the assets, liabilities, expenses and revenues in relation to
its own transactions, events and balances only.
Key estimates and judgements
From time to time the Group takes tax positions that require consideration, including an assessment of the recoverability
of Deferred Tax Assets. The Group only recognises Deferred Tax Assets to the extent it is probable they will be realised
in the foreseeable future.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
52
Section 1: Our performance continued
1.4 Earnings per share
(a) Earnings per share
Earnings per share
Diluted earnings per share*
Weighted average number of ordinary shares used as the denominator
in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Performance rights
Basic earnings per share is calculated on the profit attributable to ordinary shareholders
and weighted-average number of ordinary shares outstanding.
* Diluted earnings per share is basic earnings per share adjusted for the effects of all dilutive potential ordinary shares.
1.5 Dividends
Fully franked at 30% (2018: 30%)
2019
$0.31
$0.31
2018
$0.25
$0.25
2019
number
2018
number
84,264,989 74,901,933
65,000
147,000
84,329,989 75,048,933
2019
$’000
14,596
2018
$’000
13,475
On 29 August 2019, a final dividend was declared for 9.0 cents per share (fully franked).
The balance of the franking account at 30 June 2019 is 7,673,334 (2018: 3,294,795).
1.6 Business acquisitions
On 15 October 2018, the Company acquired 100 per cent of Softwood Logging Services (SLS) (now Midway Logistics), a harvest and
haul business in Western Australia. Midway Logistics provides Midway with access to equipment and management expertise for
the harvesting and delivery of biomass and other forest products in South West Western Australia.
Midway acquired Midway Logistics for a purchase price of $1.6 million, of which $1.0 million was contingent on the business meeting
certain hurdle rates. Management was required to use estimates and judgements to fair value the contingent consideration at that
point in time.
From the date of acquisition, Midway Logistics contributed $6.1 million revenue and an EBITDA loss of $1.8 million from continuing
operations of the Group. If the acquisition had occurred on 1 July 2018, it is estimated the revenue contribution would be $8.1 million
and EBITDA would be a loss of $2.8 million.
Transactions costs of $0.2 million were expensed and included in other expenses.
Consideration transferred
Cash and cash equivalents
Contingent consideration1
Date payable
Settlement
30-Jun-19
Purchase
consideration
fair value
$’000
534
1,023
1,557
1. Payable on meeting EBITDA targets and is an estimate of the fair value of the consideration at acquisition date. The maximum payout of contingent consideration
is $1.7 million, payable if the EBITDA target is met at 100 per cent. The targets were not subsequently achieved and as such no amount was paid.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
Assets acquired and liabilities assumed
At acquisition date
Assets
Cash and cash equivalents
Trade and other receivables
Intangible assets
Property, plant and equipment
Liabilities
Trade and other payables
Employee entitlement provisions
Borrowings
Deferred tax liability
Total identifiable net assets at fair value
Purchase consideration
Gain on bargain purchase recognised in profit and loss
53
Fair value
$’000
212
1,610
57
5,443
7,322
4,248
234
656
478
5,616
1,706
1,557
149
The acquisition resulted in a bargain purchase as the fair value of contingent consideration was valued at an amount lower than the
maximum amount payable under the contract (based on meeting EBITDA targets). The fair value of contingent consideration reflected
the inherent risks in the acquisition based on the entity’s historical performance. The fair value of assets acquired and liabilities
assumed has now been finalised.
2018
On 26 October 2017, the Company acquired 100 per cent of the ordinary shares of Plantation Management Partners Pty Ltd (PMP),
a company incorporated in Australia. PMP is a plantation management business with over 70,000 hectares of plantation currently
under management in Northern Australia and South East Asia. It has a strong industry reputation as a high-quality plantation manager.
From the date of acquisition, PMP contributed $7.9 million revenue and $2.1 million EBITDA from continuing operations of the Group.
If the acquisition had occurred on 1 July 2017, it is estimated that revenue would have been $10.5 million and EBITDA would have
been $2.6 million.
Transactions costs of $0.1 million were expensed and included in other expenses.
Consideration transferred
Cash
Contingent consideration1
Deferred consideration
Balance sheet completion adjustment from target2
Total consideration
Date payable
Settlement
30-Jun-19
31-Dec-18
Purchase
consideration
fair value
$’000
6,500
1,432
1,433
1,503
10,868
1. Payable on meeting the contracted EBITDA target. The targets were not subsequently achieved and as such no amount was paid.
2. Higher cash and trade debtors were acquired than the contracted target. It is anticipated payment will be made by 30 June 2020.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
54
Section 1: Our performance continued
1.6 Business acquisitions continued
Assets acquired and liabilities assumed
At acquisition date
Assets
Cash and cash equivalents
Trade and other receivables
Intangible assets
Property, plant and equipment
Liabilities
Trade and other payables
Employee entitlement provisions
Current tax liabilities
Deferred tax liability
Total identifiable net assets at fair value
Purchase consideration
Goodwill created on acquisition
Fair value
$’000
1,113
2,267
8,550
821
12,751
1,012
484
449
922
2,867
9,884
10,868
984
Goodwill was created due to the recognition of a deferred tax liability on the intangible assets for which no tax deduction will arise
until the disposal of the business.
Fair value measurement
Intangible assets acquired by the Group were valued using the multi-period excess earnings method (MEEM). MEEM considers the present
value of net cash flows expected to be generated by the customer contracts, by excluding any cash flows related to contributory assets.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
55
Section 2: Our asset base
This section provides an insight into the asset base the Group requires to operate a forestry business.
• The Group sources wood supply from owned and third party plantation land, which is used to grow hardwood trees.
• The Group’s plantation land portfolio increased in value by $1.9 million in the current year as a result of additions in South
West Victoria.
• The Group holds biological assets for harvest of which $6.4 million relates to seedlings and $45.8 million is plantation hardwood.
• The Group has low credit risk due to the nature and size of customers and use of letters of credit in the majority of cases.
• The Group optimises its working capital position regularly and excess cash is used to grow the business or returned to shareholders.
2.1 Property, plant and equipment
Each class of property, plant and equipment is set out below:
Depreciation policy
Year ended 30 June 2018
Opening net book amount
Additions
Business acquired note 1.6
Disposals
Depreciation
Revaluation
Closing carrying amount
Year ended 30 June 2019
Opening net book amount
Additions
Business acquired note 1.6
Disposals
Depreciation
Revaluation
Plantation
land
$’000
Freehold
land
$’000
Buildings
$’000
2.5–27%
Plant and
equipment
$’000
3–25%
Roading
$’000
5–15%
64,048
3,540
–
–
–
5,168
72,756
72,756
1,884
–
–
–
(5)
12,670
1,908
–
–
–
–
–
–
–
–
(71)
–
14,201
2,419
821
(148)
(3,088)
–
5,491
1,433
–
–
(544)
–
12,670
1,837
14,205
6,380
107,848
12,670
–
–
–
–
–
1,837
1,022
–
–
(90)
–
14,205
16,872
5,443
(155)
(6,196)
–
6,380
1,528
–
–
(782)
–
107,848
21,306
5,443
(155)
(7,068)
(5)
Total
$’000
98,318
7,392
821
(148)
(3,703)
5,168
Closing carrying amount
74,635
12,670
2,769
30,169
7,126
127,369
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
56
Section 2: Our asset base continued
2.1 Property, plant and equipment continued
(a) Key estimates and judgements – fair value
2019
Fair value
$’000
Valuation
technique
Description of valuation technique
Freehold land
12,670 Market approach1 The Company’s freehold land is stated at the revalued amount, being the fair value
for its highest and best use at the date of revaluation. The fair value measurements
of the Company’s land as at 30 June 2019 were performed by an independent
valuer. The valuation was performed using a direct market comparison approach.
A change to inputs to the market approach assessment would result in differing
valuation results.
Plantation
land
74,635 Market approach/
net present value
approach1
The Company’s plantation land is stated at revalued amounts, being the fair value
for its highest and best use at the date of revaluation. The highest and best use
is subjective and judgemental given potential alternate uses. It requires careful
analysis and detailed knowledge of the local market conditions and recent sales
trends. As a result, the Group engaged an independent valuer to provide an
independent valuation on an unencumbered basis as at 30 June 2019.
The independent valuation is adjusted by the Directors using a DCF methodology
to estimate the fair value on an encumbered basis. Assumptions about clear fall
period and reversion costs have been included where/as appropriate. In some
instances, the valuations highest and best use is lifestyle differing from actual
use, forestry. A change to inputs to the valuer’s and/or the Directors’ assessment
would result in differing valuation results.
1. The same valuation technique was used in 2018.
Freehold and forest plantation land have been classified as level three on the fair value hierarchy. Level three represents inputs that
are not based on observable market data. No transfers in and out of level three occurred during the period.
2019 plantation land measurement
The unencumbered value of the plantation land is $90.7 million (2018: $87.4 million). The Directors have subsequently valued the land
on an encumbered basis (i.e. in recognition of the existing tree crops being grown on the land that is legally owned by third parties),
taking into account where appropriate reversionary costs and utilising a discounted cash flow analysis from the highest and best use
determined by the independent valuation expert.
The key assumptions used in determining the encumbered land valuation are:
Assumption
Discount rate
Growth rate
Reversionary costs
Clearfall period
Variable
7.25%
2% to 6%
$0 – $1,550 per hectare
2019 – 2027
(b) Sensitivity analysis
As at the balance date, the impact of a change of assumptions on the assets of Midway Limited (all other things being equal) would
have resulted in the following impacts on other comprehensive income (OCI):
Plantation land at fair value
Discount rate +/- 1%
Growth rate +/- 1%
Reversionary costs +/- 10%
2019
2018
Increase
$’000
Decrease
$’000
Increase
$’000
Decrease
$’000
(3,043)
3,150
(179)
3,242
(3,013)
179
(2,808)
3,081
(184)
2,996
(2,938)
184
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
57
A change in assumptions for the following variables may have a significant impact on the value of the portfolio dependant on the
assumptions utilised, as there is significant judgement involved:
• highest and best use classification of each block within the portfolio;
• clearfall period of when trees harvested; and
• rate per hectare applied to each individual block based on individual characteristics of that block.
