Midway Limited
Annual Report 2022

Plain-text annual report

Annual Report 2022 Positioning for Future Growth Contents Chairman’s Report Managing Director’s Report Midway’s Competitive Advantage in Carbon Management Port and Processing Facilities Plantation Fund Sustainability Directors’ Report 02 04 09 10 11 12 16 Auditor’s Independence Declaration 26 Remuneration Report (Audited) Financial Report Directors’ Declaration Independent Auditor’s Report 27 37 76 77 Additional Shareholder Information 82 Corporate Directory 85 MIDWAY LIMITED ABN 44 005 616 044 We are one of Australia’s leading woodfibre processors and exporters. 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 to the international woodfibre market. 01 MIDWAY LIMITEDANNUAL REPORT 2022Chairman’s Report Gordon Davis Chairman “My immediate priority as Chairman of Midway has been to focus on what we can control to improve shareholder returns and Board renewal to ensure the Company has the right skills for future growth, especially in the emerging carbon management market.” The last 12 months have seen a significant transformation of Midway leadership, strategy and structure that will positively position the Company for future growth as a plantation manager and woodfibre exporter and improve shareholder returns. I began my first term as Chairman of Midway on 1 May 2022 following the decision of Greg McCormack to step down as Chair and retire as a Non-Executive Director of the Company when his current term ends at the 2022 Annual General Meeting. My immediate priority as Chairman of Midway has been to focus on what we can control to improve shareholder returns and Board renewal to ensure the Company has the right skills for future growth, especially in the emerging carbon management market. I have worked closely with the new Midway Managing Director and Chief Executive, Tony McKenna, on a strategic review of the Company that was announced on 14 March 2022 and that is designed to drive improved performance and create improved value for shareholders. Most of the poor financial performance in FY22 was due to a range of factors that we had to manage, including the COVID-19 pandemic that adversely affected global supply chains and consumer demand in major markets. While we could only manage or influence the impact of these market forces on the Company, we are determined to control as much of our own destiny as possible and actively make changes that improve shareholder returns. A number of major initiatives have already been taken as a result of the strategic review to adjust Company strategy and structure to the new realities of the woodfibre market in the wake of the pandemic. Midway announced it would wind-down the loss-making operations of Midway Logistics in Western Australia and Tony McKenna started to turn around the performance of the woodfibre operation on the Tiwi Islands. Midway secured new export contracts for woodfibre exports to China for the pulp paper sector and to Japan for biomass energy production. Tony McKenna is currently examining second rotation options to improve and extend the commercial returns of the Tiwi operation. Midway has also expanded its operations in Tasmania with a modest investment in a dedicated processing and port facility at Bell Bay that will export woodfibre from regrowth thinnings. However, the most important announcement was the sale of the Victorian plantation assets to special purpose vehicle (SPV) owned by a client of MEAG for $154 million and a commitment from the SPV to invest another $200 million in greenfield forest 02 MIDWAY LIMITEDANNUAL REPORT 2022plantation in the Geelong catchment. Midway has secured a plantation and carbon management contract and an off-take agreement with the SPV that will ensure ongoing log supply from these plantations. I will update shareholders at the Annual General Meeting in late November about Board renewal and the next stages of the strategic review that will focus on future growth initiatives to drive sustainable earnings and dividend growth as they occur. Midway is also exploring the opportunity to enter into an agreement with a grain trading company to lease land at North Shore for a grain export terminal that will maximise capacity utilisation of that facility and improve returns to shareholders. I can assure shareholders that the Board of Directors and the new management team share your concern about the poor financial performance of Midway over the last couple of years. “Midway secured new export contracts for woodfibre exports to China for the pulp paper sector and to Japan for biomass energy production. Tony McKenna is currently examining second rotation options to improve and extend the commercial returns of the Tiwi operation.” I can also assure you that the Board of Directors and the management team are doing everything under our control to improve financial performance and generate sustainable shareholder returns. The strategic review has unleashed exciting developments and I hope the initiatives we have announced will provide Midway shareholders with confidence about the new leadership of the Company, its new strategy and its new approach to business. I am pleased that the strategic review will directly benefit shareholders; in May 2022 we announced of the sale of Midway’s Victorian plantation land and forest assets to MEAG. Consequently in June 2022 Midway announced that it intends to pay a special fully franked dividend to shareholders from the sale proceeds of up to approximately 19.5 cents per share in FY23 (subject to regulatory and other conditions). Gordon Davis Chairman 0303 MIDWAY LIMITEDANNUAL REPORT 2022Managing Director’s Report Anthony McKenna Managing Director “The Company has a number of immediate opportunities to leverage its core competencies to establish a significant presence in this space. We are moving quickly to ensure we exploit this window of opportunity to diversify and grow in this fast growing, future facing industry.” My first year as Managing Director and Chief Executive of Midway has convinced me that there is an exciting and achievable challenge before us to improve the Company’s financial performance and deliver a range of initiatives that will enhance shareholder returns. Midway, like other forestry or agriculture businesses, encountered unforeseen market and geopolitical forces that adversely affected our financial returns in FY22. However, we have not stood still and simply accepted our fate. We have taken action to minimise the impact, to improve the business, and to position the business for future growth. In the past year, Midway exited the loss-making Logistics business in Western Australia, fast-tracked the turnaround of performance by Plantation Management Partners on the Tiwi Islands and expedited the development of a new processing and export business at Bell Bay. Other initiatives have also been taken to ensure the core woodfibre processing and export business at Geelong, QCE in Brisbane and the joint venture operation at SWF in Portland are well placed to capitalise on export demand as domestic supply-chain disruption eases. Midway’s core business is intertwined with the rapidly growing industry of Carbon Credit generation. The Company has a number of immediate opportunities to leverage its core competencies to establish a significant presence in this space. We are moving quickly to ensure we exploit this window of opportunity to diversify and grow in this fast growing, future facing industry. We have reached the conclusion that the Company is not the natural owner of large swathes of capital-intensive forestry land that yield low financial returns. As a result, in the last year we have sold surplus land at Wandong north of Melbourne and announced the sale of our Victorian plantation estate. The sale proceeds will be used to repay the costly ‘Strategy’ financing arrangement, reduce debt and fund growth in the carbon business. The Board of Directors also announced the intention to use a portion of the first tranche of Victorian Plantation sale proceeds to pay a fully franked special dividend, subject to the necessary approvals, in 1H23. FY22 Financial Performance The COVID-19 pandemic and Chinese power supply restrictions adversely affected demand in the first half of the financial year. Demand recovered in the second half, but the COVID-19 pandemic interrupted domestic supply chains and made contractor availability a major limiting factor in securing volume across the industry. The geopolitical situation also increased fuel costs, which, along with limited contractor availability, have increased supply chain costs. Cost pressures subsequently squeezed Company margins in an environment where sales prices are fixed for the calendar year. Frustratingly, woodfibre prices have been capped in the second half, when global demand for woodchips has outstripped supply, and we have seen the Vietnamese market enjoy a 50 per cent price uplift. In part due to these operational challenges in the last 12 months, the Company recorded a small loss in FY22 of $1.8 million in underlying earnings before interest, tax and depreciation and amortisation (EBITDA-S). 04 MIDWAY LIMITEDANNUAL REPORT 2022“The Board of Directors also announced the intention to use a portion of the first tranche of Victorian Plantation sale proceeds to pay a fully franked special dividend, subject to the necessary approvals, in 1H23.” Midway also recorded a net loss after tax and significant items in FY22 of $12.8 million. An uplift of $4.5 million in the valuation in biological assets due to higher export prices and a profit of $1.4 million on the sale of assets were offset by an increase of $8.0 million in non-cash interest expenses on our ‘Strategy’ financial liability under AASB15 and $1.6 million in transaction costs arising from the sale of the plantation assets. In the first few months of FY23, we continue to see strong demand for Australian woodfibre from our major customers in China and Japan and remain confident that volumes will be stronger in the next 12 months. Unfortunately, we expect that domestic supply chain disruption, high fuel costs and fixed woodchip prices will continue to constrain financial performance in the first half. Strategic Initiatives A staged strategic review of the company strategy and structure was commenced in March 2022. The Company has addressed two loss making divisions by closing the WA Logistics business and securing export contracts for woodchips from the Tiwi Islands operation. The first vessel from the Berth 7 facility in Bell Bay in Tasmania sailed in July. Our Bell Bay mill is scheduled to commence operation in early October, enabling Midway to export woodfibre from native regrowth forest thinnings in its own right, rather than via third parties, at a premium price to reflect this product’s sustainability certification. This new business will provide earnings diversification and growth for Midway over the next few years. Midway has also pursued other growth options including a grain export facility at North Shore in Geelong that will maximise capacity utilisation of the site and better utilise our take or pay contract with Geelong Port. The Company signed contracts for the sale of our Victorian plantation land and forest assets in the Geelong catchment to a special purpose vehicle (SPV) established by a client of MEAG, a subsidiary of the German-owned financial services company, Munich Re. As a result of the plantation sale, Midway will receive $154 million in several tranches over three years. Subject to the sale completing and other conditions, the Board has announced an intention to pay a special fully franked dividend of up to 19.5 cents per share. 0505 MIDWAY LIMITEDANNUAL REPORT 2022Managing Director’s Report continued MEAG have committed to invest another $200 million in greenfield forest plantation land in the Geelong catchment. Midway will have an offtake agreement for logs produced from the estate and a contract to manage the plantation and carbon for MEAG. Other members of my management team include Stephen Roffey, General Manager of Marketing, Glen Samsa, General Manager of Plantations, Malcolm Hatcher, General Manager of Technical Services, Mitch Morison, General Manager of Business Development and Adin Jull, General Manager of Operations. The sale will remove volatility in future earnings caused by periodic reviews of the biological asset values of the plantation assets that we previously held on our balance sheet. I can assure you that this management team, and all our staff and contractors around Australia, are focused on improved operational performance and repositioning the Company for improved shareholder returns. Midway will utilise proceeds to repay all of our long-term debt. This means that Midway will have a very strong balance sheet and be well positioned to capitalise on future growth opportunities. The MEAG transaction highlights the interest of global investors in Midway’s core plantation management business as a way of sustainably generating carbon credits that can meet net zero commitments by 2050. Midway’s deep expertise and industry presence strongly positions the Company to become a leader in plantation carbon. We are pursuing a number of approaches to the carbon credit market that are immediately adjacent to our existing business and we expect that this will become an important part of the Midway business going forward. Management Team On 1 July 2022, I appointed Michael McKenzie as the new Chief Financial Officer of Midway to replace Ashley Merrett, who has retired after 29 years with the Company. Michael has been Financial Controller at Midway since 2016 and brings deep knowledge of the business, strong financial management skills and an excellent work ethic to the role. Employment and Safety I would like to take this opportunity to thank all the staff, contractors, suppliers and partners of Midway for their cooperation in managing through the COVID-19 pandemic and the supply chain difficulties that have arisen over the last 12 months. Employee safety is our number one priority at Midway and the commitment of the staff, contractors, suppliers and partners to work constructively through this difficult situation is appreciated. Outlook I look forward to providing shareholders with an update on trading conditions and financial performance at the Annual General Meeting in late November and at the interim results in February 2023. Tony McKenna Managing Director 06 MIDWAY LIMITEDANNUAL REPORT 202207 MIDWAY LIMITEDANNUAL REPORT 202208 MIDWAY LIMITEDANNUAL REPORT 2022Midway’s Competitive Advantage in Carbon Management Midway is well positioned to leverage its core business model to become a leader in carbon credit generation and management services within the Australian and Southeast Asian markets. Key differentiators for Midway 1. Currently no independent provider at-scale with a ‘seed–to– sale’ integrated partnership and service model for plantation and land owners. 5. New carbon management opportunities present additional upside through secured timber supply for underlying woodfibre business. 2. Strategic partnership with well-resourced investors provides necessary scale and credibility for Midway to position itself as the ‘plantation carbon manager of choice’. 6. High barriers to entry (capital, regulatory, capability) to enter carbon market fortifies Midway as a natural aggregator for small to medium sized freehold landowners. 3. There is a natural alignment between customers seeking commercial forestry arrangements and carbon management services. 4. Carbon management organically builds upon current value chain to generate additional earnings between plantation management and harvest. Midway Value Chain Marketing and export sales Partnerships Stockpile Processing Carbon Management Planning and establishment Plantation management Haul Harvest 09 MIDWAY LIMITEDANNUAL REPORT 2022Port and Processing Facilities Midway Geelong (Head Office) QCE Brisbane South West Fibre/Portland Midway Tasmania Plantation Management Partners 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. • 51 per cent owned joint venture with Mitsui. • Portside woodfibre receival, storage and loading facilities contracted with GrainCorp. • 80,000 GMT woodfibre stockpile capacity. • Woodfibre receival capacity of 1.8 million GMT per annum. • Capacity to process and export up to 1.8 million GMT Plantation Management Partners per annum of woodfibre. QCE Brisbane • Sole woodfibre exporter from Port of Brisbane – provides geographic and marketing diversity. 