Future of Mackay Sugar Mac Mackay ay Sugar ar L Ltd Nordzucker - - PowerPoint PPT Presentation

Future of Mackay Sugar

Strictly Private and Confidential

Mac Mackay ay Sugar ar L Ltd

Nordzucker Proposal

Shareh eholder er Briefing ng

19 9 February 201 2019

Strictly Private and Confidential | Slide 4 of 42

Mackay Sugar

Nordzucker - Mackay Sugar Comparison

Unlisted Public Company Unlisted Public Company Amalgamation of Grower Companies Amalgamation of Grower Cooperatives Mostly grower shareholders, some non-grower shareholders Mostly grower shareholders, some non-grower shareholders Refined sugar products, ethanol, animal feed Raw sugar, molasses, electricity, refinery investment 17Mt beet, 2.7Mt sugar, 130ML ethanol 5Mt cane, 0.7Mt sugar, 190kt molasses, electricity 150GWh First season 1838 First season 1867

Strictly Private and Confidential | Slide 5 of 42

Mackay Sugar

Sug ugar prod

• duc

uction and nd reve evenue

Sugar Production

In millions of tonnes

Consolidated Revenues

In AUD m

2.5 2.9 2.0 2.5 2.7 0.8 0.9 0.9 0.9 0.8 1 2 3 4 2013/14 2014/15 2015/16 2016/17 2017/18

Nordzucker MSL

3,648 2,679 2,441 2,359 2,584 407 430 475 433 499

• 1,000

2,000 3,000 4,000 2013/14 2014/15 2015/16 2016/17 2017/18

Nordzucker MSL

Note: 2013/14 2014/15 2015/16 2016/17 2017/18 Conversion AUD/EURO 1.55 1.44 1.52 1.38 1.57

Strictly Private and Confidential | Slide 6 of 42

Mackay Sugar

The Nordzucker Supervisory Board

Supervisory Board

• Members

15 – Shareholder representatives 10 – Employee representatives 5 Chairman of the Board

• Jochen Johannes Juister

Member since 2007 Chairman since August 2018

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Mackay Sugar

Nordzucker Executive Board

• Dr. Lars Gorissen

Chief Executive Officer

Axel Aumüller

Chief Operating Officer

Alexander Bott

Chief Financial Officer

Erik Bertelsen

Chief Marketing Officer

Strictly Private and Confidential | Slide 8 of 42

Mackay Sugar

Headquarter in Braunschweig Sugar factories and refineries

Nordzucker locations in Europe

• Active throughout Europe in 7 countries
• 18 locations, 13 sugar factories

Germany Poland Slovakia Lithuania Denmark Sweden Finland

Strictly Private and Confidential | Slide 9 of 42

Mackay Sugar

Beet vs cane yields

Average Sugar Yield

Tonnes per hectare 11 13 12 13 12 12 12 11 12 11 4 8 12 16 2013/14 2014/15 2015/16 2016/17 2017/18 Nordzucker MSL

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Mackay Sugar

Key statistics

2.7MT

Sugar

3,200

Employees

EUR88.9m

Investments

130,000m3

Bioethanol

17MT

beets

Strictly Private and Confidential | Slide 11 of 42

Mackay Sugar

Automated harvesters

Sugar factory Clauen

Strictly Private and Confidential | Slide 12 of 42

Mackay Sugar

Beet loader

Strictly Private and Confidential | Slide 13 of 42

Mackay Sugar

Sugar Beets

Sliced Sugar Beets Sugar Beets

Strictly Private and Confidential | Slide 14 of 42

Mackay Sugar

White sugar storage

Sugar factory Klein Wanzleben

Strictly Private and Confidential | Slide 15 of 42

Mackay Sugar

Clean and well maintained old factories

Sugar factory Uelzen

Mac Mackay ay Sugar ar’s C Current S Situat ation

Strictly Private and Confidential | Slide 17 of 42

Mackay Sugar

Need recapitalisation

• Net Debt $179m end May 2018 including STL
• Mill condition is poor and will deteriorate further
• Mackay Sugar future is uncertain without a significant injection of funds
• Need cash injection from new shareholder or growers

Restructure debt Invest in Mills

+

Need funds for both

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Mackay Sugar

64 22 173 213 179 6 44

• 13

16 5

• 11
• 1

1

• 11
• 40

60 160 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 A$’m

Net Debt vs “Normalised” Profit A$M

Why can’t we trade out of this situation?