Freehold land
A 1 per cent change in assumptions to the $ rate per hectare applied will increase the value by $0.1 million (2018: $0.1 million), or decrease
by $0.1 million (2018: $0.1 million). Based on current and prior valuations of the land, a 1 per cent rate change is considered reasonable.
(c) Policy
Freehold and plantation land
Freehold and plantation land is measured at fair value. At each balance date the carrying amount of each asset is reviewed to ensure
that it does not differ materially from the asset’s fair value at reporting date.
Increases in the carrying amounts arising on revaluation of land is recognised in other comprehensive income and accumulated in equity
in the asset revaluation reserve. To the extent that the increase reverses a decrease of the same asset previously recognised in profit
or loss, the increase is recognised in profit or loss. Decreases that offset previous increases of the same asset are recognised in other
comprehensive income with a corresponding decrease to the asset revaluation reserve; all other decreases are charged to the statement
of profit or loss.
Other items of property, plant and equipment
Other items of property, plant and equipment are measured on a cost basis and are a separate asset class to land assets.
Where roading is capitalised on third party or leased blocks, it is classified as an other asset if it is expected to be utilised within 12 months,
or an item of property, plant and equipment (leasehold improvement) if it will be used for a period greater than 12 months.
Depreciation
The depreciable amount of all property, plant and equipment is depreciated over their estimated useful lives commencing from the
time the asset is held ready for use. Land and the land component of any class of property, plant and equipment is not depreciated.
Roading that has been built on land owned by Midway is amortised on a straight-line basis over the period of one harvest. Roading
that is built on third party properties is amortised using the unit production method at the earliest of the lease agreement with the
supplier or the wood supply running out for a particular operation to which the roading relates.
2.2 Biological assets
Current
Plantation hardwood at fair value
Non-current
Plantation hardwood at fair value
Plantation hardwood at fair value (new plantings)
2019
$’000
2018
$’000
2,408
12,172
44,204
6,404
53,016
–
3,868
16,040
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
58
Section 2: Our asset base continued
2.2 Biological assets continued
At 1 July 2018
Hardwood trees bought back on balance sheet as a result of adoption of AASB 15 at 1 July
Restated opening balance as at 1 July 2018
Harvested timber
New plantings
Purchase of standing timber
Change in fair value less estimated point of sale costs – due to:
Change in discount rate
Change in volumes and prices
Balance at 30 June 2019
(a) Reconciliation of carrying amount
Policy
Biological assets at cost comprise new plantings and trees purchased from third parties.
Note
2.2(d)
Biological
assets
$’000
16,040
27,887
43,927
(4,778)
3,334
–
–
–
10,533
53,016
Biological assets are classified as current if it is anticipated they will be harvested within 12 months from balance date.
The fair value net increase or decrease to the carrying value of the standing timber revaluation is recognised in the statement of profit
or loss and other comprehensive income.
Biological assets are classified as level three on the fair value hierarchy. There were no transfers between level one, two or three
on the fair value hierarchy.
New plantings
Fair value is unable to be reliably measured until year three; however, cost is considered to approximate fair value up until this point.
Once the trees are three years old they are measured at fair value and remeasured each year after via an independent valuation if the
carrying amount is significant.
Site preparation costs are capitalised into the cost of the asset. Where there are no plantings, these costs are expensed.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
59
Significant
unobservable inputs1
• Estimated future timber
market prices per tonne
(weighed average USD/
BDMT $202.4 2018:
$179.4).
• Estimated yields per
hectare (weighed average
gmt/ha 248 2018: 262).
• Estimated harvest and
transportation costs
(weighted average $44.6/
gmt 2018: $39.9/gmt).
• Risk-adjusted discount rate
8% (2018: 8%).
Inter-relationship between
key unobservable inputs
and fair value measurement
The estimated fair value
would increase/(decrease)
if the:
• estimated timber prices per
tonne were higher/(lower);
• estimated yield per
hectare or estimated timber
projections were higher/
(lower);
• estimated average direct
and indirect costs were
lower/(higher); and/or
• discount rate was lower/
(higher).
(b) Key estimates and judgements – fair value (level three)
Valuation technique Description of valuation technique
An independent market valuation is
Net present value
performed based on a net present value
approach
(NPV) calculation. NPV is calculated as the
net of the future cash inflows and outflows
associated with forest production activities
discounted back to current values at the
appropriate discount rate. Key assumptions
underpinning the NPV calculation include:
• Forest valuations are based on the
expected volumes of merchantable timber
that will be realised from existing stands,
given current management strategies
and forecast timber recovery rates.
• Only the current crop (standing timber)
is valued. The cash flow analysis is based
on the optimised timing of the harvest
of existing stands, which has been
developed in the context of sustained
yield management.
• Volume increments/decrements are
determined both by periodic re-
measurement of forest samples and by
modelling growth from the date of the
most recent measurement to date of
harvest.
• Ancillary income earned from activities
such as the leasing of land for grazing
and other occupancy rights is added
to the net harvest revenues.
(c) Sensitivity analysis
As at the balance date, the impact of a change of assumptions on the assets of the Group (all other things being equal) would have
resulted in the following impacts on the fair value of biological assets:
Biological assets
Discount rate +/- 1%
Expected future sales prices +/- 10%
Expected future costs +/- 10%
Expected future changes in volume +/- 10%
2019
2018
Increase
$’000
Decrease
$’000
Increase
$’000
Decrease
$’000
(2,087)
12,320
(6,938)
5,944
2,221
(12,320)
6,938
(5,944)
(100)
2,476
(1,287)
1,734
106
(2,649)
855
(1,907)
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
60
Section 2: Our asset base continued
2.2 Biological assets continued
(d) Strategy agreement
In February 2016, the majority of the Group’s standing trees were sold to Strategy Timber Pty Ltd as trustee for the Strategy Timber
Trust (Strategy), an investment trust managed by GMO Renewable Resources, LLC (Renewable Resources), a Timber Investment
Management Organisation (TIMO).
The sale resulted in a gain of $615,713 being recognised in 2016 and trees being derecognised from the balance sheet.
Set out below is a summary of the key features of the agreements between Midway and Strategy:
• Midway Plantations Pty Ltd (Midway Plantations) and Strategy entered into a Sale Agreement on 5 February 2016 pursuant to
which Midway Plantations sold substantially all of the Pinus radiata plantation trees (Softwood Trees) and Eucalyptus plantation
trees (Eucalypt Trees) standing on Midway Plantations’ freehold and leasehold land in Victoria (Strategy Trees). The sale of those
trees was completed on 29 February 2016.
• Midway and Strategy entered into a Forest Management Agreement on 29 February 2016 pursuant to which Midway is contractually
engaged to manage the Strategy Trees on behalf of Strategy on commercial terms.
• Midway Plantations and Strategy entered into a Stumpage Sale Agreement on 29 February 2016 pursuant to which Midway Plantations
agrees to acquire back from Strategy the Eucalypt Trees. The agreement requires Midway Plantations to acquire the Eucalypt Trees by
the end of specified five-year harvest windows in respect of those trees for a price that is determined in accordance with the agreement.
The amount payable by Midway Plantations for each compartment of Eucalypt Trees repurchased under the agreement is based on a
fixed quantity of timber, which will be deemed to be derived from the compartment regardless of the actual yield from or quantity of
timber standing within the compartment when repurchased. The price per GMT of such fixed quantity payable by Midway Plantations
is a price initially specified in the agreement as varied in accordance with a review mechanism, which takes into account changes
in the prevailing market FOB export pricing for E. globulus from the Port of Geelong and movements in the consumer price index.
• Midway Plantations and Strategy entered into a Softwood Harvest and Marketing Agreement on 29 February 2016 pursuant to
which Midway Plantations is contractually engaged to provide various services on commercial terms to Strategy in relation to the
harvesting, marketing and ultimate sale of the Softwood Trees.
• To facilitate the arrangements set out above, Midway Plantations granted to Strategy forestry rights registrable on title under the
Climate Change Act (Vic) 2010 (in respect of the freehold land owned by Midway Plantations on which the Strategy Trees stand)
and a forestry licence agreement (in respect of the leasehold land on which the Strategy Trees stand). The documents, amongst
other things, grant Strategy the right to access, maintain, manage, protect and harvest the Strategy Trees on the land.
• To secure the repurchase obligations of Midway Plantations under the Stumpage Sale Agreement, Midway Plantations has granted
to Strategy a mortgage over its freehold land on which the Strategy Trees stand.
See section 4.11 for the impact of new accounting standard AASB 15 has on the accounting for this transaction from 1 July 2018.
Risk management strategy in relation to biological assets
Midway manages its own plantation estate and estates of third parties using well equipped, trained forestry staff to achieve production
wood flow consistent with the business plan and to mitigate against the risk of damage (including holding insurance against catastrophic
events such as fire).
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019 2.3 Commitments
Operating lease commitments
Non-cancellable operating leases contracted for but not capitalised in the financial statements:
Payable
not later than one year
later than one year and not later than five years
later than five years
Other commitments1
Payable
not later than one year
later than one year and not later than five years
later than five years
1. Commitments are entered into by Midway Limited, parent entity.
61
2019
$’000
2018
$’000
1,514
2,758
284
4,556
1,462
3,780
388
5,630
28,633
77,480
89,387
195,500
24,721
103,261
169,281
297,263
Other commitments relate to the minimum charges under the Port of Geelong bulk loader agreement and various supply agreements
for the supply of timber to be used in production for which the Group is required to purchase minimum quantities. In addition, the Group
has also secured a significant proportion of its long-term supply of woodfibre through a number of executory contracts, which allow
for the Group to purchase woodfibre at market prices.