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. • Lease on a four hectare site with the Port of Brisbane • Acacia mangium woodchip exports commenced in November for producing, storing and loading. 2015 out of Port Melville. • GrainCorp provides toll ship loading. • Stockpile capacity 60,000 tonnes. • 300,000 GMT per annum softwood export capacity. • 400,000 GMT per annum export capacity. • Hardwood exports commenced in 2016. Capacity of 300,000 GMT per annum. • Stockpile capacity: 100,000 GMT of softwood and/or hardwood. 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. • Supply agreement with Australian Bluegum Plantations. Midway Tasmania • Marketing and sales. • Softwood shipments commenced September 2017 from a chipping, stockpiling and loading facility at Bell Bay. • >450,000 GMT per annum export capacity. Midway Logistics (Closed) The Midway Logistics business was closed in September 2022. 10 MIDWAY LIMITEDANNUAL REPORT 2022Plantation Fund In May 2022 Midway announced the sale of 17,000 hectares of its existing plantation estate in the central and south-west regions of Victoria to a special purpose vehicle (SPV) owned by a client of MEAG, Munich Re’s asset manager, for an estimated $154 million. Transaction Rationale (Why) • Phase one of the strategic review concluded that selling the existing plantation estate is the best way to immediately realise value from forestry assets on the Midway balance sheet for the benefit of shareholders. • The sale generates a strong return on investment for shareholders – net sale proceeds are an estimated $10.9 million1 above book value before tax compared with the balance sheet as at 30 June 2022. • The new hardwood plantations in south-west Victoria will materially increase woodfibre volume in the Geelong catchment to sustain the Midway processing and export facility at Geelong. • Change in ownership and control of the plantation estate will simplify the Midway balance sheet and remove annual valuation changes in biological assets. • Broadly EBITDA-S2 neutral impact from the transaction on the earnings of Midway Geelong. Mechanics (What and How) • Midway will buy back the Strategy trees and resell them to MEAG’s SPV. • The buyback of the trees will occur at the earliest point contractually available to Midway, and is required to release title, which is why the settlement occurs over the next two years. • The Strategy fixed volume and price offtake agreement will be replaced by a MEAG variable offtake agreement indexed to the export market price on logs received over the weigh-bridge. • The offtake agreement with MEAG includes a minimum annual quantity of 140,000 GMT over the first 10 years. • Midway avoids volatile annual forestry yield impacts while MEAG receives the benefit of any ‘fair value’ uplift. • Midway will also earn forestry and carbon management fees from the plantation estate and save on establishment costs for plantations, direct land management expenses, rates, etc. Timing (When) • Settlement of the first stage of the transaction is expected to occur mid-FY23 following necessary regulatory approvals, including the Foreign Investment Review Board (FIRB). • Midway will have a contracted forestry management right with a six-year term. • The offtake agreement will be in place for two rotations – 35 years. 1. Final net profit after tax will be determined at settlement of each tranche, which occurs over four years. 2. Final proceeds to be determined after final harvest reconciliation prior to completion and the amount of stamp duty payable being confirmed. 11 MIDWAY LIMITEDANNUAL REPORT 2022Sustainability Midway is an industry leader in the sustainable growth of forest products. Midway works closely with the communities in which it operates to provide employment, income and growth opportunities. The nature of Midway’s activities provides significant opportunities for advancement of sustainability objectives. Certifications Underpinning Midway’s sustainability credentials, it holds and maintains certification for: • Sustainable Forest Management: AS 4708-2013. • Chain of custody for forest products AS 4707:2014. • Occupational health and safety management systems AS/NZS ISO 45001:2018. • Quality management systems – requirements AS/NZS 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. External audits for each certification held are conducted on an annual basis. Employment and Safety Midway continued hybrid work arrangements for the first half of FY22 due to the COVID-19 pandemic and associated snap lockdown requirements. Midway’s COVID Steering Committee introduced a program of COVID vaccinations, positive case reporting, regular workplace monitoring (RATs) and contact tracing in accordance with government and business directives. No deaths or cases of hospitalisation from COVID-19 were reported. Over the reporting period, a total of 29 new full-time, one part-time and 33 casual employees were recruited, representing 40 per cent of the total workforce, including Board members. Female representation within the Midway Group marginally increased from 18 per cent to 20 per cent of total workforce with 18 per cent of females in managerial roles. Staff turnover increased by 11 per cent compared to the previous year. A total of 157 staff and Board members were directly employed by the Group by the end of FY22. Midway reports annually to the Workplace Gender Equality Agency (WEGA) and Midway’s Modern Slavery Statement for FY22 was submitted at the end of December 2021. Copies of the WEGA report and Modern Slavery Statement can be found on Midway’s website. Safety (ISO45001)    Quality (ISO9001)     Forestry (AS4708)   AFS CoC (AS4707) (PEFC)     FSC® CW, CoC    Tiwi Is. Midway’s COVID Steering Committee introduced a program of COVID vaccinations, positive case reporting, regular workplace monitoring (RATs) and contact tracing in accordance with government and business directives.    Midway SWF QCE PMP Midway Logistics Midway Tasmania 12 MIDWAY LIMITEDANNUAL REPORT 2022Midway Governance Bodies and Employee Diversity Summary Board Members Senior Managers Managers Professionals Technicians and Trade Workers Clerical and Administrative Workers Machinery Operators and Drivers Labourers 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Female Male < 30 years old 30 – 50 years old > 50 years old Aboriginal or Torres Strait Islander Midway recorded a total of nine Lost Time Injuries (LTIs) during the reporting period, an increase from two the previous year. Due to a reduction in the number of hours worked and increase in LTIs, the Lost Time Injury Frequency Rate (LTIFR) increased from 2.6 in the previous year to 13.5 in the current reporting period. While the LTIFR increased, the Lost Time Injury Severity Rate (LTISR) was the second lowest over past five years. Safety initiatives undertaken include, but are not limited to: • Active consultation with workers to identify, report and rectify site safety hazards. • Specialist system and field audits of 100 per cent of harvest and site establishment contractors and the top 50 per cent of haulage contractors. Hazard focus on chain shot awareness, seat belt use, machine guarding, lock-out tag-out, site- specific risk assessments, safety helmet and high visibility workwear condition. • First-aid training and kit replenishment (e.g. snake bite). • Process changes to reduce manual handling in site cleaning and chip sampling activities. • New safety incident monitoring tools to prompt and monitor effective incident completion and closure of incidents. • SDS management via Chemwatch. • Increased use of CCTV and use of location technology to assist machine operators working on steep areas. • Safety calendar introduced for FY23 – focus on a safety topic each month across the entire organisation and at Board level. • New safety lead indicators focused on hazard identification and rectification, and increased near-miss reporting to drive safety performance improvement and increase safety culture. Global-mark conducted third party certification surveillance audits of Midway’s ISO45001 Occupational Health and Safety management system in FY22. The audit results were positive and certification to this standard was maintained at participating Midway sites. 13 MIDWAY LIMITEDANNUAL REPORT 2022Sustainability continued Midway Work Health and Safety Performance Summary Measure Total number recordable work-related injuries Total number high consequence work-related injuries Total number Lost Time Injuries Total number of fatalities Total recordable injury frequency rate High consequence injury frequency rate Lost Time Injury Frequency Rate (LTIFR) Fatal accident frequency rate Midway Employees Midway Contractors Midway All FY21 3 - 2 - 9.8 - 6.5 - FY22 5 1 1 - 22.4 4.5 4.5 - FY21 2 - - - 4.2 - - - FY22 9 1 8 - 20.3 2.3 18.1 - FY21 3 FY22 14 - 2 - 3.9 - 2.6 - 2 9 - 21.0 3.0 13.5 - Note: All frequency rates shown above are based on rate per 1,000,000 hours worked. Environmental Performance Managing our environmental compliance obligations and community expectations remains a high priority across the Group. Midway observed improvement across the Group in relation to compliance with environmental laws and regulation and successfully obtained regulatory approval from the Environmental Protection Authority Tasmania for the development of a new mill located in Bell Bay, Tasmania. Midway continue to conduct annual stakeholder consultations for both interested and affected parties in accordance with requirements of the Responsible Wood Standard AS4708, and the FSC® Controlled Wood Standard (FSC-STD-40-005). Midway actively engaged face-to-face and virtual meetings with several stakeholders and environmental non-governmental organisations during the reporting period and will continue to build relationships with these and other stakeholders in the future. Midway Environmental Performance Summary FY19 FY20 FY21 FY22 Non-compliance with environmental laws and regulations 1 2 2 - Energy and Climate Group energy consumption and greenhouse gas emissions have been calculated for FY22 for operations where Midway has financial control. Total energy consumption increased across the group by 21 per cent compared to the previous year, with a 45 per cent increase in electricity use and a 52 per cent increase in fuel consumption observed. Increased fuel consumption was driven by the recommencement of harvest and port operations at PMP, with the Geelong mill responsible for the increase in electricity consumption. Energy intensity for PMP accounted for harvest and haul, and port and camp operations, compared to Midway and QCE, which was determined based on mill operations only. While QCE recorded an improvement in energy and greenhouse gas reductions, energy consumption activities associated with log unloading and chipping have been excluded due to management by contractor. The increase in energy consumption at the Geelong mill resulted in a 66 per cent increase in energy intensity. Greenhouse gas emissions totalled 12,270 tonnes of CO2 equivalent (Scope 1 and 2 emissions) during FY22 and represented a 22 per cent increase on the previous financial year. Midway accounted for 50 per cent of total emission, with Midway Logistics and PMP accounting for 45 per cent. The current carbon storage of plantation trees within Midway’s defined forest area is estimated to be 6.20 million tonnes of CO2 equivalent. This includes 1.21 million tonnes managed by Midway Plantations, 3.75 million tonnes managed by PMP and 1.24 million tonnes of CO2 equivalents managed by Midway Tasmania. Midway Tasmania are partnering with private landowners across Tasmania to deliver forestry carbon projects, providing landowners with the opportunity to generate sources of income through enhancing agricultural production, replanting failed or harvested plantations which would otherwise be converted to non-forest use and the creation of Australian Carbon Credit Units (ACCUs). Through these partnerships a total of 584 hectares of land will be planted and managed by Midway Tasmania as part of the 2021-2022 aggregated carbon project. The project consists of 512 hectares of land converted from short rotation hardwood plantation to long rotation (approx. 25 years) softwood plantation and 72 hectares of greenfield plantation. The 2021-2022 aggregated project is forecast to generate approximately 84,000 ACCUs each representing one tonne of carbon dioxide equivalent (tCO2-e) stored. An additional 448 hectares of land will also commence planting in 2022 as part of a 4-year harvest-replant program as a registered standalone project forecast to generate approximately 94,200 ACCUs. 14 MIDWAY LIMITEDANNUAL REPORT 2022Midway Energy and Greenhouse Gas Emissions Summary ENERGY Total energy consumption within the organisation Total electricity purchased from the grid Total fuel consumption within the organisation Energy intensity GJ/year kWh/year GJ/year MJ/GMT GREENHOUSE GAS (GHG) EMISSIONS Direct (Scope 1) GHG emissions tCO2-e/year Indirect (Scope 2) GHG emissions tCO2-e/year GHG intensity kgCO2-e/GMT Midway MWT MWL QCE PMP TOTAL FY21 26,922 32,662 FY22 FY21 3,602,140 FY22 5,322,305 13,954 FY21 FY22 FY21 FY22 FY21 FY22 FY21 FY22 FY21 FY22 13,457 31.3 52.1 979 944 3,530 5,115 5.6 9.7 800 1,434 - - 800 1,434 - 56 101 - - - 39,038 37,706 75,406 101,834 38,767 37,340 - 7,314 6,054 251,700 293,511 6,408 4,997 26.9 29,151 39,790 - - 29,151 39,790 - 22.9* 541.5** 103,225 117,646 3,929,246 5,717,650 89,080 97,018 2,727 2,628 51 70 - 450 351 204 235 2.4 2,046 2,795 - - - 2.2* 38.0 6,258 6,819 3,785 5,420 * Includes scope 3 emissions from contracted onsite chipping. ** Includes energy and emissions from harvest and haulage. Biodiversity Midway manages more than 59,000 hectares of land covering a broad geographical range including Victoria, Tasmania and the Tiwi Islands, and includes both plantation and native forests and vegetation. These areas provide habitat for a wide range of terrestrial and aquatic organisms, including species listed as rare, threatened or endemic. Midway is committed to maintenance of biodiversity values within owned or managed estate in line with third party certification schemes and standards. Midway engaged Biosis in May 2022 to conduct terrestrial and aquatic sampling of key locations within the Otways and Upper Goulburn estate to assess the impact of operations since the previous biodiversity monitoring , which was conducted in 2017. Midway is awaiting results of the report and will use the information gathered to guide future management decisions in relation to biodiversity values. Midway continued water quality monitoring in key waterways in the Otways near planned, active or completed activities in line with its biodiversity monitoring program. PMP also continued to monitor and record sightings of key threatened species, such as the Red Goshawk, Tiwi Island Masked Owl and Partridge Pigeon, in line with EPBC approval requirements. Community Initiatives 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 Midway Group is a significant employer in regional communities, through direct employees and indirect contractor employees. Our policy is to support communities in the areas where we conduct our business and where our employees and contractors 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. During the reporting period Midway provided in kind contributions to multiple community groups and organisations including the North Shore Football and Netball Club, Otway District Football and Netball Club, 1st Modewarre Scout Group and Variety Club of Victoria. This material references Disclosure 405-1 from GRI 405: Diversity and Equal Opportunity 2016, Disclosures 403-1 and 403-9 from GRI 403: Occupational Health and Safety 2018, Disclosures 302-1 and 302-3 from GRI 302: Energy 2016 Emissions, and Disclosures 305-1, 305-2 and 305-4 from GRI 305: Emissions 2016. 