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Mackay Sugar Limited | Annual Report 2010 | 1 MACKAY SUGAR LIMITED 2010 Annual Report

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Page 1: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

Mackay Sugar Limited | Annual Report 2010 | 1

MACKAY SUGAR LIMITED2010 Annual Report

Page 2: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741

Mackay Sugar Limited ACN: 057 463 671

Phone 07 4953 8300 Fax 07 4953 8340 Web www.mkysugar.com.au Email [email protected]

Notice of meetiNgNotice is hereby given that the Second Annual General Meeting of Mackay Sugar Limited will be held in the Mackay Entertainment and Convention Centre, Gordon Street, Mackay, on Thursday, 28 October, 2010 commencing at 9am.

Directors Andrew Cappello Chairman

Ray Magill Deputy Chairman

Andrew Amer

Tony Bartolo

Vince Germanotta

Syd Gordon

Rex Stroppiana

Chief Executive Officer Quinton Hildebrand

Company Secretary Donna Rasmussen

Chief Financial Officer Sandra Pienaar

Manager Cane Supply David Langham

Manager Factory Operations Mark Gayton

Human Resources Executive Jean-Claude Gassin

Manager Business Development John Hodgson

Auditors Bennett Partners

Corporate Solicitors McCullough Robertson SB Wright, Wright & Condie

Bankers National Australia Bank Rabo Australia Limited

coNteNtS

COMPANY HIGHLIGHTS 1

INTRODUCTION 3

CHAIRMAN’S RevIew 4

CHIef exeCUTIve OffICeR’S RePORT 6

CORPORATe GOveRNANCe 8

DIReCTORS’ RePORT 12

CONCISe fINANCIAL RePORT 25

Page 3: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

Mackay Sugar Limited | Annual Report 2010 | 1

CoMpAnY hIGhLIGhTS 2009/2010oPeRAtiNg ReVeNUe ($M)

cANe PRoceSSed (tonnes)

SUgAR PRice ($ PeR tonne IPs)

oPeRAtiNg PRofit ($M)

Net tANgiBLe ASSetS ($M)

SUgAR PRodUctioN (tonnes IPs)

05/06 06/07 07/08 08/09 09/100

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8

Total operating revenue was $400.8M and compares to $299.7M the previous year.

797,315 tonnes of sugar was produced. Sugar content of 14.95 PRS was an improvement on the four previous seasons.

Average sugar prices received was 465.62 per tonne compared to 346.22 in the previous year.

Net Tangible Assets per Investment Share was $1.29 as at 31 May 2010 compared to $0.91 as at 30 June 2009.

An operating profit of $44.28M was recorded for the period compared to $6.25M in YEJ 09.

A crop of 5.289 million tonnes was proccessed at the three factories. A slight rise on the 5.222 million tonnes the previous year. Total area harvested was 71,184 ha.

5 YeAR PeRfoRmANce At A gLANce

2005/06 2006/07 2007/08 2008/09 2009/10

Operating Revenue ($M) 316.81 347.70 313.94 299.71 400.82

Operating Profit ($M) 6.10 3.42 5.52 6.25 44.28

Cane Processed (Tonnes) 6 402 180 6 340 036 6 633 389 5 222 449 5 289 031

Sugar Production (Tonnes IPS) 862 659 861 747 926 037 756 225 797 315

Sugar Price ($/tonne IPS) 322.22 367.59 300.34 346.22 465.62

Net Tangible Assets ($M) 186.44 228.40 214.32 181.34 258.95

Page 4: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

2 | Mackay Sugar Limited | Annual Report 2010

Page 5: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

Mackay Sugar Limited | Annual Report 2010 | 3

InTRoDUCTIon

coRPoRAte ViSioNTo be THE innovative, world class, diversified sugar cane based business in Australia delivering exceptional value to stakeholders.

gRowiNg the fUtUReThis second annual report of Mackay Sugar Limited is presented after a year of consolidation in a rapidly evolving industry.

The experience, resilience and innovation of growers and industry workers places Mackay Sugar Limited in a strong position to develop fresh revenue streams in the year ahead while pursuing its corporate vision.

Mackay Sugar Limited is a local company with national significance. About 840,000 tonnes of raw sugar, or 20 per cent of Australia’s annual production, comes from our Farleigh, Marian and Racecourse mills.

The Company is a joint venture partner with Sucrogen in Sugar Australia which is the largest refiner and distributor of refined sugar in Australia and New Zealand, and whose assets include the modern refinery at Racecourse Mill.

Almost 1,000 family owned farming businesses are our producer base and close to 85,000 hectares of land is farmed for sugar cane within the growing region.

Mackay Sugar Limited provides employment and income for an estimated 4000 people along the supply chain including growers, their families, contractors and other workers from paddock to port. These are figures shareholders are justly proud of.

Significant income is provided by the sugar industry to the region each year, ensuring economic stability. In the past decade alone about $2.7 billion has been generated for the local economy and a total of $1.6 billion paid to growers for cane supply in that time.

Where possible Mackay Sugar Limited prefers to deal locally and purchasing of goods and services with the region’s suppliers is approximately $45 million per annum.

As we enter a new financial year we look forward to the exciting challenges ahead including the construction of the $120 million cogeneration plant at Racecourse Mill and continued planning for other major projects to fully utilise the sugar cane plant.

The information contained in this report shows the Company continues to deliver its commitment to growing the future of shareholders, employees and the wider community through sound management of a sustainable sugar and energy business.

Page 6: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

This is my first annual report to shareholders as Chairman of Mackay Sugar Limited and it follows a successful year for the business in an industry experiencing a lot of change.

fiNANciAL PeRfoRmANceMackay Sugar Limited posted a $44.3 million profit in the 11-month reporting period to May 2011 which is a significant improvement on previous years. This can be attributed to good sugar prices and lower operating costs, which masked the fact that we had a low-yielding crop.

With the world sugar market in deficit for a second consecutive year, the ICE#11 spot contract rose to a 30–year high on February 1, 2010 and the Company and our growers were able to take advantage of the available prices when completing the hedging program for the 2009 crop. This was complemented by operating just three mills in the 2009 crushing season with Pleystowe Mill mothballed. This provided a lower cost base and improved margins.

cANe SUPPLYThe 2009 cane crop saw a disappointing 5.289 million tonnes of cane processed. The harvest was down on the pre-season estimate of 5.8 million tonnes and was crushed in only 20.3 weeks. Yields were generally reduced across the three mill area by unfavourable weather, poor performance of some varieties, the prevailing high cost of fertilizer and underutilisation of irrigation. Cane yield averaged a disappointing 74.3 tonnes of cane per hectare compared to a five year average of 80.9 tonnes.

The challenge for Mackay Sugar Limited is to increase both yield and the area under cane. In a bid to increase tonnages Secure the Future II was launched in December and offered $420/tonne IPS for up to 80 tonnes of cane per hectare from 2011 to 2014. This together with the favourable sugar pricing has seen an increase in the area to be harvested in 2010 by 1,416 hectares to 72,600 hectares. Also the Board has instigated a number of initiatives to boost cane supply. A good sustainable cane supply is the key to the future of this business.