Normalised profit excludes revaluations and impairments

Cogen Mossman Net debt Normalised Profit

Strictly Private and Confidential | Slide 19 of 42

Mackay Sugar

64 22 213 179 6 44

• 13

16 5

• 11
• 1

1

• 11

91% 88% 83% 74% 79% 83%

70.0 % 75.0 % 80.0 % 85.0 % 90.0 % 95.0 %

• 40

60 160 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Reliability A$’m

Factory Reliability

Factory reliability has fallen from 91% to 83%

Normalised profit excludes revaluations

Cogen

Mossman

Net debt

Reliability

Normalised Profit

Strictly Private and Confidential | Slide 20 of 42

Mackay Sugar

Crushing rate has fallen from 1700t/hr to 1500t/hr

1,651 1,730 1,695 1,654 1,492

91% 88% 83% 83% 74% 83%

70.0 % 75.0 % 80.0 % 85.0 % 90.0 % 95.0 %

1400 1500 1600 1700 1800 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 A$’m

Crush Rate and Reliability, loss of 800,000 tonnes capacity!

Reliability Rate t/hr

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Mackay Sugar

The prize is having investment to restore the mills

1,488 1,573 1,388 1,386 1,233

1000 1100 1200 1300 1400 1500 1600 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 A$’m

Net Crushing Rate (rate x reliability) t/hr

Net Crush Rate With Investment +800kt

Strictly Private and Confidential | Slide 22 of 42

Mackay Sugar

Why can’t we trade out of this situation?

• Cogen and Mossman increased debt significantly
• We have not met expected returns
• Both growers and MSL have had mixed years of crop and price, low part of the cycle
• Factories need a lot of investment
• Insufficient cashflow to reduce debt and invest in the mills
• The path forward is to invest in the mills to capture 800kt of capacity and restructure

the debt

• Restore grower confidence

Our ur O Options

• ns

Strictly Private and Confidential | Slide 24 of 42

Mackay Sugar

Current options going forward

Nordzucker significant investment Restructure debt Pay back $2/t Mill investment MSL recapitalised New direction Plan A Bank Review Possible Administration Business in limbo Downward pressure

• n cane volume and

mill performance Plan B Another bidder? Unlikely Plan X

A A Bank nker er’s View | | Geo Geoff Gr Gree een

Strictly Private and Confidential | Slide 26 of 42

Mackay Sugar

Banker’s view of the current position

• MSL appears to be high risk:
• Losses in each of the last four years, totalling $93 million including impairments.
• Auditor highlights $157m deficiency in net current assets.
• Directors’ determination that identifies “uncertainty” about whether MSL can continue as

a going concern, auditor confirms.

• Need for significant investment in plant:
• Farleigh availability

“well below the desired performance”

• Marian availability

“better but still not satisfactory”

• Racecourse availability

“disappointing”

• Mossman availability also down
• Is this business in a downwards spiral?

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Mackay Sugar

Banker’s view of funding for investment

Options are: 1. Additional debt

• Who would provide it? – Not the current lenders!
• On what terms and security and interest rate?

2. Extend or increase the current grower levy to cover all losses 3. Equity investment from an external party Becomes even harder to support additional or extended funding if an equity investor solution was available but “rejected.”