15 MIDWAY LIMITEDANNUAL REPORT 2022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 2022 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 Gordon Davis Gregory McCormack Nils Gunnersen Tom Gunnersen Leanne Heywood Thomas Keene Anthony McKenna Anthony Price Position Held Employment Status Independent Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Managing Director and CEO Managing Director and CEO Commenced 24 January 2022 Retired 24 January 2022 All of the Directors have been in office for the entire period unless otherwise stated. Gordon Davis B.Sc (Forestry), M.Sc (Ag), MBA Independent Non-Executive Chairman Gordon has spent most of his career in the forestry and commodities industries. He was Managing Director of AWB Limited from 2006 to 2011, and Chair of VicForests from 2011 to 2016. He has been a director of Nufarm Limited (ASX: NUF) since 2011, and Healius Limited (ASX: HLS) since 2015. Gordon was also the Chair of Greening Australia between 2014 and 2019, and was appointed Chairman of the Company from 1 May 2022. Gordon was appointed a Director in April 2016. Gregory McCormack B.Bus Non-Executive Director Greg has spent his entire career in the forest products industries. He was the Managing Director of McCormack Timbers, a timber milling and wholesale business, and was a founding Director of Midway in 1980. He has held senior positions with both the National and the Victorian Association of Forest industries (having served as President of both associations). Greg is the current President of the Australian Forest Products Association. Greg was appointed a Director in November 1997 and is a member of the Remuneration and Nomination Committee. Greg stood down as Chair of the Board on 1 May 2022. Nils Gunnersen B.Bus (Agricultural Commerce) Non-Executive Director Nils has over 25 years’ experience across the forests and wood products industry. He is a graduate of the Australian Rural Leadership Programme. He was Executive Director of Operations and then Managing Director of Gunnersen Pty Ltd, a large independent wood products importer and distributor in Australia and New Zealand (2008-2019). He is a Trustee of the JW Gottstein Trust, a charitable trust which supports education in the forest products industry. Nils is a Director of Chebmont Pty Ltd, which is a substantial holder of Midway shares. Nils is Chair of the Work Health Safety and Sustainability Committee, and was appointed a Director in October 2012. Tom Gunnersen B.A (Melb), MBA (Finance) (Bond) Non-Executive Director Tom has 20 years of corporate, investment and capital markets experience in Australia and Asia. He is a co-founder and current Director of boutique corporate advisory firm KG Capital Partners and is a Director of Chebmont Pty Ltd, which is a substantial holder of Midway shares. Previously, Tom was a Director of Equities for global investment bank Canaccord Genuity Limited during which time he was based in Hong Kong for several years. Tom is a member of the Remuneration and Nomination Committee, and was appointed a Director in February 2018. 16 MIDWAY LIMITEDANNUAL REPORT 2022 Leanne Heywood OAM, B.Bus (Acc), MBA, FCPA, GAICD Independent Non-Executive Director Leanne has broad general management experience gained through an international career in the mining sector, including 10 years with Rio Tinto. Her experience includes strategic marketing, business finance and compliance and she has led organisational restructures, disposals and acquisitions. She has been a director of Allkem Limited (ASK:AKE) since 2016, Snowy Hydro Limited since March 2022, Symbio Limited (ASX:SYM) since March 2022, Quickstep Holdings Limited (ASX:QHL) since February 2019 and is a Graduate member of the Charles Sturt University Council. Leanne is Chair of the Audit and Risk Management Committee and the Remuneration and Nomination Committee and a member of the Work Health Safety and Sustainability Committee. She was appointed a Director in March 2019. Thomas Keene B.Ec, FAICD Independent Non-Executive Director Tom has a commercial and agribusiness background, having held the position of Managing Director of GrainCorp Ltd between 1993 and 2008. In 2007, Tom was awarded the NAB Agribusiness Leader of the Year. He is a former Chairman of Allied Mills Ltd and Grain Trade Australia and a former Director of Cotton Seed Distributors Ltd. He has been a director of Australian Agricultural Company Limited (ASX: AAC) since 2011. Tom is a member of the Audit and Risk Management and the Remuneration and Nomination Committees, and was appointed a Director in August 2008. Anthony McKenna BA, MBA, CFA, GAICD Managing Director and Chief Executive Officer (appointed 24 January 2022) Tony has broad experience in private investment, M&A and agribusiness. He was Managing Director of Ruyi Australia Group, part of Shandong Ruyi Technology, a Chinese multinational group, from 2016 to 2022. During that time he was responsible for the operations of Cubbie Station, Australia’s largest cotton farm, and Lempriere Wool, an international wool processing and trading business. Prior to 2016, Tony was CEO of Lempriere Capital, a private investment group specialising in agribusiness, and Executive Director of agri funds manager Agcap. Tony was appointed Managing Director and Chief Executive Officer on 24 January 2022. Anthony Price B.Sc (Forestry), Grad. Dip. Bus Mgt, GAICD Managing Director and Chief Executive Officer (retired 24 January 2022) Tony has spent most of his career in the forestry sector, but spent some years working in the mining industry. He has held several senior management positions in the hardwood plantation sector and has also run his own consultancy business. He has attended the International Executive Programme at INSEAD in France. He is currently Chairman of Forestworks Ltd, an organisation which provides training packages to the forest industry. Tony was appointed Managing Director and Chief Executive Officer in November 2015 and retired on 24 January 2022. Company Secretary Robert Bennett B.Com, CA, FGIA Rob has many years company secretarial and governance experience with Coles Group Limited, AWB Limited, and Medibank Private Limited. 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 a Work Health Safety and Sustainability Committees (WHSSC) of the Board of Directors. Name Directors Gordon Davis Gregory McCormack Nils Gunnersen Tom Gunnersen Leanne Heywood Thomas Keene Anthony McKenna ARMC WHSSC RNC Comments       Chair WHSSC Chair ARMC | Chair RNC CEO    17 MIDWAY LIMITEDANNUAL REPORT 2022 Directors’ Report continued 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: Board ARMC RNC WHSSC Other Committees Directors Gordon Davis Nils Gunnersen Tom Gunnersen Leanne Heywood Thomas Keene Gregory McCormack Anthony McKenna Anthony Price Held Attended Held Attended Held Attended Held Attended Held Attended 20 19 3 3 3 5 3 5 – – 20 20 20 20 20 10 10 20 20 19 18 19 10 10 – 1 6 6 – – – – 1 6 6 – – – – 3 1 4 1 – – – 3 1 3 1 – – 3 – 3 – – – – 3 – 3 – – – – – – 2 – 2 1 – – – 2 – 2 1 – Principal Activities The principal activities of the Group during the 2022 financial year are based on the reportable segments of the Group as below: Reportable Segments Woodfibre Products/Services Includes primary operations whereby the Group purchases and sells both own and third party wood. 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 Other aggregated costs that are not individually significant. Operating and Finance Review Financial Results Full Year Results Impacted by Market Forces and More Recently COVID-19 Supply Chain Disruption • The Group achieved underlying earnings before interest, tax, depreciation and amortisation (EBITDA) before significant items of -$1.8 million (2021: +$14.6 million). • Underlying net profit/(loss) before tax was ($12.7 million) and underlying net profit/(loss) after tax was ($8.6 million). • No dividend will be paid in respect of full year FY22 results. Segment Performance • The Woodfibre segment faced a margin challenge during the year, as a result of adverse global market conditions including power cuts in China in the first half of the financial year, and disruption due to the COVID-19 pandemic causing unavailability of harvest and haul crews in the second half of the financial year. • Supply chain impacts due to availability of harvest and haul crews also impacted volumes in 2H22. • These impacts were partially offset by an improved sales price of US$180/BDMT being secured for calendar year 2022. • The Group was largely hedged at 0.75 cents AUD/USD, which contributed to the underlying loss position. • The Group’s share of profit from SWF is $1.0 million in FY22 (FY21: loss of $1.5 million), with sales volume increasing by 245,000 GMT. • Two shipments of woodfibre sales have been made from the Tiwi Islands in FY22, with a further seven forecast for FY23. • An announcement was made to exit the loss-making Logistics segment. 18 MIDWAY LIMITEDANNUAL REPORT 2022A summary of the financials has been provided below to the previous corresponding period: 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 Employee benefits expense Plantation management expenses Freight and shipping expense Repairs and maintenance expense Other expenses Share of net profits from equity accounted investments EBITDA – S Depreciation and amortisation EBIT – S Net finance expense Net profit before tax – S Income tax expense Net profit after tax – S Notes 1.1 4.8 2022 $’000 2021 $’000 Change 198,480 280,197 (81,717) 2,845 2,155 690 201,325 282,352 (81,027) 5,353 (12,654) (133,563) (179,675) (19,158) (19,369) (80) (199) (40,945) (40,161) (7,680) (8,050) 1,036 (1,762) (8,544) (10,306) (2,430) (12,736) 4,177 (8,559) (6,438) (7,749) (1,475) 14,632 (11,271) 3,361 (2,188) 1,173 (1,834) (661) 18,007 46,112 211 119 (784) (1,242) (301) 2,511 (16,394) 2,727 (13,667) (242) (13,909) 6,011 (7,898) 1.3 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 EBIT EBITDA Underlying NPAT – S Underlying EBITDA – S Description Earnings, before interest and tax Earnings, before interest, tax, depreciation and amortisation 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 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 19 MIDWAY LIMITEDANNUAL REPORT 2022 Directors’ Report continued Operating and Finance Review continued Reconciliation of Underlying Net Profit/(Loss) After Tax to Statutory Net Profit After Tax (NPAT) Net profit/(loss) after tax – S Net fair value increment on biological assets Non-cash interest expense (AASB 15 Strategy impact)1 JobKeeper Midway Logistics wind-down costs Impairment loss on non-current assets (BGP Investment) Restructuring costs Profit on sale of non-current assets Transaction costs incurred NPAT statutory 2022 $’000 (8,559) 4,543 (7,997) – (500) (98) – 1,361 (1,628) (12,878) 2021 $’000 (661) (1,583) (1,767) 1,410 – (1,749) (105) – (723) (5,178) Change (7,898) 6,126 (6,230) (1,410) (500) 1,651 105 1,361 (905) (7,700) 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. Reconciliation of Underlying Earnings, Before Interest, Tax, Depreciation and Amortisation to Statutory Earnings, Before Interest, Tax, Depreciation and Amortisation (EBITDA) EBITDA – S Net fair value increment/(decrement) on biological assets JobKeeper Profit/loss on sale of assets – Midway Plantations Impairment loss on non-current assets (Bio Growth Partners Pty Ltd) Midway Logistics wind-down costs Restructuring cost Transaction costs incurred EBITDA Performance Against Prior Corresponding Period Woodfibre Revenue EBITDA – S EBITDA 2022 $’000 (1,762) 6,490 – 1,943 (98) (714) – (2,326) 3,533 2021 $’000 14,632 (2,261) 2,014 – (2,269) – (149) (1,034) 10,933 Change (16,394) 8,751 (2,014) 1,943 2,171 (714) 149 (1,292) (7,400) 2022 Actual $’000 186,185 6,080 5,982 2021 Actual $’000 198,258 21,488 22,851 -6% -72% -74% 20 MIDWAY LIMITEDANNUAL REPORT 2022 The reduced EBITDA–S is attributable to reduced volume throughout the period due to adverse market conditions in 1H22 and harvest and haul disruptions due to COVID-19 in 2H22. Key points include: • Volume was down across Geelong and Midway Tasmania including third party woodfibre due to ongoing COVID-19 supply chain disruptions and wet weather. • Pricing has been set for calendar year 2022 in March 2022. The rapid increase in fuel and labour costs incurred in the Group’s subcontractor base in the second half of the year has therefore not been able to be passed on to customers. • Performance at our joint venture operations (South West Fibre) offset this somewhat; the Group’s share of profit increased by $2.5 million to $1.0 million (FY21: $1.5 million loss). Production volumes increased by 27,000 GMT. • Additionally, Plantation Management Partners shipped only two Acacia vessels for the year, leading to a $0.9 million negative EBITDA contribution. Seven vessels have been contracted for FY23, which is expected to help drive improved performance. • Other key movements include: – a 2 per cent decrease in dry fibre percentage due to adverse weather conditions throughout the eastern states; and – the AUD:USD exchange rate has fallen to 0.6889 at 30 June 2022, with the Group hedging position at 0.75, therefore exacerbating margin pressure during the year. Margins are expected to improve as the hedged position resets during the second half of FY23. Forestry Logistics Revenue EBITDA – S EBITDA 2022 Actual $’000 4,883 (2,851) (3,564) 2021 Actual $’000 4,823 (2,705) (4,473) Midway Logistics is in the process of winding down and the segment is expected to cease operations in the first half of FY23. Plantation Management Revenue EBITDA – S EBITDA 2022 Actual $’000 10,634 (2,406) 6,027 2021 Actual $’000 12,053 (2,226) (4,487) 1% -5% 20% -12% -8% 234% Improved EBITDA within the segment is driven mainly by the $6.5 million fair value increase on the treecrop. This was offset by lower volumes being produced from the estate and sold to the Woodfibre segment (intra segment sales). Financial Position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets 2022 $’000 46,109 211,066 257,175 62,930 69,447 132,377 124,798 2021 $’000 59,290 203,605 262,895 46,367 84,287 130,654 132,241 21 MIDWAY LIMITEDANNUAL REPORT 2022 Directors’ Report continued Operating and Finance Review continued Highlights • The challenging trading environment was reflected in reduced operating cash flows of negative $6.5 million (FY21: positive $22.3 million). The operating cash flow loss includes the impact of Midway Logistics in wind-down mode and $2.3 million in transaction costs primarily relating to the sale of the plantation estate. • $139.6 million of plantation land and trees on the balance sheet, valued at fair value. • No dividend declared in order to preserve cash ahead of the planned sale of the plantation estate in FY23. Net Debt Borrowings – current Borrowings – non-current Less Cash and cash equivalents Term deposit Net debt 2022 $’000 21,029 25,862 46,891 (2,969) (2,000) 41,922 2021 $’000 9,552 34,882 44,434 (12,956) – 31,478 Highlights • As at 30 June 2022, the Group was within its covenant limits. • Net debt increased as a result of operating losses and maintaining capital initiatives such as investment in Bell Bay, and repurchase of the Strategy treecrop. Outlook The Directors firmly believe that the long-term outlook for woodfibre exports into Asia, especially China and Japan, remains positive. Demand remains strong with all available volume for the remainder of calendar year 2022 contracted. Additionally, FOB pricing set on quarterly or half-yearly terms has seen significant increases, combined with new mill pulp capacity expected to come on-stream in the next 12 months, further increasing global demand at a time when competing supply from South America and Vietnam is expected to reduce. The COVID-19 pandemic continues to disrupt harvest and haul production and demand for paper used in offices, which was further exacerbated by power cuts in China during the first half of FY22. This, along with challenging geopolitical conditions, has contributed to increased costs of fuel, shipping and local labour. As a result, margins will continue to be constrained in 1H23, as the higher supply costs cannot be passed onto customers until the sales prices are renegotiated in 2H23. The global trading issues may take some time to play out, so your Directors are prudently looking at additional performance improvement initiatives and diversification strategies that may generate future revenue and earnings streams. We remain confident that there are many growth opportunities for Midway that will benefit shareholders in the longer term. 