The growing sector continues to demonstrate their resilience and commitment to the industry by making significant progress during the year in replacing smut-susceptible varieties, and adopting Queensland’s new Reef Protection legislation that came into effect on January 1, 2010. Support of the new mud distribution system was also encouraging and again showed we can work together to maximise the value of the mud and improve outcomes for individual farms, the environment and the community.

diVeRSificAtioNAt the end of January 2010 the Board approved the $120 million cogeneration project. This marked the end of a lengthy development phase until the Board was satisfied that the project contained adequate market certainty and construction protection. The cogen project provides a compelling case for strategic alignment and financial returns and was supported by a 93 per cent of the shareholder vote last annual general meeting. The construction of the plant is on time and on budget and due to be commissioned in late 2012.

We continue to engage in new opportunities to diversify our future income streams. The QUT Biocommodities Pilot Plant, which opened recently at the Racecourse Mill, has been strongly supported by Mackay Sugar Limited. This facility will host international research into new commercial technologies which could provide new income opportunities for Mackay Sugar Limited.

In recent months Mackay Sugar Limited has also accepted an invitation to be involved in a $3.5 million aviation fuel project that seeks to investigate a state-based aviation fuel industry. Boeing and Virgin Blue are just two of the internationally recognised companies involved in this project. We have developed a 20 Year Diversification Plan which outlines the opportunities and potential of this business that will be rolled out to shareholders and stakeholders in due course.

cAPitAL RAiSiNgThe rights issue conducted from March to May raised $4.76 million and this has been used to pay down debt. The Board is appreciative of the new and existing shareholders that took advantage of this offer. The process of the rights issue also gave the opportunity to look at the structure of investment opportunities in Mackay Sugar Limited and these are being assessed so that future issues are easier for those that want to invest, such as those with self-managed superannuation funds, or who want to split share entitlements. The benefit to growers is more investment options and for Mackay Sugar Limited the potential for increased investment.

miLLiNg SectoR eVoLVeSThe industry continues to evolve post-deregulation. This has manifested itself in the past year in the milling sector. CSR Ltd announced in June 2009 that it would progress with the demerger of its sugar and renewable energy business, which has been Sucrogen. Initially this was to take the form of a separate ASX-listed company and we entered into a binding agreement to exchange Mackay Sugar’s 25 per cent share of Sugar Australia and New Zealand Sugar for 8.77 per cent of the to-be-listed Sucrogen. While this would have provided a very good outcome for Mackay Sugar Limited, it did not proceed as CSR Ltd has opted to pursue a trade sale to Singaporean based company, Wilmar International. The transaction is still subject to regulatory approvals. Mackay Sugar Limited will continue to seek opportuni-ties that provide the best returns from its refinery investments.

There has been some consolidation between millers in Northern Queensland with Maryborough Sugar and Bundaberg Sugar combining their four mills in that region into a joint-venture. In the Central Region, the merger discussions between Mackay Sugar Limited and Proserpine Sugar were withdrawn by Proserpine Sugar as the relative values of the two businesses had changed and they needed to focus on the commissioning of their furfural plant. In New South Wales the co-operative is in talks to sell its renewable energy business to reduce debt.

So, the year ahead is likely to be dynamic within the Australian industry and Mackay Sugar Limited will continue to seek opportunities that will be attractive to shareholders and of course other stakeholders along the supply chain. We must continue to be proactive in this arena if we want the best outcomes for our shareholders.

ChAIRMAn’S REVIEW

4 | Mackay Sugar Limited | Annual Report 2010

Page 7: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

BoARd chANgeSEddie Westcott retired from the Board of Mackay Sugar Limited at the February Board meeting. Eddie served on the Mackay Sugar Limited Board for 22 years and the Board of the Racecourse Co-operative before that. As Chairman, he led the business through a challenging period, leaving it well positioned to embrace the future. On behalf of the Board and shareholders, I would like to acknowledge the significant contribution he has made to the business.

Richard Galea, who served on the Board for seven years resigned in January. I would also like to thank Richard for his contribution as a Board member.

In accordance with the constitution an election was only held for one position. I am pleased to welcome Anthony Bartolo to the Board.

SettiNg the BeNchmARkLooking forward there remain challenges ahead for Mackay Sugar Limited. We need to protect sugar cane land from development and continue to make business decisions that benefit shareholders and of course Mackay and the wider industry.

We have in place an experienced and dedicated management team driven by an equally dedicated CEO and guided by a pro-active Board. With support of shareholders and the continued hard work of all within our industry I look forward to a positive year in which your individual businesses grow which of course ensures Mackay Sugar Limited grows as we strive to be the country’s leading sugar cane enterprise.

5 | Mackay Sugar Limited | Annual Report 2010

Andrew CappelloChairman of Directors

Page 8: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

ChIEf ExECUTIVE offICER’S REpoRT

The past year has been a successful one for the business, delivering a strong operational and financial performance whilst progressing a number of key deliverables towards our growth and diversification strategy.

SoLid oPeRAtioNAL PeRfoRmANce Having taken the decision to mothball Pleystowe Mill for the 2009 crush, there was a need to demonstrate our ability to improve the crushing performance of the remaining mills by focusing on throughput. With old paradigms challenged, and a sound performance by the harvesting sector and cane supply management, the factories delivered an impressive 254,213 tonnes per week. High PRS levels in the cane and impressive sugar recoveries (a Technical Index of 96.79) realised some of the highest average weekly sugar makes by these factories this decade.

Whilst the crop was a disappointing 5.289 million tonnes, it took only 20.3 weeks to crush. With the Board satisfied that we have the ability to crush future crops with three mills, Pleystowe Mill was closed in February 2010, thereby making permanent the savings in excess of $10 million per annum.

In March 2010 we encountered a severe tropical cyclone, named Ului, which caused significant damage to the standing crop and infrastructure. The financial cost of repairs to the factories is forecast at $3.3 million; however the losses in the forthcoming crop, whilst hard to quantify, are well in excess of this. What is pleasing is the way in which our people responded to this set back and recovered quickly to have our factories and rail infrastructure adequately repaired in time for the 2010 start-up.

StRoNg fiNANciAL ReSULtSNotwithstanding the poor crop, the business was able to capitalise on good prices and lower operating costs to post a profit for the 11 month financial year of $44.3 million.

The world market traded to a high of US30.4 c/lb on 1 February 2010, before slumping back to US14.19 c/lb at the year end. Whilst some of the benefit of this price was off-set by a relatively strong Australian dollar, the business took advantage of the available prices for the un-priced portion of the 2009 crop (achieving an average season price of $465.62/tonne IPS) and proceeded to hedge significant tonnages for the 2010, 2011 and 2012 crops.

From the cash generated during the financial year, the company invested in plant and equipment right across the business, repaid debt, and made the initial investment into the Cogeneration Project.

The returns from the Sugar Australia joint venture and New Zealand Sugar were pleasing with both businesses growing their profits year on year. This was achieved in challenging market circumstances and demonstrates the sound business model and strong management of these businesses.

cogeNeRAtioN PRoject commeNcedAfter years of planning and previous attempts to get the project under way, in January 2010 the $120 million Cogeneration Project at Racecourse Mill was approved. This followed the satisfactory conclusion of marketing, construction and financial contracts to adequately de-risk the project.