Policy
Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as an expense
on a straight-line basis over the term of the lease.
Lease incentives received under operating leases are recognised as a liability and amortised on a straight-line basis over the life
of the lease term.
2.4 Working capital
Working capital
Cash and cash equivalents
Inventories
Trade and other receivables
Trade and other payables
Provisions
Section
a
b
c
2019
$’000
15,518
22,689
22,752
(27,282)
(4,008)
29,669
2018
$’000
10,356
6,146
19,457
(24,642)
(3,973)
7,344
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
62
Section 2: Our asset base continued
2.4 Working capital continued
(a) Inventories
At cost
Finished goods
Work in progress
2019
$’000
22,359
330
22,689
2018
$’000
5,097
1,049
6,146
Policy
Inventories are measured at the lower of cost and net realisable value. The cost of woodfibre includes direct material, direct labour
and a proportion of manufacturing overheads based on normal operating capacity.
There were no write-down of inventories to net realisable value during the period.
Key estimates and judgements
Woodfibre is purchased in Green Metric Tonnes (GMTs), (fibre inclusive of moisture) and is sold in Bone Dry Metric Tonnes
(BDMTs), (fibre exclusive of moisture). Cost is determined on an actual cost basis. Moisture content and production losses
are applied to the GMT values. Factors vary depending on the timber species and seasonal factors.
Volumetric chip stack surveys are used in determining inventory volumes at year end. Conversion from M3 to GMT ranges
from 2.2 to 2.4 – the range depends upon factors such as timber species type and seasonal factors.
(b) Trade and other receivables
Trade receivables
GST receivable
2019
$’000
20,728
2,024
22,752
2018
$’000
18,270
1,187
19,457
Policy
Trade and other receivables are measured at fair value and subsequently measured at amortised cost using the effective interest method.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
(c) Trade and other payables
Unsecured liabilities
Trade payables
Deferred payment for businesses acquired
Sundry creditors and accruals
63
2019
$’000
11,080
–
16,202
27,282
2018
$’000
18,370
2,951
3,321
24,642
Policy
Financial liabilities include trade payables, other creditors and loans from third parties including loans from or other amounts due
to Director-related entities.
Non-derivative financial liabilities are subsequently measured at amortised cost, comprising original debt less principal payments
and amortisation.
Financial liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least 12 months after the reporting period.
2.5 Intangible assets
The reconciliation of the carrying amount is set out below:
Year ended 30 June 2018
Opening net book amount
Business acquired (note 1.6)
Additions
Disposals
Amortisation
Closing carrying amount
Year ended 30 June 2019
Opening net book amount
Business acquired (note 1.6)
Disposals
Amortisation
Revaluation
Closing carrying amount
Goodwill
$’000
Customer
contracts
$’000
1,971
984
–
–
–
2,955
–
8,550
–
–
(756)
7,794
Total
$’000
1,971
9,534
–
–
(756)
10,749
2,955
7,794
10,749
–
–
–
–
2,955
57
–
57
–
(1,565)
(1,565)
–
6,286
–
9,241
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. The customer contract
intangible asset acquired is amortised over its useful life.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
64
Section 3: Funding structures
The Group has a disciplined approach applying key principles in capital management and maximising shareholder returns.
This includes:
• Returning the maximum amount of capital to shareholders where possible (71 per cent of NPAT from ordinary activities
in FY2019).
• Forward cover taken out against the USD in accordance with the Group’s hedging policy to safeguard against volatility
and maximise profits (see section 3.2).
3.1 Net debt
Bank loans – current
Bank loans – non-current
Hire purchase liabilities – current
Hire purchase liabilities – non-current
Other finance arrangements
Cash and cash equivalents
2019
$’000
2,432
31,874
3,990
6,482
215
(15,518)
29,475
2018
$’000
6,562
34,313
742
1,109
–
(10,356)
32,370
i. Assets pledged as security
The Midway facilities are secured by the following:
• a fixed and floating charge granted by Midway Limited and Midway Plantations Pty Ltd; and
• a property mortgage over:
• the property situated at 150-190 Corio Quay Road, North Shore VIC, granted by Midway Limited;
• the property situated at 10 The Esplanade, North Shore, VIC, granted by Midway Properties Pty Ltd; and the property situated
at 1A The Esplanade, North Shore VIC, granted by Midway Limited; and
• a number of plantation blocks in South West Victoria.
ii. Refinancing
The following amounts represent the Group’s outstanding liabilities with external financiers:
Type
Term debt
Working capital, asset finance
Acquisition debt facility – tranche 1
Acquisition debt facility – tranche 2
1. Maturity date was extended in the current period.
Utilised
$’000
29,400
10,472
931
3,975
Total
$’000
Maturity
29,400 30-Sep-211
30,620 31-May-201
30-Sep-19
931
3,975
31-Jul-21
The Group has the ability to enter into purchase arrangements under the asset finance facility until it expires on 31 May 2020.
Each outstanding finance arrangement will then be repaid within a five-year period.
The Group utilised $13.8 million (2018: $0.4 million) of HP facility in the current year to acquire property, plant and equipment.
The transaction did not involve cash flows and the entity acquired the assets by assuming the directly related finance liability.
Policy
Borrowings are initially recognised at fair value, net of transactions costs incurred. Borrowings are subsequently measured at amortised
cost using the effective interest method.
Borrowings are classified as current unless the Group has an unconditional right to defer settlement of the liability for at least 12 months
following the reporting period.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
65
(a) Cash and cash equivalents
Cash at the end of the financial year as shown in the Consolidated Statement of Cash Flows is reconciled to the related items in the
Consolidated Balance Sheet is as follows:
Cash on hand
Cash at bank
At call deposits with financial institutions
Reconciliation of cash flow from operations with profit after income tax
Profit from ordinary activities after income tax
Adjustments and non-cash items
Depreciation and amortisation
Sundry movements
Share of equity accounted investees profit
Fair value increment on revaluation of biological assets
Reversal of contingent consideration
Net non-cash interest expense
Changes in operating assets and liabilities
(Increase)/decrease in receivables
(Increase)/decrease in other assets
(Increase)/decrease in inventories
Increase in biological assets (net of revaluation increment/decrement)
Increase/(decrease) in payables
(Increase)/decrease in deferred taxes
Increase/(decrease) in tax provision
Increase/(decrease) in provisions
Cash flows provided from operating activities
2019
$’000
1
2018
$’000
1
15,517
10,355
–
–
15,518
10,356
26,158
18,397
8,633
23
(6,841)
(10,533)
(3,291)
7,122
(847)
(1,232)
(13,143)
1,444
(1,555)
1,980
(2,520)
192
5,590
4,459
544
(3,856)
(2,615)
–
–
(9,632)
(296)
1,536
(1,156)
189
1,388
1,877
2,330
13,165
Policy
Cash and cash equivalents include cash on hand and at banks, short-term deposits with an original maturity of three months or less
held at call with financial institutions, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the
consolidated balance sheet.
(b) Finance expense
Interest expenses
Strategy finance expenses
Bank charges
Finance lease charges
2019
$’000
2,012
7,377
357
165
9,911
2018
$’000
1,886
–
203
92
2,181
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
66
Section 3: Funding structures continued
3.2 Financial risk management
Capital risk management
The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal
capital structure to reduce the cost of capital, so that it can provide returns to the shareholders and benefits for other stakeholders.
This is achieved through the monitoring of historical and forecast performance and cash flows.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Board of Directors has established the Audit and Risk Management Committee, which is responsible for developing and
monitoring the Group’s risk management policies. The committee reports regularly to the Board of Directors on its activities.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits
and controls and to monitor risks and adherence to limits. Risk management policies are reviewed regularly to reflect changes in market
conditions and the Group’s activities.
The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control
environment in which all employees understand their roles and obligations.
The Board of Directors has overall responsibility for identifying and managing operational and financial risks.
The Group is exposed to a variety of financial risks comprising:
(a) market risk;
(b) credit risk; and
(c) liquidity risk.
The Group holds the following financial instruments:
Financial assets
Cash and cash equivalents
Receivables
Other receivables
Derivatives
Financial liabilities
Bank and other loans
Creditors
Deferred payment for businesses acquired
Finance lease liability
Other payables
Derivatives
2019
$’000
15,518
20,728
2,024
–
2018
$’000
10,356
18,270
1,187
–
38,270
29,813
34,521
11,080
–
10,472
16,202
483
72,758
40,875
18,370
2,951
1,851
3,321
484
67,852
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
67
(a) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices
such as foreign exchange rates, interest rates and equity prices. The Group’s financial instruments consist mainly of deposits with banks,
accounts receivable and payable, bills, leases and derivatives. The objective of market risk management is to maintain and control
market risk exposures within acceptable parameters, while optimising the return.
i. Currency risk
The Group has an Australian Dollar (AUD) presentation currency, which is also the functional currency of its Australian entities.
The Group is exposed to currency risk as below:
What is the risk?
How does Midway manage the risk?
Impact at 30 June 2019
If transactions are denominated in
currencies other than AUD. There is a
risk of an unfavourable financial impact
if there is an adverse movement in
foreign currency.
Export sales are denominated in US
Dollars (USD), with one of the Group’s
bank accounts being in USD.
The Group mitigates currency risk by
entering into forward exchange/swap
contracts and fX options to sell specified
amounts of USD usually within
12 months at stipulated exchange rates
in accordance with the Group’s hedging
policy. The objective in entering the
contracts is to protect the Group against
unfavourable exchange rate movements
for contracted and anticipated future
sales undertaken in USD.