Strictly Private and Confidential | Slide 28 of 42

Mackay Sugar

Longer term options available to lenders

• Worst case:

appoint receivers

• Give MSL 12 months notice to refinance or set up permanent grower levies to offset

losses

• Selling the debt is possible if there is a default.

The “new lender” may not be concerned by the current political environment

• Extend facilities but decline to provide any additional finance to fix the mills. How will

the vital investment be funded then?

Nordzuc ucker P Proposal

Strictly Private and Confidential | Slide 30 of 42

Mackay Sugar

Nordzucker Proposal

• The Nordzucker Supervisory Board and Nordzucker Executive Board unanimously

support the transaction

• Agreement between MSL and NZ is binding but conditional on MSL shareholder

approval and other conditions

• The MSL Board unanimously support the proposal subject to Independent Experts

Report

• 2 documents govern the proposal
• Share Subscription Agreement (SSA)
• New Constitution

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Mackay Sugar

Share Subscription Agreement (SSA) (1/2)

• SSA sets out the elements of the deal
• NZ are issued new converting preference shares to take them to 70% shareholding in MSL.

Existing shareholders retain 30%. NZ will have control of the company.

• NZ contribute
• $60m for equity
• Up to $60m as a NZ shareholder loan (growers do not contribute)
• The financiers continue with term loans, seasonal loan facilities and may contribute to a new

Capital Works Loan

• Restructure debt and invest in improving the mills
• The $2/t levy will be repaid over 2 years, first payment 50% up to $10m 1 month after

finalisation; second payment (remainder) 12 months later

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Mackay Sugar

Share Subscription Agreement (SSA) (2/2)

• SSA sets out the conditions that need to be satisfied prior to finalising the deal, including;
• Foreign Investment Review Board approval
• Agreement with the MSL financiers on the terms and conditions of on-going sources of

funding

• Mossman Mill not being part of MSL
• Growers approving a change back to CCS cane payment formula
• Change of control consent for our operational agreements
• Normal requirements around no material change
• Finally, 75% acceptance by MSL grower and investment shareholders
• If a condition is not satisfied NZ has the option to walk away

Strictly Private and Confidential | Slide 33 of 42

Mackay Sugar

MSL’s new Constitution

• A new constitution has been drafted
• Standard constitution adjusted for the structure of MSL going forward

Strictly Private and Confidential | Slide 34 of 42

Mackay Sugar

Constitution - Directors

• The Board will have a minimum of 6 and maximum of 8 directors
• All of the existing Board of MSL will resign
• NZ appoints the chairman + 2 NZ directors, can appoint up to 5
• Active growers nominate for a position on the Board (3 in total)
• Subcommittee of the board selects the 3 grower directors (no election) and

appoints deputy chairman

• Grower directors have a 3 year term

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Mackay Sugar

Constitution - Sale and transfer of shares

• Shares can be transferred to an active Grower or NZ without restriction
• Shares can be listed with a sell price on a register, for sale over a notice period of 30
• days. Only active growers or NZ can purchase the shares on the register
• After 30 days if no purchaser, shares can be sold to a third party but only at no lesser

price and no other favourable inducements

• NZ will have freedom to sell their shares
• The aim is to keep as many of the non-NZ shares in the hands of active growers but

recognise that there are dry shareholders

• Dry shareholders are not forced to sell their shares

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Mackay Sugar

Constitution - Rese serve ved ma d matters

• Special Matters requiring a Grower’s Special Majority Resolution which require
• 75% approval of all voted shares in the company (including NZ) and
• 50% of the active grower shares which are voted

Special Matters

• Amending the constitution
• Material change in the nature of the business (eg buying the Racecourse)
• Winding up the company
• Changing rights attached to shares
• Changing procedures to appoint or remove Grower directors
• Issue of new shares without offering to all existing shareholders
• Issue of preference or converting shares other than the initial NZ converting preference shares
• Listing the company on a stock exchange