With the passing of the Federal Government’s Mandatory Renewable Energy Target (MRET) legislation in August 2009, a six-year Power Purchase Agreement was concluded with Ergon Energy providing the necessary market certainty for the project. An engineering, procurement and construction contract was entered into with AE&E, thereby managing the construction risks of the project with commissioning expected by late 2012. The project is financed from $33 million in retained earnings from within the business, a $9m grant from the Queensland Office of Clean Energy and a debt and contingency facility from Rabobank and National Australia Bank.

As with all investments, our business and shareholders are forgoing capital expenditure and dividends now with the expectation of securing higher returns in the future and it is pleasing to have the support of 93% of our shareholders for this venture. Of strategic importance is that the Cogeneration Project provides the energy foundation for future diversification projects.

iNNoVAtioNS foR miLL mUd deLiVeRieS Another project that made progress during the review period was changing the way in which mill mud is managed. In order to better meet the needs of growers, improve on the economics of the distribution of mud and proactively prepare for the new Reef Regulations, during the 2009 crush the business set about taking over the management of day to day mud operations, previously managed by contractors. In addition, GPS units were fitted on all trucks and trials were carried out on banded mud application.

With these learnings, and in advance of the need to comply with the Reef Regulations by the 2011 season, a new quota-based allocation system was introduced for the 2010 crush and a banded mud application has been offered.

Whilst our progress in this area was recognised when our staff obtained an Australian Society of Sugar Cane Technologist’s award, we are striving to enhance the consistency of product and service offered to growers from this valuable product.

hARNeSSiNg the effoRtS of oUR PeoPLeIt was pleasing to receive a high score (89.5%) in the Trisafe Audit conducted by the Queensland Chamber of Commerce and Industry, which endorses the effort that has gone into improving safety systems in the business over a number of years. Building on this, we have implemented a Safety Index which is a composite measure of the leading safety indicators necessary to drive proactive safety behaviours throughout the business.

In the year under review the performance management and development system in the business was revitalised and aligned with the Board strategic plan. With a greater understanding of the business’ priorities and expectations on performance, our ability to execute on strategic objectives is improving.

6 | Mackay Sugar Limited | Annual Report 2010

Page 9: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

Towards the end of the period under review, we embarked on a business improvement path, Operational Excellence, in which we are seeking to extend our operational ‘competitive gap’ by involving our people in eliminating waste and driving efficiencies.

eNhANciNg ShARehoLdeR VALUeIn addition to the improvements in performance capability demonstrated in the past year and the commencement of the Cogeneration Project, which has created shareholder value, the Board and management were also active in seeking value creating opportunities for Mackay Sugar Limited to participate in consolidation within the industry. As outlined in the Chairman’s Review, transactions were initiated for two of these - the merger with Proserpine Sugar and the exchange of our minority stake in the sugar refining joint venture for an 8.77% stake in Sucrogen. Whilst neither of these arrangements came to fruition, both would have delivered value to our shareholders and we continue to seek value enhancing opportunities.

the YeAR AheAdThe crop for the 2010 crush is once again expected to disappoint, reflecting the dry conditions between April and December 2009 and the effects of Cyclone Ului. The resultant lower sugar make means that it is unlikely that profit achieved in the forthcoming year will match that achieved in the period ending May 2010. Nonetheless, having hedged a large portion of our sugar we are assured of a good financial performance and exceeding the investment requirements for the Cogeneration Project.

LookiNg to the fUtUReTo achieve our vision we need to increase in scale, become more efficient and diversify our earnings. For this we require the support of all our stakeholders, specifically our shareholders, business partners and local authorities. A 20 Year Diversification Plan, which outlines our growth potential, has been developed and we are using this to actively engage in securing the necessary cane supply, land, water, effluent treatment and transport infrastructure required for our future diversification projects. This report has been well received when presented to key regulatory authorities.

I look forward to delivering on the Board’s vision to be the innovative, world class, diversified sugar cane business in Australia delivering exceptional value to all stakeholders.

7 | Mackay Sugar Limited | Annual Report 2010

Quinton HildebrandChief Executive Officer

Page 10: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

the BoARd chARteRThe Board of Directors of Mackay Sugar Limited is committed to conducting the Company’s business in accordance with the highest standards of corporate governance. The Board of Mackay Sugar Limited has a formal Charter which details the Board’s role, powers, duties and functions. The central role of the Board is to set policy, chart the Company’s strategic direction, set the financial targets for the business and appoint and oversee the performance of the Chief Executive Officer.

In addition to matters required by law to be approved by the Board, the following powers are reserved to the Board for decision:-

• the composition of the Board including the appointment and retirement or removal of Directors.

• oversight of the business including its control and accountability systems;

• where appropriate, ratifying the appointment and the removal of senior executives;

• reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct and legal compliance;

• monitoring the Chief Executive Officer’s implementation of strategy, and ensuring appropriate resources are available;

• approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and sales;

• approving and monitoring financial and other reporting;

• performance of investment and treasury functions;

• monitoring industry developments relevant to the business and its interests;

• developing suitable key indicators of financial performance for the business;

• having input in and granting final approval of corporate strategy and performance objectives developed by management;

• the overall corporate governance of the business including its strategic direction and goals for management, and monitoring the achievements of these goals; and

• oversight of Committees.

BoARd comPoSitioNThe Board is currently comprised of seven Directors, with

• five grower Directors, including the Chairman; and

• two non-grower Directors

The Board must comprise of no less than seven Directors, two of whom must be non-grower Directors, or more than seven where the Board considers that additional expertise is required in specific areas or when an outstanding candidate is identified.

The Directors currently holding office at the date of this report are set out on page 13 of this Annual Report.

BoARd APPoiNtmeNt ANd RetiRemeNtThe appointment and election of Grower Directors will be in accordance with Rule 16.2 of the Constitution. When a vacancy arises for a Non-Grower Director or where the Board decides a new Director is required with particular skills, the Nominations Committee must prepare a list of candidates considering what may be appropriate for the Company, the skills, expertise and experience required, and the mix of those skills, expertise and experience with those of the existing Directors. The appointed candidates will be required to have his or her appointment confirmed by resolution of the shareholders at the first general meeting of shareholders following the appointment of the Non-Grower Director.

The terms and conditions of the appointment of all new Non-Grower Directors must be specified in a letter of appointment. The letter of appointment may refer to the Constitution and to the Board Charter document.

Under the Constitution at least one third of the Grower Directors, being the longest serving Directors, must retire at each Annual General Meeting. Retiring Directors are eligible to be re-elected.

BoARd meetiNgSBoard meetings are normally held monthly, and must occur not less than ten times in any year. A Board meeting has been scheduled at all of the Company’s sites throughout the year and include a site visit and presentations by management to aid Directors’ understanding of the business.

Details of Board and Committee meetings held and attendances at those meetings are set out in the Directors’ Report on page 14.

diRectoR tRAiNiNgDirectors must be provided with information about the Company before accepting the appointment and complete an induction program after their appointment, in each case appropriate for them to discharge their responsibilities in office. Meetings with the Chief Executive Officer and senior executives, information on the strategic plan and key corporate and Board policies are included in the induction process.

Directors must be given access to continuing education in relation to the Company, extending to its business, the industry in which it operates, and other information required by them to discharge the responsibilities of their office.