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. • COVID-19 – there is a risk the pandemic that is currently disrupting production and supply chains continues for an extended period. • 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 while costs are in AUD, any adverse exchange rate fluctuations would have an adverse effect on Midway’s future financial performance and position. 22 MIDWAY LIMITEDANNUAL REPORT 2022 • 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 which 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, which 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 – There is a risk that Midway may not be able to finalise an export sale contract rendering a vessel idle, or that a vessel cannot be chartered when needed, causing a potential shipment to be adversely impacted. • Employee recruitment and retention risk – 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, which is currently under negotiation, and therefore would need to seek access to an alternative export facility. • Fire – The loss of plantation resource and therefore supply due to fire is an ever-present industry risk. • Extreme weather events – There is a risk of extreme weather events occurring in remote regions such as the Tiwi Islands. • Geopolitical conditions – There is a risk that global political developments may adversely affect market conditions. • 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; 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 There were no dividends declared during the 2022 financial year, or since the end of the financial year. 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. Significant Changes in the State of Affairs Wind-down of Midway Logistics On 1 April 2022, the Group announced its intention to exit Midway Logistics, which is expected to be complete by September 2022. 23 MIDWAY LIMITEDANNUAL REPORT 2022Directors’ Report continued Significant Changes in the State of Affairs continued Sale of Plantation Estate • Midway has signed contracts for the sale of 17,000 hectares of its existing plantation estate in the central and south-west regions of Victoria to a special purpose vehicle (SPV) owned by clients of MEAG, Munich Re’s asset manager, for an estimated $154.1 million. • The sale will include the Group obtaining offtake rights from the plantation estate for a number of years, and also with the Group being appointed plantation manager for a minimum period of 5 years from settlement. • Settlement of the last tranche is due to occur in September 2024, with the largest tranche upfront representing the unencumbered land. • Settlement of the first stage of the transaction is expected to occur in October following necessary regulatory approvals, including the Foreign Investment Review Board (FIRB) • The SPV has also committed to invest $200 million in land acquisition for new hardwood ‘greenfield’ plantations in south-west Victoria over the next five years • The sale of the plantation estate will not be recognised as a sale until all the necessary regulatory approvals are received. Significant Events Subsequent to the End of the Financial Year Other than noted in this report, the Directors are not aware of any matter or circumstance that has arisen since 30 June 2022 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 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 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 occurred. 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 840,593 performance rights and 721,436 options to senior executives in the current financial year. The rights and options vest over a performance period ending 30 June 2024, subject to satisfaction of vesting conditions such as comparator measure of total shareholder return benchmarked against the top ASX 300 companies. • 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. 24 MIDWAY LIMITEDANNUAL REPORT 2022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 end of 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 & 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 2022 $ 2021 $ 228,000 210,000 88,717 20,420 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 26 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 2016/191 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. Gordon Davis Chairman Melbourne, 29 August 2022 25 MIDWAY LIMITEDANNUAL REPORT 2022 Auditor’s Independence Declaration 26 16 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 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 2022 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. KPMG Simon Dubois Partner Melbourne 29 August 2022 MIDWAY LIMITEDANNUAL REPORT 2022Remuneration Report (Audited) Introduction The Directors are pleased to present the FY22 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 KMP and other members of senior management. This report discloses remuneration as it relates to Executive KMP; 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 Gordon Davis Gregory McCormack Nils Gunnersen Tom Gunnersen Leanne Heywood Thomas Keene Executives Anthony McKenna Anthony Price Michael McKenzie1 Ashley Merrett2 Position Held Employment Status Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Managing Director and CEO Managing Director and CEO Acting Chief Financial Officer Chief Financial Officer Appointed 24 January 2022 Retired 24 January 2022 Appointed 11 April 2022 Personal leave from 11 April 2022 1 Michael McKenzie was appointed as Chief Financial Officer on 1 July 2022. 2 Ashley Merrett was on personal leave from 11 April 2022. 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 are designed to attract, motivate and retain highly skilled Directors and executives. 27 MIDWAY LIMITEDANNUAL REPORT 2022 Remuneration Report (Audited) continued 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 provided a benchmarking report for Non-Executive Director remuneration at a cost of $10,350. The outcomes of this review are described in the next section. The benchmarking analysis did not constitute remuneration advice or recommendations. Non-Executive Director Remuneration Objective Fees and payments to Non-Executive Directors reflect the demands that 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, while 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 $1.2 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. During the year the Remuneration and Nomination Committee engaged KPMG to provide a benchmarking report of Non-Executive Directors’ fees against a comparator group of companies. As a result of this review, the Remuneration and Nomination Committee resolved to reduce fees paid to Non-Executive Directors as highlighted in table 1.1. 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. 28 MIDWAY LIMITEDANNUAL REPORT 2022Table 1.1 Non-Executive Director Fee Structure Non-Executive Director Chair Chair – Audit and Risk Management Committee Chair – Remuneration and Nomination Committee Chair – Work, Health, Safety and Sustainability Committee Committee member 1 Revised Non-Executive Director fees applied from 1 June 2022. Board Base Fee (Previous)1 120,000 Additional Fee (Previous)1 – Board Base Fee (Current)1 90,000 Additional Fee (Current)1 – 220,000 – 180,000 – – – – 15,000 11,000 - - – – – – – 15,000 15,000 15,000 7,500 The aggregate remuneration of Non-Executive Directors for the year ended 30 June 2022 was $835,882. 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, which 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. 29 MIDWAY LIMITEDANNUAL REPORT 2022 Remuneration Report (Audited) continued 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 Board. 2022 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 Officer3 Chief Financial Officer3 Base Salary1 $ 550,000 290,000 Maximum STI $ 165,000 95,7002 Eligibility LTIP  4 Termination Notice 3 months 3 months Restraint of Trade Provisions   1 Includes superannuation and car allowances 2 Maximum STI applicable under normal contractual arrangements beginning 1 July 22. 3 Tony Price retired from the position of CEO on 24 January 2022. Ashley Merrett was on personal leave from 11 April 2022. The table above discloses information for the current CEO and CFO. 4 As at 30 June 2022 no performance rights were issued to the CFO. Performance rights will be issued in respect of the FY23 financial year. The remuneration mix is outlined below: CEO CFO Fixed At risk 75% 25% 70% 30% 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 that 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. 30 MIDWAY LIMITEDANNUAL REPORT 2022 FY22 Short-term Incentives In FY22, an offer to participate in the Short Term Incentive (STI) Plan was made to the Company’s executives including Executive KMP and other senior managers. Under the offer, employees will receive a STI payment calculated as a percentage of their TFR conditional on achieving performance measures including: • Board-approved underlying 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 FY22 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 KMP and selected senior management members Performance period Financial year ended 30 June 2022 STI is assessed against both financial and non-financial measures with the following weighting: Performance measures Measure EBITDA LTIFR Individual performance measures Payment Upon final endorsement by Board Weighting CEO 40% Weighting CFO 40% 20% 40% 20% 40% 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. $66,000) 120% (max. $38,280) 200% (max. $49,500) 200% (max. $28,710) % 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. FY22 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 2022 financial year: KMP CEO CFO 1 Based on the remuneration structure as at 1 July 2022. Maximum STI $ 165,000 95,7001 % of Maximum STI Achieved 11% 10% 31 MIDWAY LIMITEDANNUAL REPORT 2022 Remuneration Report (Audited) continued 2022 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 FY22, the Group issued performance rights to the Chief Executive Officer and Senior Executive Team. In total, 840,593 rights and 721,436 options were issued based on the conditions set out in sections (a) and (c). 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 Vesting Conditions 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. 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. 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. Loans Amendments Other terms 32 MIDWAY LIMITEDANNUAL REPORT 20222022 Long-term Incentives The LTIP offered to Midway’s Executive KMP and other senior executives is summarised below: (a) Performance Rights In FY22, the Board granted the Chief Executive Officer and members of the Senior Executive Team 840,593 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 2024. Term Eligibility Consideration for grant Instrument Number of rights granted1 Service conditions Performance period Performance measure Entitlement Restrictions Fair value at grant date2 Description Chief Executive Officer, Chief Financial Officer and members of the Senior Executive Team. Nil. 2022 plan: Performance rights issued on 1 December 2021 and 24 January 2022 (CEO only) respectively. 2021 plan: Performance rights issued on 18 December 2020. 2022 plan: CEO 89,227; other senior executives 471,659. 2021 plan: CEO 281,920; other senior executives 489,363. Participant must maintain continuous employment over the performance period. 2021 plan: 1 July 2020 to 30 June 2023. 2022 plan: 1 July 2021 to 30 June 2024. 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. 2022 plan: Rights issued 1 December 2021 ($0.89 cents); Rights issued 24 January 2022 ($0.74 cents). 2021 plan: Rights issued 18 December 2020 ($0.53 cents). 1 Under the 2022 plan, 279,707 performance rights were issued to Tony Price. 2 Represents the fair value as calculated using a Monte Carlo Simulation model which incorporates the TSR performance conditions. (b) FY20 LTI Plan The performance period ended on 30 June 2022 was subject to the performance measures outlined in the LTI Plan described in section (a) Performance Rights. Midway’s total shareholder return over the performance period between 1 July 2019 and 30 June 2022 was less than median of the comparator company’s and, as a result, 170,357 performance rights issued will not vest. 33 MIDWAY LIMITEDANNUAL REPORT 2022Remuneration Report (Audited) continued 2022 Long Term Incentives continued (c) Managing Director Options (In Lieu of Sign-on Bonus) The Board and Managing Director agreed to the one-off issue of options as a special case in lieu of any cash sign-on bonus. The options serve as an incentive for Tony McKenna to increase the Company’s earnings (which ultimately determine the share price) and to remain with the Company until at least 30 June 2024. Term Eligibility Instrument Number of options granted Description Chief Executive Officer. Options to acquire ordinary shares in Midway Limited. 721,436 options granted; 50 per cent will vest on 30 June 2023 and 50 per cent will vest on 30 June 2024. Service conditions Participant must maintain continuous employment over the period. Exercise price Exercise period Entitlement Restrictions $0.9339, being the 30-day VWAP prior to 30 June 2021. 24 months after vesting of the relevant Options. All Options (vested or otherwise) that are not exercised within the applicable exercise period will lapse upon the expiration of that period. Options will not carry rights to dividends or voting rights prior to vesting. Options will be subject to the rights and restrictions set out in the invitation and the Plan Rules. In particular, the participant may not: • dispose of any Options without the prior consent of the Board or otherwise in accordance with the Plan Rules; or • enter into any arrangement for the purpose of hedging, or otherwise affecting your economic exposure to Options. Fair value at grant date Options vesting 30 June 2023: $0.360. Options vesting 30 June 2024: $0.386. Clawback Other terms and conditions The Board has discretion to reduce or cancel the Options or may require you to repay to the Company the market value of Shares post-vesting and exercise in circumstances such as fraud, dishonesty, misconduct and financial misstatement such that the Options should not have vested or been exercised. The Board may restrict transfer of any Shares post-vesting and transfer or issue while it investigates any such circumstances. Unvested Options do not entitle the participant to receive notice of, or to attend or vote at, meetings of members of the Company or to receive any dividends on Shares. Options will not be listed on the ASX. For all other terms and conditions of the grant, refer to the Plan Rules. Upon a Change of Control, and without limiting clause 9 of the Plan Rules (Change of Control), the Options will vest immediately. (d) Previous Managing Director (Anthony Price) and Chief Financial Officer (Ashley Merrett) – Lapse of Performance Rights The outstanding performance rights carried forward by Anthony Price post termination are below. The number of performance rights carried forward reflect the pro rata service period that Anthony was employed in each performance period. Plan 2021 Plan 2022 Plan Number Held 281,920 279,707 Number Lapsed 134,395 226,624 Number to Continue 147,525 53,083 There was no lapse in any performance rights held by Ashley Merrett during the year. A decision to pro rata remaining performance rights over Ashley’s service period was taken post year end. Relationships Between Company Remuneration Policy and Company Performance The relationship between remuneration policy and Company performance is assessed for the current financial year and the prior four comparative periods. Measures set out below are not necessarily consistent with the measures used in determining variable amounts of remuneration to be awarded to KMP. As a consequence, there may not always be a direct correlation between the statutory key performance measures and the variable remuneration awarded. 