At balance date the notional amount of
outstanding forward exchange contracts
was $75.6 million (2018: $50.3 million),
and AUD put options was $31.2 million
(2018: $0).
Sensitivity analysis has been
performed below.
Policy
Certain derivatives are designated as hedging instruments and are further classified as either fair value hedges or cash flow hedges.
At the inception of each hedging transaction, the Group documents the relationship between the hedging instruments and hedged
items, its risk management objective and its strategy for undertaking the hedge transaction. The Group also documents its assessment,
both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will
continue to be highly effective in offsetting changes in fair value or cash flows of hedged items.
The effective portion of changes in the fair value of the derivatives that are designated and qualify as cash flow hedges is recognised
in other comprehensive income and accumulated in the cash flow hedge reserve in equity. The gain or loss relating to the ineffective
portion is recognised immediately in profit or loss. The Group does not speculate in the trading of derivative instruments.
All exchange differences arising on settlement or revaluation are recognised as income or expenses for the financial year.
Cash
Trade receivables
2019
USD $’000
2018
USD $’000
323
1,987
379
10,096
The forward exchange and swap contracts in place are to hedge cash flows associated with the above mentioned trade receivables
and expected future sales.
Sensitivity
If foreign exchange rates were to change by 10 per cent from USD rates used to determine fair values as at the reporting date,
assuming all other variables that might impact on fair value remain constant, including effective hedging, then the impact on profit
for the year and equity is as follows:
USD movement impact (+/- 10%)
Impact on profit after tax
Impact on equity
2019
2018
Increase
$’000
(203)
8,764
Decrease
$’000
237
(11,605)
Increase
$’000
(252)
2,890
Decrease
$’000
286
(3,890)
A 10 per cent change is deemed reasonable given recent historical trends in the AUD/USD.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
68
Section 3: Funding structures continued
3.2 Financial risk management continued
ii. Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market
interest rates.
What is the risk?
How does Midway manage the risk?
Impact at 30 June 2019
The Group has variable interest rate debt,
and therefore if interest rates increase, the
amount of interest the Group is required to
pay will also increase.
Monitoring of announcements from
the central banking authority and other
sources that may impact movements
in the variable rate.
Effective interest rate monitored by
Audit and Risk Management Committee.
No swaps are currently taken out.
If interest rates were to increase/decrease
by 100 basis points from rates applicable
at the reporting date, assuming all other
variables that might impact on fair value
remain constant, the impact on profit for
the year and equity is not significant.
The Group’s exposure to interest rate risk in relation to future cash flows and the effective weighted average interest rates on classes
of financial assets and financial liabilities is as follows:
No other financial assets or financial liabilities are expected to be exposed to interest rate risk.
2019
Financial assets
Cash
Trade receivables
Other receivables
Derivatives
Financial liabilities
Bank and other loans
Creditors
Deferred payment for businesses acquired
Finance lease liability
Sundry creditors and accruals
Derivatives
Interest
bearing
$’000
Non-interest
bearing
$’000
15,081
–
–
–
437
20,728
2,024
–
Total
carrying
amount
$’000
15,518
20,728
2,024
–
15,081
22,753
38,270
34,521
–
–
11,080
10,472
–
–
–
–
16,202
483
34,521
11,080
–
10,472
16,202
483
44,993
27,765
72,758
Weighted average
effective interest rate
1.25%
Floating
3.63%
Floating
4.1%
Fixed
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
69
(b) Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge
an obligation.
The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date of recognised financial
assets is the carrying amount of those assets, net of any provisions for impairment of those assets, as disclosed in the Consolidated
Balance Sheet and notes to financial statements.
Credit risk for derivative financial instruments arises from the potential failure by counterparties to the contract to meet their obligations.
The credit risk exposure of forward exchange and swap contracts is the net fair value of these contracts.
What is the risk?
How does Midway manage the risk?
Impact at 30 June 2019
The Group has significant exposure
to export customers in China, as they
represent a significant portion of the
Group’s annual sales.
As a result of the Plantation Management
Partners acquisition and subsequent
operational restructure, the Group is
exposed to credit risk on plantation
management activities in addition to the
sale of woodfibre to customers in China.
Letters of credit with reputable financial
institutions are used to mitigate credit
risk with all Chinese customers, which
comprises the majority of the Group’s
annual woodfibre sales.
The balance of woodfibre sales are made
to long-standing Japanese customers with
the short trading terms applicable to these
customers, being payment within seven
business days of invoicing.
As at 30 June 2019, there are only
receivables for two vessel outstanding,
of which the cash was subsequently
collected within 10 days as expected.
Based on management’s assessment of
its exposure, the Group has low credit risk.
The Group produces and markets
woodfibre on the Tiwi Islands on behalf of
the wood owners. Receiving outstanding
receivables is contingent on the Group
performing its obligations successfully
in terms of producing and marketing
woodfibre. This limits the Group’s credit
risk on the receivables given receipt of the
debt is linked to the Group’s performance
(within Group’s control).
$4.6 million is outstanding over 90 days
relating to trade receivables of a major
customer of Plantation Management
Partners.
As at 30 June 2019, the Group expects
to receive all outstanding amounts given
receipt of the funds is contingent on the
performance of the Group and as such
no expected credit loss provision has
been recorded.
As at 30 June 2019, the ageing of trade and other receivables that were not impaired was as follows:
Neither past due nor impaired
Past due 1–30 days
Past due 31– 60 days
Past due 61– 90 days
Over 90 days
1. Relates to receivables from a major customer of Plantation Management Partners.
2019
$’000
17,747
164
64
164
4,6131
22,752
2018
$’000
16,208
1,087
1,081
880
201
19,457
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
70
Section 3: Funding structures continued
3.2 Financial risk management continued
(c) Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing facilities
are maintained.
Maturity analysis
The table below represents the undiscounted contractual settlement terms for financial assets and liabilities and management’s
expectation for settlement of undiscounted maturities.
2019
Cash and cash equivalents
Receivables
Derivatives
Payables
Borrowings
Net maturities
2018
Cash and cash equivalents
Receivables
Derivatives
Payables
Borrowings
Net maturities
3.3 Contributed equity
(a) Ordinary share capital
Share capital
Ordinary shares
Opening balance – 1 July 2018
Performance rights vested
Issued during the year
Capital raising costs incurred net of recognised tax benefit
Closing balance 30 June 2019
< 6 months
$’000
6–12 months
$’000
1–5 years
$’000
15,518
22,752
(483)
(27,282)
(4,468)
6,037
10,356
19,457
(484)
(24,642)
(4,328)
359
–
–
–
–
–
–
–
–
(2,153)
(2,153)
(38,372)
(38,372)
–
–
–
–
–
–
–
–
(3,001)
(3,001)
(35,397)
(35,397)
Total
contractual
cash flows
$’000
15,518
22,752
(483)
(27,282)
(44,993)
(34,488)
10,356
19,457
(484)
(24,642)
(42,726)
(38,039)
Carrying
amount
$’000
15,518
22,752
(483)
(27,282)
(44,993)
(34,488)
10,356
19,457
(484)
(24,642)
(42,726)
(38,039)
Number of shares
Company
2019
2018
74,901,933 74,819,933
82,000
82,000
12,287,289
–
–
–
87,271,222 74,901,933
2019
$’000
29,045
212
36,862
(1,328)
64,791
2018
$’000
28,833
212
–
–
29,045
Holders of ordinary shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general
meetings of the Company.
In September 2018, the Company completed a placement to institutional investors raising $33.7 million at $3.00 per share, resulting
in an additional 11,235,289 shares on issue.
Furthermore in October 2018, the Company completed a share purchase plan (SPP) of $3.1 million at $3.00 per share.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
71
Proceeds of the placement and SPP (collectively the capital raising) were used to partially fund the PMP restructure, fund acquisition
and investment of Softwood Logging Services (now Midway Logistics) and Bio Growth Partners respectively and will be used for future
investments based on the Group’s growth strategy.
(b) Reserves
Reserves
Movements:
Cash flow hedge reserve1
Opening balance
Cash flow hedges – effective portion
Deferred tax
Balance 30 June
Share-based payments reserve2
Opening balance
Share rights granted
Share rights issued/vested
Balance 30 June
Asset revaluation reserve3
Opening balance
Revaluation of land
Deferred tax
Balance 30 June
Profit reserve4
Opening balance
Adjustment on adoption of AASB 15
Restated opening balance
Transfers of current year profits
Dividends paid
Balance 30 June
Foreign currency translation reserve
Opening balance
Foreign currency translation differences
Balance 30 June
1. Cash flow hedge reserve
2019
$’000
2018
$’000
(372)
(21)
6
(387)
225
86
(212)
99
32,429
(7)
2
32,424
34,697
(3,319)
31,378
25,787
(14,596)
42,569
4
1
5
227
(856)
257
(372)
199
238
(212)
225
28,811
5,169
(1,551)
32,429
29,812
–
–
18,360
(13,475)
34,697
–
4
4
The hedging reserve is used to record the effective portion of gains and losses on cash flow hedges that are recognised in other comprehensive income as described
in section 3.2. Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or loss.
2. Share-based payment reserve
The shared-based payment reserve is used to recognise the expense over the vesting period.
3. Asset revaluation reserve
The asset revaluation reserve is used to record increments and decrements on the revaluation of land and reclassified to retained earnings on disposal. Movements
in the year relate to revaluation of plantation land.
4. Profit reserve
The profits reserve is used to record transfers of profits that would otherwise be offset against accumulated losses. The balance of the profits reserve is available
for distribution as a dividend in future periods. Movements in the current year relate to transfers to retained earnings for dividend payments and transfers in of
current year profits.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
72
Section 4: Other disclosures
This section includes additional financial information that is required by the accounting standards and the Corporations Act 2001.