BoARd eVALUAtioN ANd PeRfoRmANce ReViewA Board performance evaluation was conducted by an external consultant in this financial year. The scope of the evaluation was to review the performance of the Board and each of its committees against the requirements of their respective charters. The outcome of the evaluation was compiled by the external consultant and provided to the Board for discussion and implementation of improvements in Board processes and overall efficiency.

An external assessment of the Board’s policies and procedures, and its effectiveness generally must be conducted by independent professional consultants at intervals of three years.

CoRpoRATE GoVERnAnCE

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Mackay Sugar Limited | Annual Report 2010 | 9

iNdePeNdeNt AdViceEach Director may seek independent legal or other professional advice at the Company’s expense with the prior approval of the Chairman.

code of coNdUctAll Directors and Executives are required at all times to act in accordance with the Company’s Code of Conduct, which prescribes standards of behaviour to be maintained in relation to:-

• Obligation to comply with the code and the law

• General duties of Directors

• The Business Judgment Rule

• Independent decision making and soundness of decisions

• Confidentiality of Board matters and other information

• Improper use of information

• Personal interests and conflicts

• Performance and review

tRAdiNg iN SecURitieSThe Board has a code of conduct for transactions in securities that applies to Directors and Executives of the Company. The Code sets out the legal duties relating to transactions in securities.

As a basic principle the Charter states that Directors should not buy or sell securities in the Company when they are in possession of price sensitive information which is not available to the market. In addition, the Charter identifies the permitted timeframes for trading in securities and blackout periods during which no Directors are allowed to trade in Company securities.

Permission may be given for trading outside of the specified timeframes if the approving person is satisfied that the transaction would not be contrary to law, for speculative gain, to take advantage of insider knowledge, or seen by the public, press or other shareholders as unfair.

deALiNg with coNfLictS of iNteReStThe Board has conflict of interest guidelines within the Charter which apply if there is a conflict between the personal interests of a Director and the duties the Director owes to Mackay Sugar Limited. Directors have a duty to avoid any conflict between the best interests of the Company and his or her own personal interests or the interests of any third party.

Every Director must be aware of both actual and potential conflicts of interest. The law requires that a Director with a conflict of interest should refrain from voting, or entering into any discussion, at, or even being present during, relevant Board discussions. A Director who has any material personal interest in a matter must not be present at a meeting while the matter is being considered and must not vote on the matter.

A personal interest may be either direct or indirect and either pecuniary or otherwise. Papers relevant to any matter on which there is a known conflict of interest, or in relation to which there is a material personal interest, will not be provided to any Director concerned.

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BoARd committeeSThe Board has established five committees to assist in the discharge of its responsibilities.

These committees are:-

• Audit and Financial Risk Management Committee

• Finance Committee

• Remuneration and Nominations Committee

• Compliance Committee

• Siding Committee

Each Committee has a Charter detailing its role, duties and membership requirements. The Committee Charters are reviewed annually and updated as required.

All Directors are entitled to attend meetings of the committees. Minutes of the committees are provided to all Directors in the Board papers for the next meeting of the Board and proceedings of each meeting are reported by the Chair of the committee at the next Board meeting.

AUdit ANd fiNANciAL RiSk mANAgemeNt committeeThe role of the Audit and Financial Risk Management Committee is to assist the Board to verify the integrity of the Company’s statutory and financial reporting, the effectiveness of external and internal audit functions, the appropriateness of the internal control structure, compliance with the financial risk management systems and the application of corporate governance principals.

Key activities undertaken by the Audit and Financial Risk Management Committee include:

• make recommendations to the Board on the appointment, reappointment or replacement of the external auditor;

• review and approve the external audit plan and audit fees;

• review and approve the Company’s accounting policies and practices and monitor compliance with accounting standards that relate to the preparation of the accounts;

• review and recommend for approval by the Board the half yearly and annual reports and Directors’ report, and all other related reports which are required by any law, accounting standard or other regulatory body;

• assist the Board in the identification and oversight of financial risk;

• monitor and review the effectiveness of the financial risk and internal control systems implemented by management;

• consider the processes applied by management to comply with the Board approved policies for commodity price risk, foreign exchange risk, liquidity risk, funding risk, credit risk and interest rate risk.

fiNANce committeeThe role of the Finance Committee is to provide corporate governance oversight to the Finance Department’s function not covered by the Audit and Financial Risk Management Committee.

Key responsibilities are as follows:

• review operating and capital budgets of Mackay Sugar Limited prior to submission to the Board for approval to ensure that the expenditure proposed is justified, sufficient to support sustainable maintenance and capital projects, and all within the Company’s ability to fund these;

• monitor the overall financial position of the Company in particular the ongoing cash and net debt position;

• evaluate the risk for financial default or any other default of any of the essential service providers, customers, partners or any other institution delivering a service to the Company;

• annually review the long term financial forecast, including income statements, balance sheets and cash flow statements to ensure that these are consistent with the strategic plan;

• monitor the risk of exposure to lending rates and interest rate hedging policies and requirements.

RemUNeRAtioN ANd NomiNAtioNS committeeThe role of the Remuneration and Nominations Committee is to ensure that the Company has fair and responsible remuneration policies and practices to attract and retain Directors, executives and staff who will create value for shareholders, and to review Board composition, performance and succession planning.

Key responsibilities are as follows:

• review the appropriateness and relevance of the Company’s remuneration policy with reference to market comparisons;

• approve any major changes in employee benefits structures throughout the Company including superannuation, insurance, indemnities and other benefits;

• approve the design of any performance related pay schemes operated by Mackay Sugar Limited and approve the total annual payments made under such schemes;

• determine Key Performance Indicators for the Chief Executive Officer before the start of the Company’s financial year, against which his/her performance will be assessed;

• determine the total individual remuneration package (including bonuses and incentive payments) and termination arrangements of the company’s Chief Executive Officer and recommend to the Board for approval any changes prior to implementation;

• review the Board structure, size and composition and make any recommendations to the Board with regard to any changes deemed necessary;

• provide, via the Company Secretary, an annual performance evaluation of the members of the Board;

• recommend to the Board the appointment of Non-Grower Directors and the Chief Executive Officer;

• consider succession issues relating to the Chairman, Non-Grower Directors, the Chief Executive Officer, Chief Financial Officer and Company Secretary.

CoRpoRATE GoVERnAnCE

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comPLiANce committeeThe role of the Compliance Committee is to assist the Board in fulfilling its governance and oversight responsibilities for Occupational Health and Safety and Environmental Management.

Key responsibilities are as follows:-

• monitor the Company’s compliance with approved Health and Safety and Environmental policies and legislation;

• monitor the adequacy of the Occupational Health and Safety and Environmental Management systems in complying with statutory and regulatory obligations;

• monitor the effectiveness of the Company’s Occupational Health and Safety systems in working towards the Company’s objective of an injury free workplace;

• monitor the effectiveness of the environmental management systems in meeting the Company’s goal to work towards the elimination of pollution and environmental harm and promote environmental sustainability throughout our operations;

• monitor key health, safety and environmental incidents that may have strategic, business and reputational implications for the Company and its operations and reviewing appropriate mitigation strategies.

SidiNg committeeThe role of the Siding Committee is to provide oversight to the Cane Supply staff in reviewing requests from shareholders for cane delivery siding upgrades, alterations or extensions received in writing.