34 MIDWAY LIMITEDANNUAL REPORT 2022Key Performance Indicator Net profit/(loss) after tax EBITDA Underlying EBITDA-S1 Dividend paid (cents per share) 1 Underlying figures have not been audited. FY22 Actual $’000 (12,878) 3,533 (1,762) – FY21 Actual $’000 (5,178) 10,933 14,632 – FY20 Actual $’000 (11,733) 752 13,836 – FY19 Actual $’000 26,158 50,669 37,075 18 FY18 Actual $’000 18,397 31,308 28,693 18 Other non-financial measures such as Lost Time Injury Frequency Rate (LTIFR) actual vs previous year are also taken into account when assessing the variable remuneration awarded. Key Management Personnel Remuneration The statutory remuneration disclosures for the year ended 30 June 2022 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 Non- monetary1 STI Super- annuation Other2 142,691 126,432 183,022 197,915 107,984 107,954 107,984 107,954 123,058 117,850 107,984 107,954 – 44,526 229,481 – 54,837 – 287,094 428,420 230.585 289,082 – – – – – – – – – – – – – – 18,000 – 10,000 – – 64,024 - 28,170 – – – – – – – – – – – – – – – – – – 31,045 52,704 17,896 23,000 – 2,614 18,367 18,802 10,838 10,256 10,838 10,256 12,345 11,196 10,838 10,256 – 4,230 12,058 – 5,775 – 16,192 25,010 21,410 25,010 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 6,902 – 6,566 – – 425 11,255 20,551 75,348 – – – 41,194 42,253 45,334 14,475 142,691 129,046 201,389 216,717 118,822 118,210 118,822 118,210 135,403 129,046 118,822 118,210 – 48,756 341,789 – 77,178 – 375,525 612,836 326,480 400,288 Directors Gordon Davis Gregory McCormack Nils Gunnersen Tom Gunnersen Leanne Heywood Thomas Keene Anthony Bennett Current Executives Anthony McKenna3 Michael McKenzie Former Executives Anthony Price5 Ashley Merrett4 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 1 Relates to vehicle allowance paid by the Group 2 Includes the movement in annual leave and long service leave provisions 3 Anthony McKenna was appointed as Managing Director and CEO from 24 January 2022 4 Ashley Merrett was on personal leave from 11 April 2022. Michael McKenzie was appointed as Acting CFO from 11 April 2022 and appointed as CFO on 1 July 2022. 5 Anthony Price was Managing Director and CEO until 24 January 2022 In FY22 the Group performed a benchmarking process of Directors’ remuneration against the market, leading to a reduction in Directors’ fees, applicable from 1 July 2022. Refer to page 29 for details. 35 MIDWAY LIMITEDANNUAL REPORT 2022 Remuneration Report (Audited) continued Key Management Personnel Remuneration continued Equity Instruments KMP Gregory McCormack Nils Gunnersen Tom Gunnersen Gordon Davis Leanne Heywood Thomas Keene Anthony McKenna Anthony Price1 Michael McKenzie Ashley Merrett2 1 Held at resignation date. 2 Ceased to be a KMP on 11 April 2022. Held at 1 July 2021 9,604,599 Shares Acquired – Shares Sold – Other Changes – Held at 30 June 2022 9,604,599 9,829 – 90,000 5,000 229,378 – 190,329 - 19,000 – – – – – – – - - – – – – – – – - - – – – – – – (190,329) - (19,000) 9,829 – 90,000 5,000 229,378 – – - - 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 McKenna Anthony McKenna Anthony McKenna Ashley Merrett Ashley Merrett Anthony Price Anthony Price Instrument Performance Rights Options Options Performance Rights Performance Rights Performance Rights Performance Rights Number 89,227 360,718 360,718 112,765 111.880 281,920 279,707 Grant Date 24/01/2022 24/01/2022 24/01/2022 18/12/2020 01/12/2021 18/12/2020 01/12/2021 Michael McKenzie held no performance rights or options as at 30 June 2022. % Vested in Year 0% % Forfeited in Year – Financial Year in Which Grant Vests 2024 0% 0% 0% 0% 0% 0% – – – – 48% 81% 2023 2024 2023 2024 2023 2024 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. 36 MIDWAY LIMITEDANNUAL REPORT 2022 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 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 Impairment of Non-financial Assets Section 2: Our Asset Base 2.1 Property, Plant and Equipment 2.2 Asset Held-for-sale 2.3 Biological Assets 2.4 Commitments 2.5 Leases 2.6 Working Capital 2.7 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 37 38 39 40 41 42 42 44 45 46 47 47 48 48 51 51 53 54 55 56 57 57 59 64 66 66 66 68 68 70 70 71 71 72 74 74 76 77 MIDWAY LIMITEDANNUAL REPORT 2022Consolidated Statement of Comprehensive Income For the year ended 30 June 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/(decrease) Plantation management expenses Freight and shipping expense Repairs and maintenance expense Impairment loss on non-current assets Other expenses Finance expense Finance income Net finance expense Share of net profit/(loss) from equity accounted investments Profit/(loss) before income tax expense Income tax expense benefit/(expense) Profit/(loss) 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/(loss) 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 2.1|2.7 3.1 4.2 1.3 2.1 2022 $’000 2021 $’000 198,480 280,197 4,789 4,169 203,269 284,366 5,353 (12,654) (133,563) (179,675) (8,544) (19,158) 6,490 (80) (40,945) (7,680) (98) (11,091) (11,271) (19,369) (2,261) (199) (40,161) (6,438) (2,269) (8,932) (209,316) (283,229) (13,846) (8) (13,854) 1,036 (18,865) 5,987 (12,878) (5,123) 410 (4,713) (1,475) (5,051) (127) (5,178) 9,832 11,707 (4,749) (3,487) – 95 5,178 (7,700) (12,973) 95 (12,878) (7,801) 101 (7,700) (90) (95) 8,035 2,857 (5,363) 185 (5,178) 2,678 179 2,857 ($0.15) ($0.15) ($0.06) ($0.06) The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 38 MIDWAY LIMITEDANNUAL REPORT 2022 Consolidated Balance Sheet As at 30 June Current assets Cash and cash equivalents Receivables Inventories Biological assets Current tax receivable Other assets Assets held for sale Total current assets Non-current assets Biological assets Other receivables 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 Accumulated losses Notes 3.1 2.6 2.6 2.3 2.2 2.3 4.2 2.7 2.1 2.6 3.1 3.1 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. 39 2022 $’000 2,969 10,774 20,772 2,697 – 8,583 314 46,109 45,238 7,395 11,019 1,971 604 144,839 211,066 257,175 20,653 1,698 21,029 6,908 8,940 3,702 2021 $’000 12,956 17,329 15,645 2,501 1,301 6,561 2,997 59,290 41,589 5,873 9,978 1,971 3,127 141,067 203,605 262,895 22,354 – 9,552 8,202 2,165 4,094 62,930 46,367 25,862 32,717 151 10,717 69,447 132,377 124,798 64,888 87,368 (28,741) 123,515 1,283 34,882 31,850 176 17,379 84,287 130,654 132,241 64,888 81,939 (15,768) 131,059 1,182 124,798 132,241 MIDWAY LIMITEDANNUAL REPORT 2022 Consolidated Statement of Changes in Equity For the year ended 30 June $’000 Balance as at 1 July 2020 Profit/(loss) 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 profit reserve Transactions with owners in their capacity as owners: Dividends Total other transactions Balance as at 30 June 2021 Share Capital 64,888 Reserves 73,793 Retained Earnings (10,405) Non- controlling Interests 1,843 – – – – – – – – – – – – (5,363) 11,707 (3,576) (90) 8,041 – – – (5,363) – – 105 – – 105 – – – – – 185 – (6) – 179 – – – – (840) (840) Total Equity 130,119 (5,178) 11,707 (3,582) (90) 2,857 – – 105 – (840) (735) 64,888 81,939 (15,768) 1,182 132,241 Balance as at 1 July 2021 64,888 81,939 (15,768) 1,182 132,241 Profit/(loss) 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 Transfer from asset revaluation reserve Transfers to profit reserve Transactions with owners in their capacity as owners: Dividends Total other transactions Balance as at 30 June 2022 – – – – – – – – – – – – – (12,973) 9,832 (4,660) – – – – 95 – 6 – (12,878) 9,832 (4,654) – 5,172 (12,973) 101 (7,700) – – 257 (11,238) 11,238 – 257 – – – – – – – – – – – – – – – 257 (11,238) 11,238 – 257 64,888 87,368 (28,741) 1,283 124,798 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 40 MIDWAY LIMITEDANNUAL REPORT 2022 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 paid Income tax received JobKeeper Net cash provided by operating activities 3.1 Cash flow from investing activities Payment for property, plant and equipment Proceeds from sale of fixed assets Payment for non-current biological assets Acquisition of equity accounted investees Net cash used in investing activities Cash flow from financing activities Repayment of Strategy financial liability Principal repayment of lease liabilities Dividends paid Proceeds from bank borrowings Repayment of bank borrowings Proceeds from loan receivable Investment in term deposit 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 2022 $’000 2021 $’000 206,289 268,764 (212,585) (247,511) (1,977) 1,810 – (6,463) (9,375) 20,175 (1,922) 448 9,326 (11,833) (5,399) – 14,734 (10,975) 2,623 (2,000) (1,777) 440 2,354 22,270 (3,427) 332 (2,122) – (5,217) (6,081) (5,255) (840) – (3,465) 495 – (12,850) (15,146) 12,956 (9,987) 2,969 11,049 1,907 12,956 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 41 MIDWAY LIMITEDANNUAL REPORT 2022 Notes to the Consolidated Financial Statements Section 1: Our Performance This section provides an insight into the performance of Midway and its subsidiaries including : • The Woodfibre segment was impacted in 1H22 by COVID-19 and power cuts in China. In the second half, harvest and haul disruption from COVID-19 and higher fuel costs and inflationary impacts had a negative impact on margins, which cannot be passed onto customers until the price is renegotiated for 2H23. • The Group achieved an underlying EBITDA of -$1.8 million (2021: $14.6 million). • The Board has elected to not declare a dividend in light of the current performance. 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. Reportable Segments Woodfibre Products/Services Includes primary operations whereby the Group purchases and sells both own and third party wood. SWF is also proportionally consolidated at 51 per cent for segment reporting, which reflects how management views and makes decisions of its operations. In the current year, income earned from marketing third party woodfibre has been reallocated to this category, as this is how the chief operating decision maker reviews the financial information. Forestry Logistics Forestry logistics provides support services to third parties engaged in growing woodfibre including harvest, infield chipping and haulage. Plantation Management Plantation management is the provision of silviculture services including on Group-owned trees. The segment Ancillary Represents any one-off, transactional and other non-recurring costs. also holds any Group-owned plantation land and trees. 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 cost of goods sold transactions relating to chip trading activities performed within the woodfibre segment. Management accounts are prepared on a segment basis with a 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. 42 MIDWAY LIMITEDANNUAL REPORT 2022(b) Segment Information Provided to Senior Management 2022 ($’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/(loss) on biological assets EBITDA Depreciation and amortisation EBIT Net finance expense Net profit/(loss) before tax Income tax benefit/(expense) Net profit/(loss) after tax Segment assets Equity accounted investees Capital expenditure Segment liabilities 2021 ($’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/(loss) on biological assets EBITDA Depreciation and amortisation EBIT Net finance expense Net profit/(loss) before tax Income tax benefit/(expense) Net profit/(loss) after tax Segment assets Equity accounted investees Capital expenditure Segment liabilities Woodfibre 186,185 – 4,363 190,548 – 6,080 (98) – 5,982 (7,170) (1,188) (2,389) (3,577) 1,819 (1,758) Forestry Logistics Plantation Management Ancillary Eliminations Total 4,883 – 660 5,543 – (2,851) (714) – (3,565) (1,742) (5,307) (115) (5,422) 1,613 (3,809) 2 10,632 2,008 12,642 – (2,406) 1,943 6,490 6,027 (1,544) 4,483 (11,510) (7,027) 2,091 (4,936) – – – – – (52) (2,326) – (2,378) (17) (2,395) – (2,395) 20 (2,375) 7,410 198,480 (10,632) (2,242) (5,464) 1,036 (2,533) – – (2,533) 1,929 (604) 160 (444) 444 – – 4,789 203,269 1,036 (1,762) (1,195) 6,490 3,533 (8,544) (5,011) (13,854) (18,865) 5,987 (12,878) 171,685 11,019 (10,254) (76,701) 2,864 151,069 6,254 (74,697) 257,175 – (1,870) (13,753) – (541) – – – 428 11,019 (12,237) (84,427) (3,741) 46,245 (132,377) Woodfibre 198,084 174 8,190 206,448 – 21,488 1,363 – 22,851 (9,855) 12,996 (2,205) 10,791 (3,412) 7,379 187,165 9,938 (2,591) (74,090) Forestry Logistics 4,823 Plantation Management 476 Ancillary Eliminations 76,814 – – 355 5,178 23 (2,705) (1,768) – (4,473) (2,228) (6,701) (51) (6,752) 1,359 (5,393) 11,577 320 12,373 – (2,226) – (2,261) (4,487) (1,486) (5,973) (2,646) (8,619) 2,548 (6,071) – – – – (50) (1,033) – (1,083) (17) (1,100) – (1,100) 20 (1,080) (11,751) (4,696) 60,367 (1,498) (1,875) – – (1,875) 2,315 440 189 629 (642) (13) Total 280,197 – 4,169 284,366 (1,475) 14,632 (1,438) (2,261) 10,933 (11,271) (338) (4,713) (5,051) (127) (5,178) 2,980 154,372 4,864 (86,486) 262,895 40 (489) – (615) – – – – 9,978 (3,695) (9,929) (88,611) (3,268) 45,244 (130,654) 1 EBITDA – S: Earnings before interest, tax, depreciation and amortisation, significant items and net fair value gain/(loss) on biological assets. 43 MIDWAY LIMITEDANNUAL REPORT 2022Section 1: Our Performance continued 1.1 Segment Reporting continued (c) Revenue by Geographic Region The presentation of geographical revenue is based on the geographical location of customers. 2022 Revenue by Geographic Region ($’000) Woodfibre Australia 2,204 Forestry Logistics Plantation Management 4,883 10,634 China Japan South-East Asia 98,203 85,778 – – – – – – – 186,185 4,883 10,634 Ancillary Eliminations (10,632) 39,988 (32,578) – – – – – – (3,222) 198,480 Total 7,089 138,191 53,200 – Total 7,189 210,859 60,270 1,879 2021 Revenue by Geographic Region ($’000) Woodfibre 2,079 Australia Forestry Logistics 4,823 Plantation Management 12,038 Ancillary Eliminations (11,751) – China Japan South-East Asia 115,424 78,891 1,864 198,258 – – – – – 15 4,823 12,053 – – – – 95,435 (18,621) – 65,063 280,197 For the financial year ending 30 June 2022 there were three (2021: three) 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 CIF or 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. 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, the component of revenue relating to freight and insurance should also be recognised over time (i.e. as performance obligation settled). 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 JobKeeper Profit on sale of assets (plantation land) Impairment loss on non-current assets Midway Logistics wind-down costs Restructuring cost Transactions costs1 Impact of individually significant items 2022 $’000 – 1,943 (98) (714) – (2,326) (1,195) 2021 $’000 2,014 – (2,269) – (149) (1,034) (1,438) 1 Transaction costs of $2.3 million were incurred in 2022 relating to the planned sale of the Victorian plantation estate, the sale being contingent upon approval from the Foreign Investment Review Board (FIRB). 