4.1 Subsidiaries
Subsidiaries of Midway Limited and controlled entities:
Queensland Commodity Exports Pty Ltd
Midway Plantations Pty Ltd
Midway Properties Pty Ltd
Midway Tasmania Pty Ltd
Plantation Management Partners Pty Ltd1
Resource Management Partners Pty Ltd1
Plantation Management Partners Pte Ltd1,2
Midway Logistics Pty Ltd3
Midway Logistics Unit Trust3
1. Acquired on 26th October 2017.
Ownership interest
held by the Company
2018
%
2019
%
Ownership interest
held by NCI
2019
%
2018
%
90
100
100
100
100
100
100
100
100
90
100
100
100
100
100
100
–
–
10
–
–
–
–
–
–
–
10
–
–
–
–
–
–
–
2. 50 per cent held in trust by an independent party; however, all risks and benefits of ownership of the share are held by the Group.
3. Acquired on 15 October 2018, previously known as ‘Softwood Logging Services Pty Ltd’ and ‘SLS Unit Trust’.
Policy
The consolidated financial statements are those of the Company, comprising the financial statements of the parent entity and all of
the entities the parent controls. The Company controls an entity where it has the power, for which the parent has exposure or rights to
variable returns from its involvement with the entity, and for which the parent has the ability to use its power over the entities to affect
the amount of its returns.
4.2 Interest in joint ventures
(a) Carrying amount
South West Fibre Pty Ltd1
Bio Growth Partners (BGP)2
ADDCO
Plantation Export Group (PEG)
Nature of relationship
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ownership interest
2018
%
2019
%
51
40
25
33
51
–
25
33
Carrying amount
2019
$’000
11,307
2,206
1,727
54
2018
$’000
12,525
–
403
20
15,294
12,948
Policy
Joint arrangements represent the contractual sharing of control between parties in a business venture where unanimous decisions
about the relevant activities are required. Joint arrangements are classified as either joint operations or joint ventures based on the
rights and obligations of the parties to the arrangement.
The Company’s interest in joint ventures are bought to account using the equity method after initially being recognised at cost. Under
the equity method, the profits or losses of the joint venture are recognised in the Company’s profit or loss and the Company’s share
of the joint venture’s other comprehensive income is recognised in the Company’s other comprehensive income.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
73
Key estimates and judgements
1. South West Fibre Pty Ltd
South West Fibre Pty Ltd (SWF) is a joint venture in which the Company has a 51 per cent ownership interest. Voting rights
are proportionately in line with share ownership. The Company has joint but not ultimate control over the venture as the
shareholder agreement requires a special resolution when making key decisions.
SWF is structured as a separate vehicle and the Company has a residual interest in the net assets of SWF. Accordingly,
the Company has classified the interest in SWF as a joint venture as the Company does not have control over the entity.
2. Bio Growth Partners
On 15 October 2018, Midway acquired 40 per cent of Bio Growth Partners (BGP) for $1.8 million cash consideration.
Contingent consideration was also recorded in the value of the investment for $0.5 million, which was the estimated fair value
and was contingent on BGP meeting EBITDA targets. The fair value of contingent consideration reflected the inherent risks
in the acquisition based on the entities’ historical performance. The targets were subsequently not met and no cash was paid.
(b) South West Fibre Pty Ltd financial information
Cash and cash equivalents
Other current assets
Total current assets
Property, plant and equipment
Total non-current assets
Total current liabilities
Total non-current liabilities
Net assets
Revenue
Interest income
Depreciation and amortisation
Income tax expense
Total comprehensive income
Reconciliation to carrying amount of interest in joint venture:
Opening net assets
Add: Current year profit
Less: Dividends paid
Hedge revaluation reserve
Closing net assets
Company’s 51% share of net assets
Carrying amount of investment
2019
$’000
17,321
16,035
33,356
12,476
12,476
2018
$’000
11,445
13,059
24,504
14,723
14,723
(23,211)
(14,461)
(450)
22,171
206,077
123
(2,859)
(6,259)
14,559
24,559
14,559
(17,000)
53
22,171
11,307
11,307
(207)
24,559
165,180
93
(2,904)
(3,271)
7,304
26,255
7,304
(9,000)
–
24,559
12,525
12,525
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
74
Section 4: Other disclosures continued
4.3 Midway Limited – parent entity
Summarised balance sheet
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Retained earnings
Reserves
Total equity
Summarised statement of profit or loss and other comprehensive income
Profit for the year after income tax
Total comprehensive income
2019
$’000
2018
$’000
84,681
83,117
48,224
78,591
167,798
126,815
24,940
31,765
56,705
111,093
64,791
1,614
44,688
111,093
34,561
34,617
69,178
57,637
29,045
1,614
26,978
57,637
32,345
32,257
17,193
16,594
4.4 Share-based payments
The Board has established a Long Term Incentive Plan (LTIP) under which Directors and employees of Midway may be invited
by the Board to participate. The awards which may be issued under the LTIP include:
• Shares;
• Options; and
• Performance Rights.
Currently the following share-based payment arrangements are in effect under the LTIP:
(a) Initial Public Offering (IPO) Bonus Rights Issue (equity settled)
On 8 December 2016, upon successfully completing the IPO, the Board established an IPO Bonus Rights Issue for the Managing
Director and other senior management personnel in order to:
• reward individuals for the significant additional work exerted in order for the Company to achieve the milestone of listing;
• align the individual with shareholders through the provision of equity; and
• act as a retention mechanism for these individuals in the period following listing on the ASX.
Under this program performance rights have been issued with the following vesting conditions:
Grant date/employees entitled
Performance rights granted to key
management personnel1
Number of
instruments
128,000
Performance rights granted to other
senior management personnel1
36,000
Vesting conditions
50 per cent of the performance rights issued to the participants
have vested during the prior period (12 months after Completion
of the IPO), as all prior participants remained in continuous
employment with the Company until the vesting date; and
The remaining 50 per cent of the performance rights issued to the
participants vested 24 months after Completion of the IPO as all
participants remained in continuous employment with the Company
until the vesting date.
1. The fair value at grant date was $2.59 derived from the fair value of shares on 9 February 2017.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
75
(b) Long-term incentive rights (equity settled)
In December 2016, following the successful completion of the IPO, the Board offered to grant the Managing Director 65,000 performance
rights, subject to vesting conditions (see below). Following successful completion of the vesting conditions the rights will automatically
vest and the underlying shares will be issued. The performance period was until 30 June 2019. The offer was accepted on 9 February 2017
(grant date).
The fair value at grant date was $1.49, which was derived using a Monte Carlo Simulation model, which incorporates the total shareholder
return (TSR) performance conditions. Inputs utilised in the assessment include:
Assumption
Share price
Risk free rate
Dividend yield
Volatility
Initial TSR
$2.59
1.8%
7.0%
32.0%
10.7%
Vesting conditions
Participant must maintain continuous employment over the performance period.
The percentage of performance rights that will vest at the end of the performance
period will depend on Midway’s TSR over the performance period, relative to a
comparator group of companies in the S&P/ASX 300 Index.
The Group recorded a share-based payments expense of $0.1 million in 2019 (2018: $0.2 million).
Midway’s TSR was measured against a comparator group of companies in the S&P/ASX300 subsequent to the performance period.
The TSR measured was 78.2 per cent against the comparator group and as such the 65,000 rights will be issued to the Managing
Director subsequent to 30 June 2019.
4.5 Related parties
KMP of the Group represent the Directors, CEO and CFO in line with their ability to influence strategy and decision making.
(a) Remuneration of Key Management Personnel
Short-term employee benefits
Post-employment benefits
Share-based payments
Other long-term incentives
Total KMP remuneration expense
2019
$’000
1,726
114
74
23
2018
$’000
1,560
116
194
(16)
1,938
1,854
Transactions between related parties are on normal commercial terms no more favourable than those available to other parties unless
otherwise stated. An accrual for Directors fees was recorded for eight days to year end to 30 June 2019.
The aggregate shareholdings of KMP at 30 June 2019 are 12,679,334 (2018: 16,185,313).
(b) Transactions with South West Fibre Pty Ltd
Nature
Operator fee income
Reimbursement of costs
Dividends received
Sale of wood products (at cost)
2019
$’000
3,091
300
8,670
11,614
23,675
2018
$’000
2,477
276
4,590
6,708
14,051
The outstanding receivable balance from South West Fibre Pty Ltd at 30 June 2019 is $0.2 million (2018: $0.7 million).
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
76
Section 4: Other disclosures continued
4.5 Related parties continued
(c) Transactions with ADDCO Fibre Group Limited
Nature
Loan provided to ADDCO
Harvesting service received
Logging service received
The outstanding receivable balance from ADDCO Fibre Group Ltd at 30 June 2019 is $161,000.
(d) Transactions with Bio Growth Partners
Nature
Loan owed to BGP
Production income
Cartage income
Equipment hire
2019
$’000
164
3,292
2,015
5,471
2019
$’000
215
1,028
632
108
1,983
The outstanding receivable balance from Bio Growth Partners at 30 June 2019 is $236,000.
4.6 Contingent liabilities
(a) Outstanding matters
As at the date of this report there are no claims or contingent liabilities that are expected to materially impact, either individually
or in aggregate, the Company’s financial position or results from operations.
(b) Bank guarantees
Consolidated group
Limit
Amount utilised
Parent entity
Limit
Amount utilised
4.7 Remuneration of auditors
KPMG Australia
Audit and assurance services
– Statutory audit fees
Other services
– Non-assurance services – other advisory services
– Agreed upon procedures
2018
$’000
–
–
–
–
2018
$’000
–
–
–
–
–
2018
$’000
5,200
1,744
4,250
1,519
2019
$’000
5,200
2,248
4,250
2,023
2019
$
2018
$
233,807
163,000
9,225
20,500
25,400
–
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
77
2019
$’000
487
3,091
3,291
2,213
9,082
2018
$’000
974
2,478
–
710
4,162
4.8 Other income
Plantation management fees
SWF operating fee
Reversal of contingent consideration
Other
Policy
Dividend income
Dividend income is recognised when the right to receive a dividend has been established. Dividends received from joint venture entities
are accounted for in accordance with the equity method of accounting.