Key responsibilities are as follows:-

• recommend to the Board an annual capital budget amount for approval of siding works by the Siding Committee;

• monitor capital expenditure within the Siding Committee’s budget for approved works for siding upgrades, alterations or extensions.

• approve the recommendations of Cane Supply staff for requests received in writing from growers and harvesting contractors regarding siding upgrades, alterations or extensions, and, points of delivery or delivery arrangements.

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The Directors present their report and the financial statements of Mackay Sugar Limited for the 11 month period ended 31 May 2010. The Company has complied with the requirements of the Corporations Act 2001 in the presentation of this report and the associated financial statements.

DIRECToRS’ REpoRT

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Mackay Sugar Limited | Annual Report 2010 | 13

diRectoRS The names and profiles of directors in office from 1 July 2009 to the date of this report follow. A record of Board Meeting attendance during the year under review is set out on page 14.

Andrew Shane Cappello MAICD Chairman of Directors Andrew has been an elected Grower Director since 2001 and has been a cane producer for 28 years. He was appointed Chairman of Directors in February 2010.

Andrew is also the Chairman of the Pioneer Valley Water Board and Chairman of Pioneer Valley Water Co-operative.

He is a Director of the Australian Sugar Milling Council, Director of the Queensland Co-operative Federation, a member of SunWater Customer Council, the Mackay Sugar Limited representative on the Board of Mackay Area Productivity Services Pty Limited and a former Director of the Australian National Committee for Irrigation and Drainage.

Joseph Ray Magill (Ray) BLegs FAICD Deputy Chairman – Non-Grower Director Ray was appointed as an independent Non-Grower Director in March 2006 and Deputy Chairman in February 2010. Ray is based in Brisbane and has widespread

experience in finance. He is the founder and past chairman of InterFinancial Limited, a company providing corporate advisory services. As a former director of Palmer Tube Mills, Ray was responsible for its United States operations before it was taken over by Australian National Industries Limited.

Ray has wide experience in marketing agricultural products, has been involved with Goodman Fielder Limited and is a former chairman of Carrington Cotton Corporation Limited and the Peanut Company of Australia Limited (formerly Peanut Marketing Board). Ray is also Chairman of Harvest Freshcuts Pty Limited, Australia’s largest fresh cut salad producer.

Andrew Richard Amer BA Msc MBA FAICD Non-Grower Director Andrew has been an independent Non-Grower Director since October 2003. He has broad business experience in management, strategy, marketing and

corporate governance across Australia and the Asia Pacific in manufacturing in the chemical industry, the financial sector, retailing and in strategic management consulting.

Andrew is a Councillor of the NSW Council of the Australian Institute of Company Directors (AICD) and a member of the Law Committee of the AICD. He is also a member of the Professional Conduct Tribunal of the Institute of Chartered Accountants in Australia. Other board roles have been in mining services and in technology based companies in private and in publicly listed sectors.

Anthony Robert Bartolo (Tony) BCom FCPA Dip Fs JP Grower Director Tony is a third generation farmer and was elected to the Board as a Grower Director in April 2010. He has been a partner at DGL Accountants since 1999, specialises

in taxation and business advice to primary producers and was recently granted Fellowship of CPA Australia. Tony has been the Chairman of the CPA Mackay Committee, on the Board of the Mackay Show Association and adviser to one of the largest cane harvesting co-operatives in the region.

Vincenzo Germanotta (Vince) Grower Director Vince has been an elected Grower Director since November 2004. He has been growing cane in the Mackay district for more than 30 years. He was elected as grower representative to Mackay Area

Productivity Services Board in June 2004 and on being elected to the Board of Mackay Sugar Limited was nominated as the miller representative of Mackay Area Productivity Services Pty Limited board in November 2004.

Sydney Gordon (Syd) DipFin Markets FAICD Grower Director Syd has been an elected Grower Director since November 2003. He has been growing cane in the Mackay district for more than 30 years. A Fellow of the

Australian Institute of Company Directors, he has business experience in financial markets and is founder and managing director of Bold Capital Pty Ltd, a financial services company providing advisory and execution services across a range of investment markets.

Rex Corrado Stroppiana AdvDipAg Grower Director Rex has been an elected Grower Director since November 2004. He has over 25 years’ experience in the development and management of an expanding cane

growing and harvesting business. He holds an Advanced Diploma in Agriculture (Rural Business Management).

Charles Edward Westcott (Eddie) Grower Director Eddie was an elected Grower Director since establishment of Mackay Sugar (as a co-operative) and Chairman from December 2002 to February 2010. Eddie retired from the Board on 18 February 2010.

Richard Samuel Martin Galea BCom CA GAICD Grower Director Elected Grower Director since February 2003, Richard is a qualified chartered accountant. Currently he is a member of the Institute of Chartered Accountants of Australia and Australian Institute of Company Directors. Richard resigned from the Board on 1 February 2010.

comPANY SecRetARYDonna Margaret Rasmussen Company SecretaryCompany Secretary of Mackay Sugar Limited since August 1st 2006, Donna has worked for Mackay Sugar Limited and its predecessor co-operatives for more than 30 years in senior administrative positions.

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BoARd meetiNg AtteNdANce 2009-2010 Attendances by each director at directors’ meetings and committee meetings were as follows:

DIRECTOR REGULAR MEETINGS SPECIAL MEETINGS

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

A. S. Cappello

J. R. Magill

A. R. Amer

A. R. Bartolo*

V. Germanotta

S. Gordon

R. C. Stroppiana

C. E. Westcott

R. S. Galea

Meetings held while a member.

Meetings held while a member.

Meetings attended.

Meetings attended.*Elected to Board during the Financial Period

diRectoRS’ committee meetiNgSDIRECTOR FINANCE COMMITTEE AUDIT AND FINANCIAL

RISK MANAGEMENT COMMITTEE

COMPLIANCECOMMITTEE

REMUNERATION ANDNOMINATIONS COMMITTEE

1 2 3 4 5 6 7 8 1 2 3 1 2 3 4 1 2

A. S. Cappello

J. R. Magill

A. R. Amer

A. R. Bartolo*

V. Germanotta

S. Gordon

R. C. Stroppiana

C. E. Westcott

R. S. Galea

DIRECToRS’ REpoRT

*Elected to Board during the Financial Period

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Mackay Sugar Limited | Annual Report 2010 | 15

DIRECTOR FINANCE COMMITTEE AUDIT AND FINANCIAL RISK MANAGEMENT COMMITTEE

COMPLIANCECOMMITTEE

REMUNERATION ANDNOMINATIONS COMMITTEE

1 2 3 4 5 6 7 8 1 2 3 1 2 3 4 1 2

A. S. Cappello

J. R. Magill

A. R. Amer

A. R. Bartolo*

V. Germanotta

S. Gordon

R. C. Stroppiana

C. E. Westcott

R. S. Galea

PRiNciPAL ActiVitieSPrincipal activities of the Company are:

A.to acquire, transport and process sugar cane to produce raw sugar products and by-products and to transport, store, market, price and distribute those products and by-products;

B.to manufacture, transport, store, market and distribute refined sugar, syrups, raw sugar for human consumption and similar products and by-products; and

C.to produce, market and distribute electricity and other value-added commodities through the use of products and by-products arising from the activities in (a) and/or (b) above.