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Mackay Sugar

Constitution - NZ Conve verting g Preference ce Shares

• NZ shares will initially be converting preference shares
• Once MSL is in a position to pay dividends, non-NZ shareholders will forgo their first $10m of

dividends to NZ

• After the $10m, NZ shares convert to ordinary shares (same as others) and dividends are

allocated equally to all ordinary shares

• An example for illustration

Year NZ Dividend MSL Shareholder Total Dividend 7 $7M $3M $10M 8 $14M $6M $20M 9 $2.333M $1M $10M 9 remainder $4.666M $2M 10 $14M $6M $20M

$10M

NZ preference shares convert to

• rdinary shares

Strictly Private and Confidential | Slide 38 of 42

Mackay Sugar

Independent advice

• MSL has engaged Crowe Horwath to provide an Independent Expert’s Report which

will set out their opinion on the merits of the transaction

• This will be made available to shareholders with the notice of meeting and an

Explanatory Memorandum

• Some grower organisations are also seeking independent advice for their members

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Mackay Sugar

Timing - Provisional timetable depending upon progress

8 Feb Share Subscription Agreement signed NZ and MSL 18 Feb Discussion with local accountants and lawyers 19 Feb MECC information meeting (tonight) 20 - 22 Feb Shed meetings 25 - 27 Feb Small group Q & A meetings 7 - 12 Mar NZ Management at shed meetings to talk with growers and shareholders Late Mar Notice of Extraordinary General Meeting Feb - end Mar Satisfy Conditions Precedent - any delays could delay the voting Apr MSL extraordinary general meeting to vote on the proposal provided conditions precedent are adequately addressed 8 Feb Share Subscription Agreement signed NZ and MSL 18 Feb Discussion with local accountants and lawyers 19 Feb MECC information meeting (tonight) 20 - 22 Feb Shed meetings 25 - 27 Feb Small group Q & A meetings 7 - 12 Mar NZ Management at shed meetings to talk with growers and shareholders Late Mar Notice of Extraordinary General Meeting Feb - end Mar Satisfy Conditions Precedent - any delays could delay the voting Apr MSL extraordinary general meeting to vote on the proposal provided conditions precedent are adequately addressed

Strictly Private and Confidential | Slide 40 of 42

Mackay Sugar

Some common questions we have been asked

1. Will existing shareholders have to match NZ’s shareholder loan?

• NO

2. Where will the cash injection go?

• Restructure the debt
• Capital work in the mills
• Reserves

3. What happens to the existing bank loans?

• The existing 2 x $50M become 5 year term loans
• New loans from the banks will be provided for capex

4. If we vote down the proposal, will we have another chance to vote?

• Voting it down will be a signal to NZ there is not strong support
• Unlikely to be a second vote:
• Nordzucker walk away
• Possible administration
• Unlikely some key management will stay. We risk loss of key workforce skills

Strictly Private and Confidential | Slide 41 of 42

Mackay Sugar

Some common questions we have been asked

5. Can we trade out of this?

• The debt is unsustainably high and banks will not let it go higher if we are on our own
• Growers will have to fund all mill losses via permanent levies (~$4-$7/t cane in difficult

years)

• Growers will have to fund more capital to improve the mills (an extra $70M+)
• Reasonable risk that the crop size will fall causing further decline in profit for everyone
• The board’s view is that trading out is unlikely with the debt and mill condition we have

6. Are existing shareholders liable for MSL’s current or future debt?

• No
• The company Mackay Sugar has the debt
• Mackay sugar is a limited liability company, so shareholders are not liable for the debt
• The company needs to manage and repay the debt
• The secured creditors (banks) have a higher level of control than other creditors (unsecured)
• The NZ shareholder loan is unsecured, subordinate to the bank loans

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Mackay Sugar

Some common questions we have been asked

7. Why does NZ not want 100%?

• They are a grower owned company
• They want Mackay growers to continue with some shareholding in the company