Other income
Rental income is recognised on a straight line basis over the rental term.
If the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount
of commissions made by the Group.
Royalty income is recognised on an accruals basis in accordance with the substance of the relevant agreement when it is probable
that the royalty will be received, which is normally when the event has occurred.
All income is measured net of the amount of goods and services tax (GST).
4.9 Deed of Cross Guarantee
The parent entity, Midway Limited, and certain subsidiaries (Midway Plantations Pty Ltd, Resource Management Partners Pty Ltd,
Plantation Management Partners Pty Ltd, Midway Tasmania Pty Ltd and Midway Properties Pty Ltd) are subject to a Deed of Cross
Guarantee (Deed) under which each company guarantees the debts of the others.
By entering into the Deed, the wholly owned subsidiaries have been relieved from the requirement to prepare a Financial Report
and Directors’ Report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
A summarised consolidated statement of comprehensive income, retained earnings reconciliation and a consolidated balance sheet,
comprising the Company and those controlled entities which are a party to the Deed of Cross Guarantee, after eliminating all transactions
between parties to the Deed, at 30 June 2019 are set out below:
Summarised consolidated statement of comprehensive income
Sales revenue
Other income
Expenses
Share of net profits from equity accounted investments
Profit before income tax expense
Income tax expense
Profit for the period
Other comprehensive income for the period
Total comprehensive income for the period
Retained earnings at the beginning of the financial year
Profit for the year
Transfers to/(from) reserves
Retained profits at the end of the financial year
2019
$’000
243,028
12,017
255,045
2018
$’000
201,713
4,424
206,137
(227,794)
(185,927)
6,841
34,092
(6,299)
27,793
(5)
27,788
1,614
27,793
(27,793)
1,614
3,856
24,066
(6,167)
17,899
3,190
21,089
1,614
17,899
(17,899)
1,614
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
78
Section 4: Other disclosures continued
4.9 Deed of Cross Guarantee continued
Consolidated balance sheet
Current assets
Cash and cash equivalents
Receivables
Inventories
Biological assets
Other assets
Current tax receivable
Total current assets
Non-current assets
Biological assets
Investments
Intangible assets
Property, plant and equipment
Loan receivables – NC
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Provisions
Current tax liabilities
Other financial liabilities
Derivative assets
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Deferred tax liabilities
Other financial liabilities
Total non-current liabilities
Total liabilities
Net assets
Contributed equity
Share capital
Reserves
Retained earnings
Total equity
2019
$’000
2018
$’000
13,176
21,224
16,082
2,408
9,899
2,141
10,188
19,103
3,020
12,172
3,533
(210)
64,930
47,806
50,608
23,069
7,213
3,868
19,181
8,778
120,202
104,610
3,200
204,292
269,222
–
136,437
184,243
23,803
6,422
3,724
–
434
368
22,998
7,309
5,268
589
484
–
34,751
36,648
38,357
127
15,339
40,210
94,033
128,784
140,438
64,791
71,768
3,879
140,438
35,422
1,756
15,705
–
52,883
89,531
94,712
29,046
61,735
3,931
94,712
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019
79
4.10 Subsequent events
(a) Dividend
A final dividend of $7.9 million was declared on 27 August 2019 for 9.0 cents per share (fully franked).
There have been no other matters or circumstances, which have arisen since 30 June 2019 that have significantly affected or may
significantly affect:
(a) the operations, in financial years subsequent to 30 June 2019, of the Group; or
(b) the results of those operations; or
(c) the state of affairs, in financial years subsequent to 30 June 2019 of the Group.
4.11 Basis of preparation
This Financial Report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards,
Interpretations and other applicable authoritative pronouncements of the Australian Accounting Standards Board and the Corporations
Act 2001.
The Financial Report was approved by the Board of Directors as at the date of the Directors’ Report.
The Financial Report is for Midway Limited and its consolidated entities. Midway Limited is a company limited by shares, incorporated
and domiciled in Australia. Midway Limited is a for profit entity for the purpose of preparing financial statements.
Unless explicitly highlighted in the financial report, cost approximates fair value for the carrying amounts of assets and liabilities held
on the balance sheet.
Compliance with IFRS
The consolidated financial statements of the Company also comply with the International Financial Reporting Standards (IFRS) issued
by the International Accounting Standards Board (IASB).
Historical cost convention
The Financial Report has been prepared under the historical cost convention, as modified by revaluations to fair value for certain
classes of assets and liabilities as described in the accounting policies.
Significant accounting estimates and judgements
The preparation of the Financial Report requires the use of certain estimates and judgements in applying the Company’s accounting
policies. Those estimates and judgements significant to the Financial Report are disclosed throughout the Financial Report.
Comparatives
Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures.
Accounting policies for subsidiaries are consistently applied. Adjustments are made to bring into line any dissimilar accounting policies
which may exist.
All inter company balances and transactions, including any unrealised profits or losses have been eliminated on consolidation. Subsidiaries
are consolidated from the date on which control is transferred to the Company and are de recognised from the date that control ceases.
Equity interests in a subsidiary not attributable, directly or indirectly, to the Company are presented as non-controlling interests.
Non-controlling interests in the result of subsidiaries are shown separately in the consolidated statement of profit or loss and other
comprehensive income and consolidated statement of financial position respectively.
Functional and presentation currency
The financial statements of each entity within the Group are measured using the currency of the primary economic environment in
which that entity operates (the functional currency). The consolidated financial statements are presented in Australian Dollars (AUD),
which is the parent entity’s functional and presentation currency.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019 80
Section 4: Other disclosures continued
4.11 Basis of preparation continued
Transactions and balances
Transactions in foreign currencies of entities within the Group are translated into functional currency at the rate of exchange ruling
at the date of the transaction.
Foreign currency monetary items that are outstanding at the reporting date (other than monetary items arising under foreign currency
contracts where the exchange rate for that monetary item is fixed in the contract) are translated using the spot rate at the end of the
financial year.
A monetary item arising under a foreign currency contract outstanding at the reporting date where the exchange rate for the monetary
item is fixed in the contract is translated at the exchange rate fixed in the contract.
Except for certain foreign currency hedges, all resulting exchange differences arising on settlement or restatement are recognised
as revenues and expenses for the financial year.
Impairment of non-financial assets
Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired.
For impairment assessment purposes, assets are generally grouped at the lowest levels for which there are largely independent cash
flows (‘cash generating units’). Accordingly, most assets are tested for impairment at the cash generating unit level. Because it does not
generate cash flows independently of other assets or groups of assets, goodwill is allocated to the cash generating unit or units that
are expected to benefit from the synergies arising from the business combination that gave rise to the goodwill.
Assets other than goodwill are assessed for impairment whenever events or circumstances arise that indicate the asset may be impaired.
An impairment loss is recognised when the carrying amount of an asset or cash generating unit exceeds the asset’s or cash generating
unit’s recoverable amount. The recoverable amount of an asset or cash generating unit is defined as the higher of its fair value less costs
to sell and value in use.
Impairment losses in respect of individual assets are recognised immediately in profit or loss unless the asset is carried at a revalued
amount such as property, in which case the impairment loss is treated as a revaluation decrease in accordance with the applicable
Standard. Impairment losses in respect of cash generating units are allocated first against the carrying amount of any goodwill attributed
to the cash generating unit with any remaining impairment loss allocated on a pro rata basis to the other assets comprising the relevant
cash generating unit.
New Standards adopted
Adoption of AASB 15: Revenue from Contracts with Customers
AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces
existing revenue recognition guidance, including AASB 18 Revenue, AASB 11 Construction Contracts and IFRIC Customer Loyalty
Programmes and has been adopted from 1 July 2018.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019 Notes to the Consolidated Financial Statements
81
Strategy arrangement
In relation to the sale of hardwood trees to Strategy1, recognised as a sale by Midway in February 2016, it has been assessed the
transaction would not meet the requirements for recognition of a sale under AASB 15 as Midway is contractually required to repurchase
the trees from Strategy in the future in accordance with an agreed harvest profile.
Accordingly, from 1 July 2018 the biological assets (hardwood trees) have been recognised on the balance sheet as an asset at
fair value, with subsequent changes in fair value each reporting period recognised in the profit and loss. The Strategy arrangement
is treated as a financing arrangement, which results in the recognition of a financial liability, initially recognised at fair value and
subsequently carried at amortised cost using the effective interest rate method. This liability represents the estimated net present value
of amounts payable under the contract for repurchase of the trees in accordance with the contractual harvest profile. Although there
is no embedded derivative and the liability is considered a fixed rate instrument, the cash flows are reassessed each reporting date
for changes in Midway specific wood chip prices, which results in a gain or loss recognised in the income statement each period.
An independent valuation has been performed in relation to the hardwood trees as at 30 June 2018 to recognise the opening
balance sheet fair value and determine the impact to opening equity on 1 July 2018. The corresponding financial liability representing
the Group’s contractual liability to repurchase the trees from Strategy has then been calculated based on the Group’s best estimate
of contractual cash flows.
As the arrangement is treated as a financing arrangement, from 1 July 2018 until the settlement of the repurchase obligation to
buy back mature trees, the Group financial statements will reflect an unwind of non-cash interest expense which materially affects
statutory net profit after tax of the Group with the impact in the current period being $6.9 million for the period ending 30 June 2019
recognised as ‘Finance Costs’ in the profit and loss.
In accordance with the transition provisions in the standard, the Group has adopted AASB 15 using the cumulative effect method.
Under this approach, comparatives are not restated, instead, the cumulative effect of adopting the new standard is recognised in
the opening balance of reserves in the current reporting period. The new standard is only applied to contracts that remain in force
at adoption date.