44 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 1.3 Income Tax (a) Current Tax Reconciliation Current tax Deferred tax Over provision in prior years 2022 $’000 (5,238) (729) (20) (5,987) 2021 $’000 1,644 (1,543) 26 127 (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 receivable on profit before income tax at 30.0% (2021: 30.0%) (5,660) (1,515) – Effect of taxes in foreign jurisdictions Add tax effect of: – Unfranked dividend – Impairment on non-current assets (Bio Growth Partners) – Under provision of income tax in prior years – Other non-allowable items Less tax effect of: – Over provision for income tax in prior years – Share of (profits)/losses from joint ventures – Other Income tax expense/(benefit) attributable to profit (c) Deferred Tax Deferred tax assets Payables Biological assets Blackhole expenditure Capital losses carried forward Hedge reserve Tax losses carried forward Other Deferred tax liabilities Property, plant and equipment Net deferred tax liabilities (e) Deferred Income Tax (Revenue)/Expense Included in Income Tax Expense Comprises Decrease/(increase) in deferred tax assets (Decrease)/increase in deferred tax liabilities (f) Deferred Income Tax Related to Items Charged or Credited Directly to Equity Increase in deferred tax liabilities 45 – – – 30 – – (5,630) (20) (311) (26) (357) (5,987) 664 1,432 788 – 2,682 5,934 – 25 – 839 165 26 144 (316) – (443) – (443) 127 884 642 385 2,046 623 – 521 11,500 5,101 22,217 22,217 10,717 22,480 22,480 17,379 (465) (264) (729) (1,618) 75 (1,543) (3,514) 3,520 MIDWAY LIMITEDANNUAL REPORT 2022 Section 1: Our Performance continued 1.3 Income Tax continued 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 (DTA). The Group only recognises DTA to the extent it is probable they will be realised in the foreseeable future. 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 rights1 2022 ($0.15) ($0.15) 2021 ($0.06) ($0.06) 2022 Number 2021 Number 87,336,222 87,336,222 – – 87,336,222 87,336,222 * Diluted earnings per share is basic earnings per share adjusted for the effects of all dilutive potential ordinary shares. 1 As at 30 June 2022, 1,902,347 performance rights (2021: 970,286) were excluded from the diluted weighed average number of ordinary shares calculation because their effect would have been anti-dilutive. Basic earnings per share is calculated on the profit attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding. 46 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 1.5 Dividends Fully franked at 30% (2021: 30%) 2022 $’000 – 2021 $’000 – The balance of the franking account at 30 June 2022 is $5,125,895 (2021: $6,781,369). 1.6 Impairment of Non-financial Assets Impairment tests for all assets are performed when there is an indicator of impairment, although goodwill is tested at each reporting date. If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired, and an impairment loss is charged to the income statement. The Group’s CGUs consist of individual business units at the lowest level at which cash inflows are made including: • Midway Geelong • Queensland Commodity Exports • Midway Logistics • Midway Tasmania • Plantation Management Partners • South West Fibre • Bio Growth Partners Key Assumptions and Estimates Key assumptions and estimates used in the impairment analysis consist of: Projected Cash Flows The recoverable amount of a CGU is based on value in use calculations that are based on detailed management prepared forecasts for five years through to FY27, unless the timing of treecrop rotation profiles justifies a longer period. In the case of Plantation Management Partners, the timeframes were modelled out to 2057, reflecting the likely timeframes for the next two rotations. In the case of Midway Logistics and Bio Growth Partners, the recoverable amounts of these CGUs were considered with reference to the fair value less costs to sell of the identifiable assets within each CGU. Refer below for further commentary. Long-term Average Growth Rate A terminal growth rate of 2.2 per cent has been used and only applied to CGUs whereby it is likely they will exceed into perpetuity and there is a reasonable chance of sourcing woodfibre in each catchment whereby a CGU resides. Discount Rate The Group used a pre-tax discount rate of between 12.8 per cent and 14.4 per cent for all CGUs (2021: 11.0 per cent – 13.5 per cent). Sensitivity Analysis The Group believes any reasonable possible change in the key assumptions would not cause the carrying value of the CGUs to exceed their recoverable amount. Other Assumptions The impact of COVID-19 and global supply chain challenges on global markets is an area of uncertainty, along with future potential impacts from climate change. Midway Logistics and Bio Growth Partners The Midway Logistics and Bio Growth Partners CGUs are in the process of being wound-down. The assessment of recoverable amount led to one right of use lease asset within Midway Logistics being impaired by $0.07 million following this exercise. No other indicators of impairment were identified. FY21 Impairment of Bio Growth Partners (40 Per Cent Equity Accounted Investee) The Group has taken a writedown on carrying value in its investment in Bio Growth Partners for $2.2 million. The Group suffered from timber supply constraints and unplanned customer shut-downs in Western Australia as a result of the COVID-19 pandemic, which resulted in reduced domestic business that impacted our equity accounted investee Bio Growth Partners (BGP). Subsequent to year end, the Group purchased the remaining 60 per cent share in BGP for $1 per share. 47 MIDWAY LIMITEDANNUAL REPORT 2022 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 $10.3 million (before tax) in the current year, primarily due to increased prices for forestry land. • The Group holds biological assets for harvest of which $6.6 million relates to seedlings and $41.3 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. • Plantation land ($91.6 million) and biological assets ($47.9 million) are held on the balance sheet at fair value. As a result, any impacts from COVID-19 and current global supply chain challenges have been reflected in the independent valuations performed of these assets. 2.1 Property, Plant and Equipment Each class of property, plant and equipment is set out below: Plantation Land $’000 Freehold Land $’000 Leased Land $’000 Buildings $’000 2.5-27% Plant and Equipment $’000 3-25% Depreciation policy Year ended 30 June 2021 Opening net book amount 81,943 12,670 4,516 978 (59) (1,653) – – 2,753 723 (12) (411) – – 24,364 3,554 (273) (8,303) – – – – – – – Roading $’000 5-15% 6,891 563 Total $’000 133,137 5,818 (344) (904) (11,271) – – (2,997) 16,724 Additions Disposals Depreciation Reclassification to asset held for sale Revaluation Closing carrying amount Year ended 30 June 2022 – – – (2,997) 16,724 95,670 12,670 3,782 3,053 19,342 6,550 141,067 Opening net book amount 95,670 12,670 Additions Disposals Depreciation Reclassification to asset held for sale Revaluation Closing carrying amount – (14,362) – – – – – – 10,316 91,624 3,730 16,400 3,782 1,950 (84) (1,502) – – 3,053 4,961 - (496) – – 19,342 7,405 (1,522) (5,682) (314) – 6,550 236 – (864) 141,067 14,552 (15,968) (8,544) – – (314) 14,046 4,146 7,518 19,229 5,922 144,839 Right of use assets are included within each category of property, plant and equipment above. Refer to note 2.5 for a full breakdown of right of use assets. 48 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 (a) Key Estimates and Judgements – Fair Value Freehold land Plantation land 2022 Fair Value $’000 Valuation Technique 16,400 Market approach1 91,624 Market approach/ net present value approach1 Description of Valuation Technique The Company’s freehold land is stated at fair value. The fair value measurements of the Company’s land as at 30 June 2022 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. 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. The Group engaged an independent valuer to provide an independent valuation on an unencumbered basis as at 30 June 2022. The independent valuation is adjusted by the Directors using a discounted cash flow (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 valuation’s 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 2021. Freehold and forest plantation land has 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. The potential future impacts of COVID-19 and current global supply chain challenges remain uncertain and could impact the key estimates and judgements noted above. 2022 Plantation Land Measurement The unencumbered value of the plantation land is $91.6 million (2021: $113.0 million). The Directors have subsequently valued the land on an encumbered basis (i.e. in recognition of the existing treecrops being grown on the land, which are 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 6.75% (2021: 6.75%) 2.25% to 4.75% $0-$1,550 per hectare 2023 – 2028 49 MIDWAY LIMITEDANNUAL REPORT 2022Section 2: Our Asset Base continued 2.1 Property, Plant and Equipment continued (b) Sensitivity Analysis As at the balance date, the impact of a change of certain assumptions on the plantation land of the Group (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% 2022 2021 Increase $’000 Decrease $’000 (2,554) 2,757 (176) 2,693 (2,662) 176 Increase $’000 (3,397) 3,651 (173) Decrease $’000 3,606 (3,499) 173 A change in assumptions for the following variables may have a significant impact on the value of the portfolio dependent 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 ha applied will increase the value by $0.2 million (2021: $0.1 million), or decrease by $0.2 million (2021: $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 are 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 as an item of property, plant and equipment 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. 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. 50 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 2.2 Asset Held-for-sale Opening balance Plantation land at fair value Fixed assets Closing balance Policy Assets held-for-sale are measured at the lower of carrying amount and fair value less costs to sell. 2.3 Biological Assets Current Plantation hardwood at fair value Non-current Plantation hardwood at fair value Plantation hardwood at fair value (new plantings) (a) Reconciliation of Carrying Amount At 1 July 2021 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 2022 2022 $’000 2,997 (2,997) 314 314 2021 $’000 – 2,997 2,997 2022 $’000 2021 $’000 2,697 2,501 38,573 6,665 47,935 33,501 8,088 44,090 Biological Assets $’000 44,090 (4,645) 1,897 104 1,020 5,469 47,935 Policy Biological assets are held at fair value, with the exception of new plantings (see below). 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 3 on the fair value hierarchy. There were no transfers between level 1, 2 or 3 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 thereafter 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. 51 MIDWAY LIMITEDANNUAL REPORT 2022 Section 2: Our Asset Base continued 2.3 Biological Assets continued (b) Key Estimates and Judgements – Fair Value (Level 3) Valuation Technique Net present value approach Description of Valuation Technique An independent market valuation is performed based on a net present value (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 remeasurement 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. Significant Unobservable Inputs • Estimated future timber market prices per tonne (weighed average USD/BDMT $212.9 (2021: $205.3)). • Estimated yields per hectare (weighed average GMT/ha 216 (2021: 209)). • Estimated harvest and transportation costs (weighted average $52.1/GMT (2021: $45.7/GMT)). • Risk-adjusted discount rate 7.0% (2021: 7.5%). 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). The potential future impacts of COVID-19 and climate change remain uncertain and could impact the key estimates and judgements noted above (c) Sensitivity Analysis As at the balance date, the impact of key assumptions on the biological assets of the Group (all other things being equal) would have resulted in the following impacts in the income statement: Biological Assets Discount rate +/- 1% Expected future sales prices +/- 10% Expected future harvest and transportation costs +/- 10% Expected future changes in volume +/- 10% 2022 2021 Increase $’000 Decrease $’000 (2,017) 12,905 (7,827) 5,567 2,172 (12,905) 7,827 (5,567) Increase $’000 (1,728) 11,070 (6,560) 5,100 Decrease $’000 1,839 (11,070) 6,560 (5,100) 52 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 (d) Sale of Plantation Estate In May 2022, Midway has signed contracts for the sale of 17,000 hectares of its existing plantation estate in the central and south-west regions of Victoria to a special purpose vehicle (SPV) owned by clients of MEAG, Munich Re’s asset manager, for an estimated $154.1 million: • Settlement of the last tranche is due to occur in September 2024, with the largest tranche upfront representing the unencumbered land. • Settlement of the first stage of the transaction is expected to occur in October following necessary regulatory approvals, including the Foreign Investment Review Board (FIRB). • The SPV has also committed to invest $200 million in land acquisition for new hardwood ‘greenfield’ plantations in south-west Victoria over the next five years. • The sale of the plantation estate will not be recognised as a sale until all the necessary regulatory approvals are received. • Contingent on successful FIRB approval, the remaining treecrop currently owned by Strategy1 will be repurchased at the earliest possible point in the contract, which can occur within a five-year window, with the last tranche expected to be repurchased in September 2024. 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). The Group is progressing its plans to complete the sale of the Victorian plantation estate, which is subject to approval by the Foreign Investment Review Board. The sale will help the Group position for long-term growth, secure a $200 million greenfield investment in Victoria, and provide the Group with security of wood supply into the future. 2.4 Commitments – not later than one year – later than one year and not later than five years – later than five years 2022 $’000 27,993 64,383 54,463 2021 $’000 18,884 68,431 59,584 146,839 146,899 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. Commitments are entered into by Midway Limited, the parent entity. 1 During a prior period, Strategy Timber Pty Ltd sold its investment in the treecrop to another third party, Hancock Natural Resource Group (HNRG, who acquired the Strategy hardwood plantation trees in Victoria on behalf of its investment clients. In the current period, HNRG changed its name to Manulife. The existing arrangements in place concerning Midway’s commitment to repurchase the hardwood treecrop have been novated as a part of the sales process and as such the sale does not have any ramifications for the Group. 53 MIDWAY LIMITEDANNUAL REPORT 2022 Section 2: Our Asset Base continued 2.5 Leases (a) Right of Use Assets Right of Use Assets by Category Balance at 1 July 2020 Additions Disposal Depreciation Closing carrying amount Balance at 1 July 2021 Additions Disposal Depreciation Closing carrying amount (b) Amounts Recognised in Profit or Loss Interest on lease liabilities Expenses relating to short-term leases (c) Amounts Recognised in the Statement of Cash Flows Total cash outflows for leases Leased Land $’000 4,516 Leased Building $’000 77 Leased Property, Plant and Equipment $’000 9,948 978 (59) (1,653) 3,782 3,782 1,950 (84) (1,502) 4,146 633 (12) (199) 499 499 1 – (284) 216 780 (226) (3,446) 7,056 7,056 2,601 (1,068) (2,893) 5,696 2022 $’000 168 74 2022 $’000 5,399 Total $’000 14,541 2,391 (297) (5,298) 11,337 11,337 4,552 (1,152) (4,679) 10,058 2021 $’000 210 88 2021 $’000 5,255 Extension Options Some property leases contain extension options exercisable by the Group up to one year before the end of the non-cancellable contract period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the Group and not by the lessors. The Group assesses at lease commencement date whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control. Policy The Group recognises a right of use asset for a lease whereby there is a right to control the use of an identified asset for a period of time in exchange for consideration. At the commencement date, a right of use asset is measured at cost and a corresponding lease liability is created to reflect the present value of the lease payments that are not paid at that date, discounted using the incremental borrowing rate specific to that lease. Subsequently, the right of use assets are depreciated on a straight-line basis over the shorter of the asset’s useful life and the asset’s lease term. Lease liability is measured at amortised cost using the effective interest method. The Group will not recognise a right of use asset for any short-term or insignificant leases. 