8. What is in it for the dry shareholders?

• Tradable shares
• Business is focussed on returning to profit through capital injection and shareholder loan,

giving us the cash to improve the mills

• Returning to profitability will create/increase share value over time

9. Can young growers buy shares?

• Yes. Either directly from other shareholders or from the shares for sale register
• 10. Who is in control of the business day to day?
• The MSL Board and senior management. NZ directors have majority (70%) voting power
• n the board

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Mackay Sugar

Some common questions we have been asked

• 11. How long will it take to fix the mills?
• The first significant investments in the mills will be in the next maintenance season before

2020 season. We expect 3-5 years to get to good performance

• Each year should see improvement as the capex works are completed (3-5 years depending
• n cash flows)
• Improving rate and reliability will give us 800kt tonnes of extra crushing capacity
• Focus on improving mill assets quickly to capture future sugar price increase
• NZ will not get a return on their equity until MSL is profitable. So their interest is aligned to

existing shareholders

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Mackay Sugar

$137M of major works, examples include..

• Farleigh
• New evaporator

$3.0M

• High pressure steam pipework

$2.4M

• New airheater on boiler

$1.7M

• Marian
• High grade fugal station

$4.1M

• Cooling tower

$3.5M

• Evaporators

$3.0M

• Racecourse
• Electrify Shredder

$3.0M

• Boiler 3 airheater and ducting

$2.7M

• Cooling tower

$1.5M

• Rolling stock
• Wheels and couplings

$3.0M

• Bin replacement

$2.9M

• Tramways
• Constant Ck Embankment

$2.2M

• Bridges

$1.5M

Strictly Private and Confidential | Slide 45 of 42

Mackay Sugar

Some common questions we have been asked

• 12. Will us growers have to pay back the $60M Nordzucker shareholder loan with levies?
• No. The loan is from NZ to Mackay Sugar which is a limited liability company.
• You are not liable for any of the Mackay Sugar loans
• Mackay Sugar will have to pay back the loan in the future when it generates profits

Strictly Private and Confidential | Slide 46 of 42

Mackay Sugar

Summary

• This is an important decision for MSL’s future. It will ultimately be up to

the shareholders.

• We must get a 75% approval to accept the proposal
• MSL’s mills need significant refurbishment
• MSL’s debt needs restructuring
• The board’s view is that it is highly unlikely MSL will be able to trade it’s

way out of this situation and restore the assets

• An extensive and exhaustive process has been run in search of an

investor

• NZ are a large successful sugar company, grower owned, with a long

similar history to MSL. Long term partner

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Mackay Sugar

Summary - 2

• The MSL Board recommends the NZ offer to MSL shareholders subject

to the Independent Expert’s opinion and in the absence of any other superior proposal

• The offer from NZ needs to be viewed as a whole package (not

separate components) against an alternative of MSL’s future without their investment and considerable uncertainty

• Come to shed meetings to ask further questions
• Please seek your own advice on the proposal
• We must get a 75% approval to accept the proposal

Thank you

Strictly Private and Confidential | Slide 49 of 42

Mackay Sugar

Voting for the proposal

• 1. ~815 VOTING SHARES vote to approve the Nordzucker proposal

50% + 1

• 2. ~815 VOTING SHARES vote to change the constitution

75%

• 3. 212 million INVESTMENT SHARES vote to convert all shares to ORDINARY SHARES

75%

Voting is by proxy (can be mailed back to MSL) and by attendees at the EGM VOTING SHARES (~815) are active growers and usually one share per grower but some growers have several INVESTMENT SHARES (~212 million) are held by active growers and non-active growers (dry shareholders)

Strictly Private and Confidential | Slide 50 of 42

Mackay Sugar

The structure of MSL, financiers, growers and marketers

Cane Growers Supply Agreement

Constitution Shareholders NZ 70% Existing MSL 30%

Sales Agreements Sugar, mol, elec Marketing companies Banks Other Financiers Finance Agreements