In addition to selling the tree crop and repurchasing in accordance with the agreed harvest profile, the Group receives income from
performing plantation management services on the tree crop that was sold to Strategy. Income received from Strategy for management
of the hardwood estate cannot be recognised in the profit and loss as the trees are now on the Group’s balance sheet. The sale and
repurchase contracts are interlinked such that Strategy cannot replace Midway as the plantation manager easily and hence they
must be assessed as a whole. As such, on initial recognition of the financing arrangement, the plantation management fees that will
be recognised from Strategy is recognised as a financial asset.
AASB 15 Strategy impacts
Opening reserves balance as at 30 June 2018 as previously reported
Decrease due to financial liability created to repurchase the hardwood trees
Increase due to financial asset created to receive plantation management fees
Increase due to the hardwood biological trees being re-recognised on the balance sheet
Net deferred tax asset
Restated opening reserves balance as at 1 July 2018
$’000
66,983
(34,247)
1,618
27,887
1,423
63,664
Sale of goods
A portion of the Group’s export sales are sold on CIF (cost, insurance and freight) terms. Under CIF terms this is with when the woodfibre
loading is completed at the port of origin, and therefore there is no change in policy under AASB 15.
The Group also arranges the insurance and freight for CIF vessels, which is deemed a separate performance obligation. The performance
obligation is satisfied over time until the shipment arrives at the destination port. Therefore, for the component of revenue relating to
freight and insurance should also be recognised over time (i.e. as performance obligation settled). This will not have a material impact
on the Group financial statements as only shipments that have not arrived at the destination port by balance date will be affected.
As at 1 July 2018, there was no adjustment to opening equity for the change in accounting policy.
1. Legal entity is Strategy Timber Pty Ltd as trustee for the Strategy Timber Trust (Strategy), an investment managed by GMO Renewable Resources LLC,
a Timber Management Organisation.
MIDWAY LIMITEDANNUAL REPORT 2019
82
Section 4: Other disclosures continued
4.11 Basis of preparation continued
Marketing revenue
Where the Group performs the function of marketing third party woodfibre, the Group has assessed there is no change in accounting
treatment under AASB 15, whereby a principal vs agent is assessed on each transaction.
As the softwood trees do not fall under the financing arrangement, income will be earned under AASB 15 when the performance
obligation (i.e. management of the softwood trees) is satisfied over time, when Strategy consumes the benefits of the arrangement.
AASB 9: Financial Instruments
AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities,
introduces new rules for hedge accounting and a new impairment model for financial assets.
The Group has adopted AASB 9 and related amendments from 1 July 2018. There were no significant impacts as a result of adoption.
There was no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial
liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities.
The new hedge accounting rules align the accounting for hedging instruments more closely with the Group’s risk management practices.
As a general rule, more hedge relationships might be eligible for hedge accounting. The Group’s hedging relationships as at 1 July 2018
qualify as continuing hedges upon the adoption of AASB 9. Accordingly, adoption of AASB 9 did not have a significant impact on the
accounting for its hedging relationships.
The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only
incurred credit losses as is the case under AASB 139 Financial Instruments: Recognition and Measurement. It applies to financial
assets classified at amortised cost, debt instruments measured at Fair Value through Other Comprehensive Income (FVOCI) contract
assets under AASB 15 Revenue from Contracts with Customers, lease receivables, loan commitments and certain financial guarantee
contracts. At adoption date, no material provision for ECL was recognised on the basis that the receivables were short-term in nature
and the Group has historically had minimal to no write-downs on receivables from export customers. Additionally, at transition date,
there was only $0.2 million over 90 days past due.
New standards not yet effective
The Australian Accounting Standards Board (AASB) has issued a number of new and amended Accounting Standards and Interpretations
that have mandatory application dates for future reporting periods, some of which are relevant to the Group. The Group has decided not
to early adopt any of these new and amended pronouncements. The Group’s assessment of the new and amended pronouncements
that are relevant to the Group but applicable in future reporting periods is set out below.
Notes to the Consolidated Financial StatementsMIDWAY LIMITEDANNUAL REPORT 2019 Notes to the Consolidated Financial Statements
83
AASB 16: Leases
AASB 16 Leases introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognises a right-of-use asset
representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are
optional exemptions for short-term leases and leases of low value items. The new Accounting Standard is effective for annual periods
starting on or after 1 January 2019. Management will adopt the standard from 1 July 2019.
The Group has made an initial assessment of the potential impact on its consolidated financial statements. So far, the most significant
impact identified is that the Group will recognise new assets and liabilities for its operating leases of plantation land.
The Group will adopt a modified retrospective approach with practical expedients which means the Group will:
• apply a single discount rate to a portfolio of leases with reasonably similar characteristics (such as plantation land);
• account for leases for which the lease term ends within 12 months of the date of initial application as short-term leases;
• exclude initial direct costs from the measurement of the right-of-use asset at the date of application;
• use hindsight, such as in determining the lease term as if the contract contains options to extend or terminate the lease; and
• apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply AASB 16 to all
contracts entered into before 1 July 2019 and identified as leases in accordance with AASB 117 and AASB interpretation 4.
As a lessor, the Group is not required to make any adjustments for leases in which it is a lessor except where it is an intermediate
lessor in a sub-lease.
The Group expects that as a result of the new standard, an additional recognition of a right-of-use asset and a liability for future payments
is expected to be approximately $6.8 million, of which the majority is for leases of plantation land.
The Group expects that adoption of AASB 16 will not impact its ability to comply with any banking covenants.
There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current
or future reporting periods and on foreseeable future transactions.
MIDWAY LIMITEDANNUAL REPORT 2019 84
Directors’ Declaration
The Directors of the Company declare that:
1. The consolidated financial statements and notes, as set out on pages 42 to 83 are in accordance with the Corporations Act
2001 including;
(a) comply with Accounting Standards in Australia and the Corporations Regulations 2001; and
(b) as stated in Section 4.10, the consolidated financial statements also comply with International Financial Reporting Standards; and
give a true and fair view of the financial position of the Company as at 30 June 2019 and its performance for the year ended on
that date.
2. There are reasonable grounds to believe that the Company and the Group entities identified in Note 4.9 will be able to meet any
obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company
and those group entities pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785.
The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer as required by S 295A of the
Corporations Act 2001.
This declaration is made in accordance with a resolution of the Board of Directors.
G H McCormack
Chairman
28 August 2019
MIDWAY LIMITEDANNUAL REPORT 2019
Independent Auditor’s Report
85
Liability limited by a scheme approved under Professional Standards Legislation.KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Independent Auditor’s Report To the shareholders of Midway Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Midway Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group's financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: •Consolidated Balance Sheet as at 30 June 2019; •Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity, and Consolidated Statement of Cash Flows for the year then ended; •Notes including a summary of significant accounting policies; and •Directors' Declaration. The Group consists of Midway Limited (the Company) and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. MIDWAY LIMITEDANNUAL REPORT 2019 86
Independent Auditor’s Report
Key Audit Matters The Key Audit Matters we identified are: • Valuation of Land; and • Valuation of Biological assets Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation of Land ($87.3m) Refer to Note 2.1 Property, plant and equipment The key audit matter How the matter was addressed in our audit The Group’s property assets are predominantly forestry plantation land which is measured at fair value. This was a key audit matter given the size of the balance (being 31.5% of total assets) and due to the complexity and judgment involved in determining fair value. Management engaged an independent expert to perform a valuation of the unencumbered market value of the Group’s land assets. Where appropriate, management adjust this valuation using a discounted cashflow model to determine the encumbered land valuation as at balance date. Determining the fair value of land assets therefore involves significant estimation and judgment, including assessments of: •General market conditions and expected future market volatility and fluctuation; •The highest and best use of the land; •Comparability of the Group’s land to available market evidence including sales of forestry and non-forestry land; •The physical condition of the land and amount of any reversionary costs to be incurred post-harvest in order to revert the land to its assessed highest and best use; and Working with our valuation specialists, our procedures included: •vouching land purchases during the period to underlying source documentation; •reading the independent expert’s report and making inquiries of management and the independent expert as appropriate in order to assess our ability to rely on the unencumbered land valuation, including an assessment of the expert’s independence, objectivity, competence and scope of work; •performing a sensitivity analysis of the key assumptions in the Group’s discounted cash flow model, including growth rates, discount rates, harvest profiles and reversionary costs to focus our work on the more sensitive assumptions; •checking the consistency of key assumptions used in the model such as highest and best use, growth rates, discount rates, harvest profiles and reversionary costs to those determined by the independent expert and other information used by the Group including the biological assets valuations; •using our industry knowledge and experience in to assess the reasonableness of data and assumptions in the independent valuation and management’s discounted cashflow model. This included comparing a sample of data to underlying supporting information and observable market transactions; •assessing the integrity of the Group’s discounted cashflow model, including the accuracy of the MIDWAY LIMITEDANNUAL REPORT 2019 87
Independent Auditor’s Report
•Appropriate growth rates, discount rates and harvest profiles. We spent considerable time and effort assessing the independent expert’s work and the Group’s discounted cashflow model. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. underlying calculations; •recalculating the change in fair value of the land and agreeing it to the revaluation reserve; and •assessing the land fair value disclosures against accounting standard requirements. Biological Assets ($53.0m) Refer to Note 2.2 Biological assets The key audit matter How the matter was addressed in our audit Biological assets consist of unharvested plantation trees and are recorded at their fair value. Biological assets increased significantly during the period following the Group’s adoption of AASB 15 Revenue from Contracts with Customers (AASB 15) which saw hardwood plantation trees previously recognised as a sale, come back on balance sheet and be accounted for as a financing arrangement. This was a key audit matter given the size of the balance (19.1% of total assets) and judgment required by us in considering the complexities and assumptions adopted by the Group in the valuation model for the biological assets. Management engaged an independent expert to perform an assessment of the fair value of the Group’s biological assets. Determining the fair value of biological assets therefore involves significant estimation and judgment, including: •assessments of expected yields and volumes (biological advancement), and harvest periods, •discount rates, forecast production and harvesting costs; and •expectations of future market pricing for wood chips, taking into account fluctuations in demand and supply and the impact of foreign exchange rates Working with our valuation specialists, our audit procedures included, amongst others: •assessing the design and implementation of key management controls over the preparation and review of inputs and outputs of the biological asset valuations; •assessing the accounting treatment adopted by management for the sale of plantation hardwood trees and obligation to subsequently repurchase against accounting standard requirements, particularly the de-recognition of the ‘sale’, and the recognition of biological assets and a related financial liability; •reading the independent expert’s report on the fair value of biological assets and making inquiries of management and the independent expert. We also assessed the expert’s independence, objectivity competence and scope and the appropriateness of the methodology applied by the independent expert against accounting standard requirements; •evaluating management’s sensitivity analysis in respect of key assumptions, including the identification of areas of estimation uncertainty and reasonably possible changes in key assumptions; •using our industry knowledge and experience to assess the reasonableness of inputs and assumptions in the valuation; including yield tables, harvest periods, production and harvest costs, wood prices and the discount rate. We also compared these variables to internal source documentation, market data (where available), historical trends and MIDWAY LIMITEDANNUAL REPORT 2019 88
Independent Auditor’s Report
given sales prices are generally denominated in USD, and the discount rate applied; We spent considerable time and effort assessing the independent expert’s work and underlying valuation models. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. performance and other information used by the Group including the land valuations; •recalculating the change in fair value of biological assets and agreeing it to the net fair value increment recognised in profit and loss; and •assessing financial statement disclosures against accounting standard requirements, including transitional disclosures required on the adoption of AASB 15. Other Information Other Information is financial and non-financial information in Midway Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s Report including the Operating and Financial Review and the Remuneration Report. The Letter from the Chairman, managing Director’s Review, Midway Operational Review, Sustainability Report, Shareholder Information and Corporate Directory are expected to be made available to us after the date of the Auditor’s Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: •preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 •implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error •assessing the Group and Company's ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. MIDWAY LIMITEDANNUAL REPORT 2019 89
Independent Auditor’s Report
Auditor’s responsibilities for the audit of the Financial Report Our objective is: •to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and •to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Midway Limited for the year ended 30 June 2019, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Vicky Carlson Partner Melbourne 28 August 2019 KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 MIDWAY LIMITEDANNUAL REPORT 2019 90
Additional Shareholder Information
For the year ended 30 June 2019
Additional Securities Exchange information
In accordance with ASX Listing Rule 4.10, the Company provides the following information to shareholders not elsewhere disclosed in
this Annual Report. The information provided is current as at 29 August 2019 (Reporting Date).