54 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 2.6 Working Capital Working Capital Cash and cash equivalents Inventories Trade and other receivables Trade and other payables Provisions (a) Inventories At cost Finished goods Work in progress Section a b c 2022 $’000 2,969 20,772 10,774 (20,653) (3,853) 10,009 2021 $’000 12,956 15,645 17,329 (22,353) (4,270) 19,307 2022 $’000 2021 $’000 20,772 15,645 – – 20,772 15,645 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. COVID-19 impacted USD FOB and CIF sale prices for woodfibre during the period. At each balance date, the Group measures inventory to ensure it is held at the lower of cost and net realisable value. No write-downs occurred as a result of this test, albeit lower prices than the previous corresponding period were used. Key Estimates and Judgements Woodfibre is purchased in Green Metric Tonnes (GMT), (fibre inclusive of moisture, and is sold in Bone Dry Metric Tonnes (BDMT), being 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 variations in moisture content. Volumetric chip stack surveys are used in determining inventory volumes at year end. Conversion from m3 to GMT ranges from 2.15 to 2.60 – the range depends upon factors such as timber species type and seasonal factors. (b) Trade and Other Receivables Trade debtors Accrued income1 GST receivable 2022 $’000 1,118 7,676 1,980 2021 $’000 9,755 5,105 2,469 10,774 17,329 1 Accrued income refers to vessel shipped in late June but not invoiced. Policy Trade and other receivables are measured at fair value and subsequently measured at amortised cost using the effective interest method. 55 MIDWAY LIMITEDANNUAL REPORT 2022 Section 2: Our Asset Base continued 2.6 Working Capital continued (c) Trade and Other Payables Unsecured liabilities Trade creditors Sundry creditors and accruals 2022 $’000 9,788 10,865 20,653 2021 $’000 9,553 12,800 22,353 Policy Financial liabilities include trade payables, other creditors and loans from third parties. 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. 2.7 Intangible Assets The reconciliation of the carrying amount is set out below: Year ended 30 June 2021 Opening net book amount Amortisation Closing carrying amount Year ended 30 June 2022 Opening net book amount Amortisation Closing carrying amount Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. Goodwill $’000 1,971 – 1,971 1,971 – 1,971 Total $’000 1,971 – 1,971 1,971 – 1,971 56 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 Section 3: Funding Structures The Group has a disciplined approach applying key principles in capital management and maximising shareholder returns. This includes: • Forward cover taken out against the USD currency fluctuations on USD denominated sales in accordance with the Group’s hedging policy to safeguard against volatility and maximise profits (see section 3.2). • Maintaining a gearing ratio, which allows flexibility in the balance sheet (<0.3). 3.1 Net Debt Bank loans – current Bank loans – non-current Hire purchase liabilities – current Hire purchase liabilities – non-current Other finance arrangements AASB 16 Lease liabilities Cash and cash equivalents Term deposit 2022 $’000 16,950 20,675 2,354 1,922 – 4,990 (2,969) (2,000) 41,922 2021 $’000 4,725 29,175 3,327 2,848 – 4,359 (12,956) – 31,478 (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. 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 (NAB) Asset finance (ANZ) Acquisition debt facility – tranche 2 Acquisition debt facility – Bell Bay Utilised $’000 19,175 17,223 2,253 250 3,000 Total $’000 19,175 34,000 Maturity 30-Sep-24 30-Jun-231 10,000 31-Dec-22 250 3,000 3-Aug-22 30-Sep-242 1 The working capital facility held by Midway Limited with NAB will reduce from $25.0 million to $15.0 million on 31 December 2022, with $0.2 million being due on that date. The remainder of the facility matures on 30 June 2023. 2 The Bell Bay acquisition debt facility matures in stages; $1.5 million matures on 30 September 2023; $1.5 million matures on 30 September 2024. The Group has the ability to enter into purchase arrangements under the asset finance facilities until expiration on 30 June 2023 (NAB) and 31 Dec 2022 (ANZ). Each outstanding finance arrangement will then be repaid within a five-year period. 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. 57 MIDWAY LIMITEDANNUAL REPORT 2022 Section 3: Funding Structures continued 3.1 Net Debt continued (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 as follows: Cash on hand Cash at bank 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 Net (gain) on disposal of property, plant and equipment Sundry movements Share of equity accounted investees profit Fair value (increment)/decrement on revaluation of biological assets Impairment of non-current assets Non-cash interest expense Changes in operating assets and liabilities (Increase)/decrease in receivables (Increase) in other assets (Increase)/decrease in inventories Increase in biological assets (net of revaluation increment/decrement) Increase/(decrease) in payables (Decrease) in deferred taxes Increase in tax provision (Decrease) in provisions Cash flows provided from operating activities 2022 $’000 1 2,968 2,969 2021 $’000 1 12,955 12,956 (12,878) (5,178) 8,544 (2,413) 326 (1,036) (6,490) 98 11,580 7,259 (1,341) (5,127) 4,566 (3,288) (8,844) 2,999 (418) (6,463) 11,271 (59) 132 1,475 2,261 2,269 2,734 (8,810) (5,852) 13,565 5,576 2,325 (1,569) 2,136 (6) 22,270 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 Interest expense on lease liabilities 2022 $’000 1,770 11,406 298 372 13,846 2021 $’000 1,503 2,935 176 509 5,123 58 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 (c) Reconciliation of Liabilities Arising from Financing Activities Balance at 1 July 2021 Cash changes Proceeds from borrowings Repayment of borrowings Total cash flows Non-cash changes Lease additions Interest Transfer Balance at 30 June 2022 Borrowings – Current $’000 9,552 Borrowings – Non- current $’000 34,882 Strategy Financial Liability – Current $’000 8,202 Strategy Financial Liability – Non-current $’000 31,850 13,234 (6,374) (6,860) 1,500 (10,000) (8,500) 2,275 156 2,186 21,029 1,666 – (2,186) 25,862 – (8,202) (8,202) – – 6,908 6,908 – (3,631) (3.631) – 11,406 (6,908) 32,717 3.2 Financial Risk Management Capital Risk Management The Group’s objectives when managing capital are 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. As part of its FY23 capital management strategy, the Group intends to execute initiatives to reduce both the Strategy liability and corporate debt. This will be funded through the sale of the Company’s plantation assets which, was announced to the Australian Security Exchange (ASX) on 12 May 2022 and remains subject to approval by the Foreign Investment Review Board (FIRB). 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 (c) Liquidity risk 59 MIDWAY LIMITEDANNUAL REPORT 2022 3.2 Financial Risk Management continued Risk Management Framework continued The Group holds the following financial instruments: Financial assets Cash and cash equivalents Receivables Other receivables Term deposit Financial liabilities Bank and other loans Creditors AASB 16 lease liabilities Finance lease liability Other payables Derivatives 2022 $’000 2,969 7,988 2,786 2,000 2021 $’000 12,956 15,628 7,574 – 15,743 36,158 37,625 33,900 9,788 4,990 4,276 10,865 8,940 76,484 9,553 4,359 6,175 12,800 2,165 68,952 (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? 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 U.S. Dollars (USD), with one of the Group’s bank accounts being in USD. How Does Midway Manage the Risk? 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. Impact at 30 June 2022 At balance date the notional amount of outstanding forward exchange contracts was $122.2 million (2021: $157.8 million), and USD options was $0 million (2021: $0.0 million). Sensitivity analysis has been performed below. Derivative assets/(liabilities) held on the balance sheet representing the fair value of cash flow hedges at balance date are as follows: Derivative assets Derivative financial liability 2022 $’000 – (8,940) 2021 $’000 – (2,165) During the period there was no (2021: $0) hedge ineffectiveness resulting in a transfer to the income statement (no transactions were over-hedged in the year). 60 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 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 Group determines the existence of an economic relationship between the hedging instrument and hedge items based on the currency and amount of timing of their respective cash flows. The Group designates the spot element of forward exchange contracts to hedge its currency risk and applies a hedge ratio of 1:1. 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. In these hedge relationships the main sources of ineffectiveness are: • the effect of the counterparties and the Group’s own credit risk on the fair value of the forward exchange contracts, which is not reflected in the change in the fair value of the hedged cash flows attributable to the change in exchange rates; and • changes in timing of the hedged transactions. All exchange differences arising on settlement or revaluation are recognised as income or expenses for the financial year. Cash Trade receivables 2022 USD $’000 392 52 2021 USD $’000 85 36 The forward exchange and swap contracts in place are to hedge cash flows associated with the above-mentioned trade receivables and highly probable 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 2022 2021 Increase $’000 (28) 2,089 Decrease $’000 31 (15,433) Increase $’000 (10) 8,663 Decrease $’000 11 (12,711) A 10 per cent change is deemed reasonable given recent historical trends in the AUD/USD. (ii) Interest Rate Risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates. What is the Risk? 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. How Does Midway Manage the Risk? 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. Impact at 30 June 2022 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. 61 MIDWAY LIMITEDANNUAL REPORT 2022 3.2 Financial Risk Management continued Risk Management Framework continued 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: 2021 Financial assets Cash Trade receivables Other receivables Financial liabilities Bank and other loans Creditors AASB 16 lease liability Finance lease liability Sundry creditors and accruals Derivatives 2022 Financial assets Cash Trade receivables Other receivables Term deposit Derivatives Financial liabilities Bank and other loans Creditors AASB 16 lease liability Finance lease liability Sundry creditors and accruals Derivatives Interest Bearing $’000 Non-interest Bearing $’000 Total Carrying Amount $’000 Weighted Average Effective Interest Rate 12,955 1 12,956 0.00% Floating – – 9,755 7,574 9,755 7,574 12,955 17,330 30,285 33,900 – 4,359 6,175 – – 44,434 2,968 – – 2,000 – 4,968 37,625 – 4,990 4,276 – – 46,891 – 33,900 2.61% Floating 9,553 – – 12,800 2,165 24,518 1 7,988 2,786 – – 9,553 4,359 6,175 12,800 2,165 68,952 2,969 1,118 9,656 2,000 – 10,775 15,743 3.98% 3.78% Fixed Fixed 0.00% Floating 0.1% Fixed – 37,625 2.64% Floating 9,788 – – 10,865 8,940 29,593 9,788 4,990 4,276 10,865 8,940 76,484 3.81% 3.83% Fixed Fixed No other financial assets or financial liabilities are expected to be exposed to interest rate risk. 62 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 (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? The Group has significant exposure to export customers in China, as they represent a significant portion of the Group’s annual sales. The Group is exposed to credit risk on plantation management activities in addition to the sale of woodfibre to customers in China. How Does Midway Manage the Risk? Letters of credit with reputable financial institutions are used to mitigate credit risk with all Chinese customers, which comprise 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. 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 to a certain extent given receipt of the debt is linked to the Group’s performance in producing and marketing the woodfibre. Impact at 30 June 2022 As at 30 June 2022, there are only receivables for one 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. $7.4 million is outstanding over 90 days relating to trade receivables from the wood owners, in addition to $0.4 million of other non-current loan receivables. The Group has begun to market woodfibre from the Tiwi islands once again and therefore no expected credit loss provision has been recorded, as the Group will be able to recover it directly from the proceeds of woodfibre sales, for which the Group is responsible for marketing the wood. Recovery is contingent on stronger forecast USD FOB woodfibre prices and a return to longer-term average fuel prices. As at 30 June 2022, 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 2022 $’000 9,767 543 5 126 7,728 18,169 2021 $’000 9,119 7,913 3 179 5,988 23,202 (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. 63 MIDWAY LIMITEDANNUAL REPORT 2022 3.2 Financial Risk Management continued (c) Liquidity Risk continued 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. <6 Months $’000 6-12 Months $’000 1-5 Years $’000 >5 Years $’000 2022 Cash and cash equivalents Loan receivables Receivables Derivatives Payables Strategy financial liability1 Finance lease Borrowings Net maturities 2021 Cash and cash equivalents Loan receivables Receivables Derivatives Payables Strategy financial liability Finance lease Borrowings Net maturities 2,969 145 10,774 – (20,653) (3,758) (3,569) (1,071) (15,163) 12,956 209 17,329 (2,165) (22,353) (4,462) (3,971) (795) (3,252) – 145 – – – (3,758) (2,277) (15,685) (21,575) – 209 – – – (4,462) (2,634) (4,220) (11,107) – 761 7,395 – – (44,975) (6,970) (20,753) (64,542) – 3,376 5,873 – – (51,225) (7,288) (29,194) (78,458) Total Contractual Cash Flows $’000 Carrying Amount $’000 2,969 1,051 2,969 874 18,169 18,169 – - – – – (17,050) (2,109) – – (20,653) (69,541) (14,925) (37,509) (19,159) (120,439) – – – – – (13,950) (2,198) – 12,956 3,794 23,202 (2,165) (22,353) (74,099) (16,091) (34,209) (16,148) (108,965) – (20,653) (39,625) (9,267) (37,625) (85,158) 12,956 3,514 23,202 (2,165) (22,353) (40,052) (10,534) (33,900) (69,332) 1 The face value of the Strategy financial liability is assumed to be paid out broadly in accordance with the expected year of harvest under the treecrop valuation. If FIRB approves the sale of the plantation estate then the Strategy financial liability will be paid out at the earliest possible point under the contract, which at this stage is expected to be completed by September 2024 and will therefore reduce the face value of the liability significantly. 3.3 Contributed Equity (a) Ordinary Share Capital Share Capital Ordinary shares Opening balance – 1 July Performance rights vested Issued during the year Capital raising costs incurred net of recognised tax benefit Number of Shares Company 2022 2021 2022 $’000 2021 $’000 87,336,222 87,336,222 – – – – – – 64,888 64,888 – – – – – – Closing balance 30 June 87,336,222 87,336,222 64,888 64,888 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. 