There was no significant change in the nature of the Company’s principal activities during the financial period.

ReView of oPeRAtioNS2009 Crushing seasonThe crop of 5.289 million tonnes of cane was processed at the Farleigh, Marian and Racecourse mills. Crushing commenced on 1 June 2009 and ceased on 23 October 2009. The harvest was down on the pre-season estimate of 5.8 million tonnes and only 69,000 tonnes more than the 2008 crop.

Above average rainfall from January to April 2009 was followed by a very dry six month period. The prevailing dry conditions resulted in reduced growth in the cane crop and subsequent sugar production. Cane yield was again disappointing, averaging only 74.3 tonnes of cane per hectare compared to 71.6 tonnes per hectare the previous year and a five year average of 80.9 tonnes per hectare.

The average PRS of 14.95 units for the season was an improvement of 0.52 units on the previous year and resulted in a sugar yield of 11.20 tonnes per hectare, compared to 10.37 tonnes of sugar per hectare in 2008. The combined crushing rate for the three factories was 1,728 tonnes per hour, while factory plant availability averaged 91.1% compared to 90.4% in 2008. The overall sugar recovery (measure of sugar recoverable from the cane supply) for the 2009 season was 90.6%, which was a 0.6% improvement on the 2008 season figure of 90.0%. A total of 797,315 tonnes of IPS sugar was produced.

Revenue from 2009 season raw sugar sales was derived from domestic sales to Sugar Australia and from exports via Queensland Sugar Limited (QSL). A total of 56% of the 2009 season production was sold to Sugar Australia with the balance of production going for export. No other domestic sales were made this year.

The average grower raw sugar price for 2009 season was $466.81 per IPS tonne. This pleasing result was 35% higher than the price achieved for the 2008 season. The average pricing for the miller in the same period was $466.27 which reflects sales to all markets and the combined hedging outcomes of QSL and Mackay Sugar Limited.

While the Company’s mills aim to produce premium customer grade raw sugar for all markets, only sugar declared for export is assessed for compliance with QSL’s sugar quality incentive scheme. For the 2009 season, 316,667 tonnes of export raw sugar was assessed under that scheme, yielding 6.15 cents per tonne quality bonus.

Molasses yield from cane was close to the long-term average of 3% of cane crushed. Approximately 15% of our molasses production was exported with the balance either sold as distillery feedstock or as domestic stock feed via the Champion Liquid Feeds facility located at Marian Mill. Molasses was exported by Australian Molasses Trading (AMT) and returned a record price as a result of regional shortages. Under arrangements with AMT and Sucrogen Pty Ltd, all molasses supplied to the Sarina Distillery received the AMT export price.

SUgAR RefiNiNgThe year ended March 2010 financial results were positive with the Sugar Australia joint venture increasing its profits by 31% and New Zealand Sugar delivering a 16% year-on-year improvement.

The CSR and Chelsea brands continue to build on their market leadership positions in the sugar and sweeteners category with both gaining significant volume and value market shares throughout the period. Sales to the export destinations came under significant pressure for most of the period as currency and high raw sugar prices meant customers were less prepared to commit forward business.

Total Productive Manufacturing (TPM) is now well established across the business and is delivering some excellent results. The team from New Zealand were awarded the prestigious “Australia Cup” from CTMP for their outstanding work in this area. Also during the year New Zealand Sugar and its Chelsea brand celebrated 125 years of operation.

The Directors are pleased with the ongoing success of New Zealand Sugar and Sugar Australia and look forward to continued improvements in performance in 2010/11.

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heALth, SAfetY ANd eNViRoNmeNtA review of statistical data over the last 11 months shows Mackay Sugar Limited continuing to trend in a positive direction from June 2009 to May 2010 with a decrease in the all injury frequency rate (AIFR) from 176.88 to 162.03, an improvement of 8%.

It is an accepted premise that future improvements in safety require ownership and a continued focus by each person within an organisation. For Mackay Sugar Limited, this has resulted in strategies being introduced and deployed during this period, aimed at ensuring consultation and communication channels are developed, monitored and measured. As compliance with the Occupational Health and Safety System (OHSMS) is mandatory it is imperative that people have a clear understanding of what is expected in their own roles with regard to their accountability for safety.

Initiatives introduced during the period under review.

• Development of a safety committee constitution, including roles and responsibilities for all members to ensure strategic and organisational goals for safety remain at the heart of all safety initiatives.

• The implementation of training for senior managers on OHS legislation and their obligations and to line managers in the form of a “leaders of team” program. This will ensure that they are provided with an understanding of their safety responsibilities, both from a legislative and organisational requirement perspective.

• The increased focus on proactive safety initiatives across business units aimed at ensuring hazards are identified and controlled before incidents occur.

• extension of the current OHSMS to include an electrical management plan

A key focus for safety in Mackay Sugar Limited in 2011 remains the embedding of safety into the day-to-day operations. This requires promoting safe behaviour as a normal part of the work culture and keeping the focus on all strategic and operational planning and performance. This additional effort will see the implementation of the safety index concept and tool, designed to ensure all persons within Mackay Sugar Limited remain focused on safety, “walking the talk” and putting in an extended effort towards meeting proactive safety initiatives; an extremely beneficial tool to ensuring safety remains one of the key focus areas.

Mackay Sugar Limited’s mills achieved full compliance with environmental licenses and approvals and there were no environmental incidents which rated high or above on the Company’s severity table over the course of the period. Environmental improvement objectives for the period centred on reducing the risks associated with bagasse handling and effluent processing. This resulted in the development and implementation of new procedures and inspections for these activities at all sites.

Results of dust monitoring during the crush indicated that on average levels are within the accepted thresholds however the cogeneration project at Racecourse Mill require additional dust

control measures to be implemented. Other risk mitigation works during the period include the installation of new bunding around the bulk fuel storage facility at Marian Mill and a set down area for chemicals at Farleigh Mill.

A number of projects were approved and are being implemented which provide improved energy efficiency. The annual public report of these opportunities assessed under the Federal Energy Efficiencies Opportunities legislation was completed in December 2009. This report is readily accessible on the Mackay Sugar Limited website.

The first National Greenhouse and Energy report was completed and submitted to the Department of Climate Change. Reports are annually submitted for each mill to provide details of the fuels, electricity and other energy sources produced or consumed which generate greenhouse gas emissions. Relative to the energy consumed, sugar mills have low carbon emissions due to the use of bagasse as the primary fuel burnt in boilers.

eqUAL emPLoYmeNt oPPoRtUNitieSMackay Sugar Limited’s recruitment and induction policies are continually reviewed to ensure compliance with governing legislation in the area of equal employment opportunity. The company continues to achieve compliance with the requirements of the Equal Opportunity for Women in the Workplace Agency (EOWA). Women accounted for 16.5% of the general workforce and 31.75% of the seasonal workforce. Additionally, Mackay Sugar Limited offers equal opportunity for promotion and training in the workplace and makes selections based on ‘the best person for the job’.

oPeRAtiNg ReSULtThe 2009 season’s production (which results are included in the 2010 financial period) was slightly improved on the previous season but was still quite low compared to the last few years. The 2009 season’s crop was up 1.3% on the previous season’s crop at 5.289 million tonnes (2008: 5.222 million tonnes). Average sugar content (PRS) increased by 3.6% to 14.95 (2008: 14.43). The result being the production of 797,315 tonnes IPS sugar (2008: 756,225 tonnes).