Corporate Governance Statement
The Company’s Directors and management are committed to conducting the Group’s business in an ethical manner and in accordance
with the highest standards of corporate governance. The Company has adopted and substantially complies with the ASX Corporate
Governance Principles and Recommendations (Third Edition) (Recommendations) to the extent appropriate to the size and nature of
the Group’s operations.
The Company has prepared a statement that sets out the corporate governance practices that were in operation throughout the
financial year for the Company, identifies any Recommendations that have not been followed, and provides reasons for not following
such Recommendations (Corporate Governance Statement).
In accordance with ASX Listing Rules 4.10.3 and 4.7.4, the Corporate Governance Statement will be available for review on the
Company’s website (https://www.midwaylimited.com.au/investor-center/), and will be lodged together with an Appendix 4G with ASX
at the same time that this Annual Report is lodged with ASX.
The Appendix 4G will particularise each Recommendation that needs to be reported against by the Company, and will provide
shareholders with information as to where relevant governance disclosures can be found.
The Company’s corporate governance policies and charters are all available on its website, https://www.midwaylimited.com.au/
investor-center/.
Substantial shareholders
The substantial holders in the Company as at the Reporting Date were:
Substantial holders
Chebmont Pty Ltd
Gregory McCormack and McCormack Timbers
Regal Funds Management Pty Ltd
Renaissance Smaller Companies Pty Ltd
E.T and E.W Murnane Pty Ltd
Number of holders
As at the Reporting Date, the number of holders in each class of equity securities is as follows:
Class of equity securities
Fully paid ordinary shares
There are no performance rights.
Number of
shares held
20,798,294
9,504,599
7,007,672
5,000,001
4,688,526
% of total issued
share capital
23.81
10.88
8.02
5.73
5.37
Number of holders
87,336,222
MIDWAY LIMITEDANNUAL REPORT 2019 91
Additional Shareholder Information
Voting rights
The only class of equity securities on issue in the Company that carries voting rights is ordinary shares.
As at the Reporting Date, there were 1,655 holders of a total of 87,336,222 ordinary shares in the Company.
At a general meeting of the Company, every holder of ordinary shares present in person or by proxy, attorney or representative has
one vote on a show of hands and on a poll, one vote for each ordinary share held. On a poll, every member (or his or her proxy, attorney
or representative) is entitled to vote for each fully paid share held and in respect of each partly paid share, is entitled to a fraction of a
vote equivalent to the proportion that the amount paid up (not credited) on that partly paid share bears to the total amounts paid and
payable (excluding amounts credited) on that share. Amounts paid in advance of a call are ignored when calculating the proportion.
Distribution of holders of equity securities
The distribution of holders of equity securities on issue in the Company as at the Reporting Date is as follows:
Distribution of ordinary shareholders
Holdings ranges
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Total
Number of holders
319
Total ordinary shares
154,062
538
332
415
51
1,655
1,644,184
2,555,133
10,718,591
72,264,252
87,336,222
%
0.18
1.88
2.93
12.27
82.74
100.00
Unquoted equity securities
There are no unquoted equity securities on issue in the Company.
Less than marketable parcels of ordinary shares (UMP shares)
The number of holders of less than a marketable parcel of ordinary shares as at the Reporting Date is as follows:
Unmarketable parcels
Minimum $500.00 parcel at $2.900 per unit
Minimum parcel size
173
Holders
69
Units
6,639
MIDWAY LIMITEDANNUAL REPORT 2019
92
Additional Shareholder Information
Twenty largest shareholders
The names of the 20 largest security holders of quoted equity securities (being ordinary shares) as at the reporting date are listed below:
Ordinary shares
Rank Name
1
Chebmont Pty Ltd
2
3
4
5
6
7
8
9
10
11
12
13
14
15
UBS Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
McCormack Timber Holdings Pty Ltd
E T And E W Murnane Pty Ltd
J P Morgan Nominees Australia Pty Limited
McCormack Timbers Pty Ltd
National Nominees Limited
W.H. Bennett & Sons Pty Ltd
Jr Micah Pty Ltd
Cs Third Nominees Pty Limited
Citicorp Nominees Pty Limited
J & J Corrigan Nominees Pty Ltd
McCormack Timbers Pty Ltd
Ms Esma Clara Thiele + Mr Murray Edward Thiele
16 Warbont Nominees Pty Ltd
17
18
19
20
Janakis Pty Ltd
J & J Corrigan Nominees Pty Ltd
Janakis Pty Ltd
Brispot Nominees Pty Ltd
Number
of shares
20,798,294
%
23.81
5,784,802
5,199,241
5,193,036
4,688,526
3,967,618
2,913,152
2,633,559
2,560,356
1,801,042
1,635,655
1,532,457
1,513,530
1,338,411
916,843
860,242
650,215
640,436
620,670
556,864
6.62
5.95
5.95
5.37
4.54
3.34
3.02
2.93
2.06
1.87
1.75
1.73
1.53
1.05
0.98
0.74
0.73
0.71
0.64
Total
Balance of register
Grand total
65,804,949
21,531,273
87,336,222
75.35
24.65
100.00
Stock exchange listing
The Company’s ordinary shares are quoted on the Australian Securities Exchange (ASX) (ASX issuer code: MWY).
Voluntary escrow
There are no securities on issue in the Company that are subject to voluntary escrow.
On-market buy-back
The Company is not currently conducting an on-market buy-back.
Securities purchased on-market
No securities were purchased on-market during the reporting period under or for the purposes of an employee incentive scheme or
to satisfy the entitlements of the holders of options or other rights to acquire securities granted under an employee incentive scheme.
Issues of securities
There are no issues of securities approved for the purposes of item 7 of Section 611 of the Corporations Act that have not yet
been completed.
MIDWAY LIMITEDANNUAL REPORT 2019
ANNUAL REPORT 2019
MIDWAY LIMITED
93
Corporate Directory
Midway Limited
ABN 44 005 616 044
Registered Office
10 The Esplanade
North Shore Victoria 3214
Australia
T +61 3 5277 9255
F +61 3 5277 0667
Website
www.midwaylimited.com.au
Board of Directors
Gregory McCormack (Chairman and Non-Executive Director)
Anthony Price (Chief Executive Officer and Executive Director)
Anthony Bennett (Non-Executive Director)
Gordon Davis (Non-Executive Director)
Nils Gunnersen (Non-Executive Director)
Tom Gunnersen (Non-Executive Director)
Thomas Keene (Non-Executive Director)
Leanne Heywood (Non-Executive Director)
Company Secretary
Sophie Karzis
Auditor
KPMG Australia
727 Collins Street
Melbourne Victoria 3008
Australia
T +61 3 9288 5555
Solicitors
SBA Law
Level 13, 607 Bourke Street
Melbourne Victoria 3000
Australia
T +61 3 9614 7000
Share Registry
Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford Victoria 3067
Australia
T 1300 850 505 (within Australia) or +61 3 9415 4000 (international)
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