64 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 (b) Reserves Reserves Movements: Cash flow hedge reserve1 Opening balance Cash flow hedges – effective portion Deferred tax Balance 30 June Share-based payment reserve2 Opening balance Share rights granted Share rights issued/vested Balance 30 June Asset revaluation reserve3 Opening balance Revaluation of land Asset disposals Deferred tax Balance 30 June Profit reserve4 Opening balance Transfers of current year profits Transfer of profit on disposal of land Dividends paid Balance 30 June Foreign currency translation reserve Opening balance Foreign currency translation differences Balance 30 June 1 Cash Flow Hedge Reserve 2022 $’000 2021 $’000 (1,599) (6,657) 1,997 (6,259) 117 257 – 374 48,626 14,046 (11,238) (4,214) 47,220 1,977 (5,109) 1,533 (1,599) 12 105 – 117 36,919 16,724 – (5,017) 48,626 34,875 34,875 – 11,238 – – – – 46,113 34,875 (80) – (80) 10 (90) (80) 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 profit reserve is used to record transfers of profits that would otherwise be offset against accumulated losses. The balance of the profit 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. 65 MIDWAY LIMITEDANNUAL REPORT 2022 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 Ltd Resource Management Partners Pty Ltd Plantation Management Partners Pte Ltd1 Midway Logistics Pty Ltd Midway Logistics Unit Trust Bio Growth Partners (BGP)2 Ownership Interest Held by the Company Ownership Interest Held by NCI 2022 % 2021 % 2022 % 2021 % 90 100 100 100 100 100 100 100 100 100 90 100 100 100 100 100 100 100 100 40 10 10 – – – – – – – – – – – – – – – – – – 1 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. Continued the process of liquidation during the period. 2 In July 2021, the Group acquired the remaining 60 per cent of shares in Bio Growth Partners and classified the entity as a subsidiary from that date. 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 Ltd Nature of Relationship Ordinary shares Ownership Interest Carrying Amount 2022 % 51 2021 % 51 2022 $’000 11,019 11,019 2021 $’000 9,888 9,888 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. 66 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 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. (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 benefit/(expense) Total comprehensive income Reconciliation to carrying amount of interest in joint venture: Opening net assets Add: Current year profit/(loss) Less: Dividends paid Hedge revaluation reserve Closing net assets Company’s 51 per cent share of net assets Carrying amount of investment 2022 $’000 7,025 11,718 18,743 17,378 17,393 (8,401) (6,130) 21,605 75,807 – 3,778 871 2,216 19,389 2,031 – 185 21,605 11,019 11,019 2021 $’000 3,215 12,798 16,013 16,978 18,236 (6,929) (7,931) 19,389 38,875 – (4,537) 1,259 (3,123) 22,512 (2,937) – (186) 19,389 9,888 9,888 67 MIDWAY LIMITEDANNUAL REPORT 2022 Section 4: Other Disclosures continued 4.3 Midway Limited – Parent Entity Summarised Balance Sheet Assets Current assets1 Non-current assets1 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 2022 $’000 2021 $’000 74,638 76,702 94,966 75,336 151,340 170,302 40,526 11,033 51,559 99,781 64,888 1,614 33,279 99,781 23,054 27,569 50,623 119,679 64,888 1,614 53,177 119,679 (17,085) (19,898) 9,672 6,146 1 During the year, the parent entity fully impaired its holding in Midway Logistics by $1.5 million and the loan receivable from the same entity of $12.1 million as recoverability of the balances was not considered likely given Midway Logistics is currently in wind-down. 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 that 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) Long-term Incentive Rights (Equity Settled) In FY22, the Board granted the Chief Executive Officer and members of the Senior Executive Team 751,366 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 2024. 68 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 2022 Plan Assumption No. of shares Fair value at grant date1 Share price Risk free rate Dividend yield Volatility Initial TSR Vesting Conditions • Participant must maintain continuous employment over the performance period, which ends 30 June 2024. • The percentage of performance rights that will vest at the end of the performance period will depend on Midway’s total shareholder return (TSR) over the performance period, relative to a comparator group of companies in the S&P/ASX 300 Index. 751,366 $0.89 $1.22 0.77% 3.0% 50.0% 34.3% Additionally in FY22, the Board granted the Chief Executive Officer 89,227 performance rights and 721,436 options, subject to vesting conditions (see below). Following satisfaction of the vesting conditions, the rights will automatically vest and the underlying shares will be issued, with a performance period to 30 June 2024. The options will be exercisable for 24 months after the relevant vesting date. 2022 Plan – CEO Assumption No. of shares Fair value at grant date1 Share price Risk free rate Dividend yield Volatility Initial TSR Vesting Conditions • Participant must maintain continuous employment over the performance period, which ends 30 June 2024. • The percentage of performance rights that will vest at the end of the performance period will depend on Midway’s total shareholder return (TSR) over the performance period, relative to a comparator group of companies in the S&P/ASX 300 Index. 751,366 $0.89 $1.22 0.77% 3.0% 50.0% 34.3% Assumption No. of shares Fair value at grant date1,2 Share price Exercise price Risk free rate Dividend yield Volatility Initial TSR Options Vesting 30 June 2023 360,718 Options Vesting 30 June 2024 360,718 Performance Rights 89,227 $0.36 $1.06 $0.94 0.99% 3.0% 50.0% 16.6% $0.39 $1.06 $0.94 0.99% 3.0% 50.0% 16.6% $0.74 $1.06 N/A 0.99% 3.0% 50.0% 16.6% Vesting Conditions Participant must maintain continuous employment over the performance period, which ends 30 June 2023 (for the initial options granted) and 30 June 2024 (for performance rights and remaining options). The percentage of performance rights that will vest at the end of the performance period will depend on Midway’s total shareholder return (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 $0.2 million in 2022 (2021: $0.1 million). 1 The fair value of performance rights at grant date was derived using the Monte Carlo Simulation model which incorporates the total shareholder return (TSR) performance conditions. 2 The options have no market-based performance hurdle and therefore they have been valued using the Binomial method. 2021 Plan Assumption No. of shares Fair value at grant date1 Share price Risk free rate Dividend yield Volatility Initial TSR Vesting Conditions 771,283 $0.53 $0.90 0.11% 3.0% 46.0% 8.4% Participant must maintain continuous employment over the performance period, which ends 30 June 2023. The percentage of performance rights that will vest at the end of the performance period will depend on Midway’s total shareholder return (TSR) over the performance period, relative to a comparator group of companies in the S&P/ASX 300 Index. 1 The fair value at grant date was derived using the Monte Carlo Simulation model, which incorporates the total shareholder return (TSR) performance conditions. 69 MIDWAY LIMITEDANNUAL REPORT 2022 Section 4: Other Disclosures continued 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 2022 $’000 1,652 125 162 25 1,964 2021 $’000 1,696 118 – 21 1,835 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 two days to year end to 30 June 2022. The aggregate shareholdings of KMP at 30 June 2022 are 9,938,806 (2021: 10,148,135). (b) Transactions with South West Fibre Pty Ltd Nature Operator fee income Reimbursement of costs Dividends received Sale of wood products (at cost) 2022 $’000 1,145 1,042 – 9,737 11,924 2021 $’000 548 291 – 5,225 6,064 The outstanding receivable balance from South West Fibre Pty Ltd at 30 June 2022 is $0.4 million (2021: $0.06 million receivable). 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. As part of the wind-down of Midway Logistics and Bio Growth Partners, the Group is currently in negotiations with various parties to reassign or exit existing contracts. At this stage, it is not possible to provide a reasonable or accurate assessment of the Group’s potential exposure as a result of this process, if any. (b) Bank Guarantees Consolidated group Limit Amount utilised Parent entity Limit Amount utilised 2022 $’000 6,200 2,286 5,250 2,061 2021 $’000 5,200 2,276 4,250 2,051 70 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 4.7 Remuneration of Auditors KPMG Australia Audit and assurance services – Statutory audit fees Other services 2022 $ 2021 $ 228,000 210,000 – Non-assurance services – other advisory services 88,717 20,420 4.8 Other Income Plantation management fees SWF operating fee JobKeeper Other Policy 2022 $’000 127 1,145 – 3,517 4,789 2021 $’000 48 548 2,014 1,559 4,169 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). 71 MIDWAY LIMITEDANNUAL REPORT 2022 Section 4: Other Disclosures continued 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 that are a party to the Deed of Cross Guarantee, after eliminating all transactions between parties to the Deed, at 30 June 2022 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/(loss) for the year Transfers to/(from) reserves Retained profits at the end of the financial year 2022 $’000 162,662 4,178 166,840 2021 $’000 243,679 11,364 255,043 (195,811) (248,432) (1,036) (27,935) 4,787 (23,148) 5,172 (17,976) (5,233) (23,148) – (28,381) (1,475) 5,136 (694) 4,442 8,131 12,573 1,614 4,442 – (5,233) 72 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022 Consolidated Balance Sheet Current assets Cash and cash equivalents Receivables1 Inventories Biological assets Other assets Asset held for sale Current tax receivable Total current assets Non-current assets Biological assets Other receivables Investments1 Property, plant and equipment Loan receivables – NC Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Provisions Strategy financial liability Current tax liability Derivative financial liability 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 2022 $’000 1,991 9,953 15,467 2,697 8,222 314 – 38,644 45,238 7,395 17,251 2021 $’000 11,823 16,406 10,475 2,500 14,585 2,997 2,027 60,813 41,589 5,873 17,753 140,810 135,934 604 211,299 249,942 3,127 204,276 265,089 17,805 20,576 3,547 6,908 1,867 8,940 59,643 25,478 131 9,820 32,717 68,146 127,789 122,153 19,407 8,664 3,770 8,202 – 2,076 42,119 34,128 159 16,427 31,850 82,564 124,683 140,406 64,888 51,209 6,056 64,888 85,193 (9,675) 122,153 140,406 1 During the year, Midway Limited fully impaired its holding in Midway Logistics by $1.5 million and the loan receivable from the same entity of $12.1 million as recoverability of the balances was not considered likely given Midway Logistics is currently in wind-down. 73 MIDWAY LIMITEDANNUAL REPORT 2022 Section 4: Other Disclosures continued 4.10 Subsequent Events There have been no other matters or circumstances that have arisen since 30 June 2022 that have significantly affected or may significantly affect: (a) the operations, in financial years subsequent to 30 June 2022, of the Group; or (b) the results of those operations; or (c) the state of affairs, in financial years subsequent to 30 June 2022 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. The financial statements have been prepared on a going concern basis and the Directors consider that there are reasonable grounds to believe the Group will be able to pay its debts as and when they fall due based on forecast operating cash flows, their debt funding position and capital management strategy. The Directors have considered forecast cash flow scenarios (including adverse downside scenarios if FIRB approval not being received for the sale of plantation assets) for at least the 12 month period from the date of approval of these financial statements. As a result, the Directors consider that the Group is able to pay its debts as and when they are due and these financial statements can be prepared on a going concern basis. Further details of the Group’s capital risk management strategy has been outlined in note 3.2. 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 that 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 derecognised 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. 74 Notes to the Consolidated Financial Statements continuedMIDWAY LIMITEDANNUAL REPORT 2022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. 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 Not Yet Effective 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. 75 MIDWAY LIMITEDANNUAL REPORT 2022Directors’ Declaration The Directors of the Company declare that: 1. The consolidated financial statements and notes, as set out on pages 38 to 75 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 4.11, 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 and the Group as at 30 June 2022 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. Gordon Davis Chairman 29 August 2022 76 MIDWAY LIMITEDANNUAL REPORT 2022 Independent Auditor’s Report 77 MIDWAY LIMITEDANNUAL REPORT 2022Independent Auditor’s Report continued 78 MIDWAY LIMITEDANNUAL REPORT 202279 MIDWAY LIMITEDANNUAL REPORT 2022Independent Auditor’s Report continued 80 MIDWAY LIMITEDANNUAL REPORT 202281 MIDWAY LIMITEDANNUAL REPORT 2022Additional Shareholder Information For the year ended 30 June 2022 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 31 August 2022 (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 (Fourth 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 SANDON CAPITAL PTY LTD Number of Shares Held 20,798,294 9,604,599 7,366,218 % of Total Issued Share Capital 23.81 11.00 8.43 Voting Rights 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. The performance rights and options, which are unquoted, have no voting rights. 82 MIDWAY LIMITEDANNUAL REPORT 2022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 Distribution of Performance Rights Holdings Ranges 10,001 to 100,000 100,001 and over Total Distribution of options Holdings Ranges 100,001 and over Total Number of Holders Total Ordinary Shares 311 391 269 380 74 1,425 150,667 1,131,469 2,082,315 10,900,173 73,071,598 87,336,222 Number of Holders Total Performance Rights 2 6 8 143,749 1,037,162 1,180,911 Number of Holders Total Options 1 1 721,436 721,436 % 0.17 1.30 2.38 12.48 83.67 100.00 % 12.17 87.83 100.00 % 100.00 100.00 Less Than Marketable Parcels of Ordinary 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 Parcel Size Minimum $500.00 parcel at $0.9150 per unit 547 Holders 177 Units 38,890 83 MIDWAY LIMITEDANNUAL REPORT 2022Additional Shareholder Information continued 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 Number of Shares % 20,798,294 23.81 1 2 3 4 5 6 7 8 8 10 11 12 13 14 15 16 17 18 19 20 CHEBMONT PTY LTD CITICORP NOMINEES PTY LIMITED ONE FUND SERVICES LTD MCCORMACK TIMBERS PTY LTD MCCORMACK TIMBER HOLDINGS PTY LTD W.H. BENNETT & SONS PTY LTD MR GREGORY HENRY MCCORMACK + MRS JOCELYN LORNA DELAFIELD MCCORMACK LUSHERI FARMING PTY LTD M & M MURNANE HOLDINGS PTY LTD BNP PARIBAS NOMS PTY LTD NATIONAL NOMINEES LIMITED ONE MANAGED INVT FUNDS LTD JR MICAH PTY LTD J & J CORRIGAN NOMINEES PTY LTD 4,988,411 3,017,029 2,913,152 2,893,036 2,560,356 2,460,000 2,344,263 2,344,263 2,274,856 2,265,141 2,075,666 2,013,194 1,513,530 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 1,449,009 MCCORMACK TIMBERS PTY LTD EMINENT ASSET MANAGEMENT PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED ESTATE LATE ESMA CLARA THIELE + ESTATE LATE MURRAY EDWARD THIELE JANAKIS PTY LTD 1,338,411 1,000,000 992,159 916,843 650,215 5.71 3.45 3.34 3.31 2.93 2.82 2.68 2.68 2.60 2.59 2.38 2.31 1.73 1.66 1.53 1.15 1.14 1.05 0.74 Total 60,807,828 Balance of register 26,528,394 Grand total 87,336,222 69.62 30.38 100 Stock Exchange Listing The Company’s ordinary shares are quoted on the Australian Securities Exchange (ASX) (ASX issuer code: MWY). On-market Buy-back The Company is not currently conducting an on-market buy-back. 84 MIDWAY LIMITEDANNUAL REPORT 2022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 Gordon Davis (Chairman and Non-Executive Director) Gregory McCormack (Non-Executive Director) Nils Gunnersen (Non-Executive Director) Tom Gunnersen (Non-Executive Director) Leanne Heywood (Non-Executive Director) Thomas Keene (Non-Executive Director) Anthony McKenna (Managing Director and Chief Executive Officer) 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) 85 MIDWAY LIMITEDANNUAL REPORT 2022midwaylimited.com.au 

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