The average sugar price for the current financial period was $465.62 per tonne IPS sugar. This was a $119.40 per tonne improvement on the previous year’s sugar price of $346.22. Operating revenue increased by 33.7% to $400.8 million (2009: $299.7 million). This significant increase in revenue combined with the tight control over costs resulted in an increase in profit of $38.0 million to $44.3 million.

The financial statements at pages 28 to 34 of this report and the discussion and analysis regarding those statements on pages 26 and 27 further explain the company’s operating result for the financial period under review.

diVideNdSNo dividends were paid during the financial period ended 31 May 2010.

An 8% fully franked dividend was declared on paid B class investments shares on 31 May 2010. This dividend, which was $8,020.17, was paid on 21 June 2010.

DIRECToRS’ REpoRT

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Mackay Sugar Limited | Annual Report 2010 | 17

oPtioNSNo options over issued shares or interests in the Company were granted during the financial period or since the end of the financial period and there were no options outstanding at the date of this report.

SigNificANt chANgeS iN StAte of AffAiRSThe following significant changes in the state of affairs of the entity occurred during the financial period:

i. Financial year end: The financial year end date was changed from 30 June to 31 May. The change was introduced to align crushing operations, which now commence in June, with the financial year. This will reflect more meaningful results and represent, with more accuracy, the financial position for the reporting period. This change will ensure compliance with the accounting standards and present financial statements that reflect relevant information regarding the status of the business and its operations relative to a crushing season.

ii. Rights issue: On 19 March 2010, Mackay Sugar Limited issued a prospectus for a non-renounceable rights issue of B class investment shares to investment shareholders on the basis of one B class investment share for every eight investment shares held, at an issue price of $0.80 per B class investment share. The rights issue closed on Friday 7 May 2010 and an amount of $4.76 million was raised under the offer. Currently, there are 5,952,597 B class investment shares on issue.

iii.Cogeneration project: During the period under review the Board approved the cogeneration project at an estimated cost of $120 million. Details regarding construction of the plant are included in the Chief Executive’s section of the annual report.

iv.Refinery joint venture: In May 2010, Mackay Sugar Limited announced that its agreement with CSR to exchange its 25% stake in the refinery business for an 8.77% interest in CSR’s new sugar and renewable energy business, Sucrogen, had lapsed after the preconditions had not been satisfied. CSR has subsequently announced that it has entered into an agreement to sell its sugar and renewable energy business, Sucrogen, to Wilmar International Limited. The transaction is reported to be subject to the approval of the Foreign Investment Review Board and New Zealand Overseas Investment Office. Mackay Sugar Limited remains the owner of 25% of the Sugar Australia Joint Venture and New Zealand Sugar Company Limited and will engage with Wilmar International Limited to discuss the future expectations of the refinery joint venture.

eVeNtS AfteR the RePoRtiNg PeRiod eNd dAteSince the end of the financial period, movements in the ICE No.11 raw sugar futures prices and exchange rates have resulted in variances to the “mark-to-market” calculation reported as cash flow hedges in the financial statements. As at the date of this report, these movements in the mark-to-market valuations since 31 May 2010 are not significant.

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In the opinion of Directors, no matter or circumstance has arisen in the interval between the end of the financial period and the date of this report, which significantly affected, or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in subsequent financial years.

fUtURe deVeLoPmeNtSThe Board continues to explore ideas and projects to advance the Company. Likely developments in the operations of the Company and the expected results of those operations in future financial years have not been included in this report, as until any such project becomes a firm commercial proposal, untimely and early disclosure of such information is likely to result in unreasonable prejudice to the Company.

RemUNeRAtioN RePoRtKey management personnel are those individuals, including Directors who have authority and responsibility for the planning, directing and controlling of the activities of the Company.

Executives are defined to include the Directors of the Company, the Company Secretary and senior managers who make, or participate in making, decisions that affect the whole, or a substantial part of the business or have the capacity to affect significantly the entity’s financial standing.

All references to key management personnel include executives.

Remuneration Policy

The Board’s policy to remunerate Non-Executive Directors is based on market rates for time, commitment and responsibilities. The level of payments to the Non-Executive Directors is reviewed annually, based on market practice, duties and accountability. Independent external advice is sought when required.

The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders at the Annual General Meeting.

The objective of Mackay Sugar Limited’s remuneration system is to attract, retain and reward key management personnel who contribute positively to the success and growth of the business. To support this objective, Mackay Sugar Limited is committed to providing equitable and competitive remuneration.

The Company’s salary program is designed to reinforce the ‘pay for performance’ philosophy, based on three key principles:

• Externally competitive Mackay Sugar Limited’s total remuneration needs to be competitive with the market to attract and retain well qualified and capable personnel, who will contribute to the achievement of the business’ objectives. Independent salary surveys are periodically considered to compare Mackay Sugar Limited’s salary levels to those offered by other companies for similar positions.

• Internal equity Mackay Sugar Limited continually strives for consistency in the way salaries are administered and positions are classified. A salary range is provided for each position that reflects its value relative to other positions in the Company.

• Performance driven Mackay Sugar Limited believes that an individual’s performance and overall contribution should determine her/his salary and career advancement in the Company. Mackay Sugar Limited has established a salary system that recognises and rewards an individual’s effort and performance.

DIRECToRS’ REpoRT

18 | Mackay Sugar Limited | Annual Report 2010

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Mackay Sugar Limited | Annual Report 2010 | 19

The Board’s policy for determining the nature and amount of remuneration for key management personnel is based on the concept of total reward (base pay plus benefits). Total reward reflects the level of job responsibilities, expertise and performance. Base pay is the most important element of an employee’s total reward and is the cash remuneration paid on a monthly basis. In addition to basic benefits such as superannuation, other non cash benefits such as the use of company vehicles and housing are also offered.

The performance of the Chief Executive Officer is assessed by the Board through the application of the Company’s Performance Management and Development System (PMDS). The performance of other key management personnel is assessed by the Chief Executive Officer in the same manner. This system, in addition to other factors, is used in determining annual adjustments to base pay. The Board may, however, exercise its discretion in relation to approving other incentives or bonuses and may make changes to the Remuneration and Nomination Committee’s recommendations. Any changes must be justified by reference to various performance criteria as discussed below.

A superannuation guarantee contribution of 9% is made on behalf of key management personnel, as stipulated by law. There are no other retirement benefits. Upon retirement, key management personnel are paid all employee-benefit-entitlements accrued to the date of retirement.

All remuneration paid to key management personnel is valued at the cost to the company and immediately expensed.

Performance-based remuneration

Many factors are involved in determining the level of remuneration. Apart from a variety of factors such as budgets, promotion history, position in salary range and market skill demand, an individual’s performance is a critical component in determining any salary adjustments. The PMDS reflects Mackay Sugar Limited’s management philosophy and is the tool used to communicate performance expectations and to assess performance outcomes.

The three main components of the PMDS are:

• adherence to or display of behavioural competencies (Company values);

• delivery of key performance indicators (KPIs), which are aligned to the Company’s strategic plan and critical success factors; and

• progress in respect to skills development plans.

Individual performance on these components is assessed annually, with budgeted salary adjustments and incentive payments being awarded depending upon the achievement against the established goals.

Relationship between remuneration policy and company performance

The remuneration policy has been tailored to increase goal congruence between shareholders, Directors and executives. Two steps are involved in achieving this relationship, the first

being an annual salary adjustment based on performance and the second being a performance based incentive plan based on the PMDS assessment for all salaried employees.

The Board considered that the current PMDS has been effective in determining salary adjustments. A provision was made for a 3% average salary adjustment. The following table shows the revenue from operating activities, profits and retained profits for the last five periods.

2006 $m

2007 $m

2008 $m

2009 $m

2010 $m

Revenue from operating activities 316.8 347.7 313.9 299.7 400.8

Profit for the period 6.1 3.4 5.5 6.3 44.3

Retained profits 183.1 186.2 193.2 199.5 243.7

Performance conditions linked to remuneration

For the 2010 financial period, Mackay Sugar Limited introduced a staff performance incentive plan. This was in the form of a cash incentive based on the profitability of the business and the individual’s contribution to the Company’s goals as assessed in the PMDS. The individual is required to still be employed in the Company at the end of the assessment period.

The performance related proportions of remuneration based on these targets are included in the following table. The objective of the reward schemes is to both reinforce the short and long-term goals of the Company and provide a common interest between management and shareholders. There has been no alteration to the terms of the bonuses paid since grant date.

Employment details of members of key management personnel

The table on the following page provides employment details of persons who were, during the financial period, key management personnel of the Company and if different, the five executives receiving the highest remuneration.

Page 22: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

emPLoYmeNt detAiLS of memBeRS of keY mANAgemeNt PeRSoNNeL ANd otheR execUtiVeS

Director/ executive

name

Position held as at 31 May 2010 and any

change during the period

Contract details (duration & termination)

Proportions of elements

of remuneration related to

performance

Non-salary cash-based incentives %

Proportions of elements of

remuneration not related to performance

Fixed salary/fees other benefits %

Total remuneration %

Key management personnel

A S Cappello Deputy Chairman (non-executive) Director Appointed Chairman from 18 February 2010

3 year term from 1 December 2007

0 100 100

J R Magill Director (non-executive) Appointed Deputy Chairman from 18 February 2010

No fixed term. Independent Director. Appointed 1 March 2006

0 100 100

A R Amer Director (non-executive) No fixed term. Independent Director. Appointed 22 Oct 2003

0 100 100

A R Bartolo Director (non-executive) Commenced 22 April 2010

18 month term from 22 April 2010

0 100 100

V Germanotta Director (non-executive) 3 year term from 1 December 2007

0 100 100

S Gordon Director (non-executive) 3 year term from 26 November 2009

0 100 100

R C Stroppiana Director (non-executive) 3 year term from 1 December 2007

0 100 100

C E Westcott Chairman (non-executive) Director resigned 18 February 2010

3 year term from 28 November 2008

0 100 100

R S M Galea Director (non-executive) resigned 31 January 2010

3 year term from 26 November 2009

0 100 100

Q L Hildebrand Chief Executive Officer No fixed term. 6 months notice required to terminate. No additional payments on termination.

31 69 100

S Pienaar Chief Financial Officer No fixed term. 6 months notice required to terminate prior to 1 June 2011, 3 months thereafter. No additional payments on termination.

23 77 100

J-C Gassin Human Resources Executive

No fixed term. 3 months notice required to terminate. No additional payments on termination.

23 77 100

M L Gayton Manager Factory Operations

No fixed term. 3 months notice required to terminate. No additional payments on termination.

23 77 100

D A Langham Manager Cane Supply No fixed term. 3 months notice required to terminate. No additional payments on termination.

23 77 100

W G Kemter Commercial Manager Commenced 12 October 2009 Resigned 31 March 2010

No fixed term. 3 months notice required to terminate. No additional payments on termination.

23 77 100

The terms and conditions of employment for key management personnel are formalised in contracts of employment. Non-Executive Directors are not subject to similar contracts.

20 | Mackay Sugar Limited | Annual Report 2010

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Mackay Sugar Limited | Annual Report 2010 | 21

Remuneration details for the period ended 31 May 2010

The following table reflects the components of the remuneration for each of the key management personnel and, to the extent different, the five executives receiving the highest remuneration:

tABLe of BeNefitS ANd PAYmeNtS foR the PeRiod eNded 31 mAY 2010

Director/ executive name

Short-term benefitsPost- employment

benefitsLong-term

benefits

TotalSalary & fees

(excludes leave paid)

Profit share and

bonusesNon-monetary

Other - Current

LSL* & AL* accrual

Pension and superannuation

Non-current LSL* & AL*

accrual

$ $ $ $ $ $ $

Key management personnel

A S Cappello 2010 48 629 - - - 4 377 - 53 006

2009 40 423 - - - 3 638 - 44 061

J R Magill 2010 5 848 - - - 49 215 - 55 063

2009 115 - - - 48 840 - 48 955

A R Amer 2010 45 040 - - - 4 054 - 49 094

2009 47 891 - - - 4 310 - 52 201

A R Bartolo

(22/4/10 to 31/5/10)2010 4 283 - - - 385 - 4 668

2009 - - - - - - -

V Germanotta 2010 36 314 - - - 3 268 - 39 582

2009 36 447 - - - 3 280 - 39 727

S Gordon 2010 9 747 - - - 29 502 - 39 249

2009 - - - - 39 727 - 39 727

R C Stroppiana 2010 32 899 - - - 2 961 - 35 860

2009 32 296 - - - 2 907 - 35 203

C E Westcott

(1/7/09 - 18/2/10)2010 41 303 - - - 3 717 - 45 020

2009 61 656 - 7 576 - 5 549 - 74 781

R S M Galea

(1/7/09 - 31/1/10)2010 21 482 - - - 1 933 - 23 415

2009 30 716 - - - 2 764 - 33 480

Q L Hildebrand 2010 379 932 90 000 23 925 43 629 27 407 2 759 567 652

2009 329 913 - 37 885 40 646 50 004 2 306 460 754

S Pienaar 2010 192 559 33 170 - 21 985 18 427 1 217 267 358

2009 18 196 - - 2 121 1 638 102 22 057

J-C Gassin 2010 191 537 22 463 - 22 008 29 190 1 151 266 349

2009 76 034 - - 8 590 11 319 422 96 365

M L Gayton 2010 115 379 34 479 30 160 20 595 38 311 26 603 265 527

2009 91 118 - 28 191 16 551 55 347 33 895 225 102

D A Langham 2010 105 215 - 30 915 20 652 44 623 21 920 223 325

2009 93 878 - 35 769 11 907 64 518 31 106 237 178

W G Kemter

(12/10/09 - 31/3/10)2010 157 996 - 16 026 10 248 34 250 - 218 520

2009 - - - - - - -

Total key management personnel

2010 1 388 163 180 112 101 026 139 117 291 620 53 650 2 153 688

2009 858 682 - 109 421 79 815 293 841 67 831 1 409 590

*LSL – Long service leave *AL – Annual leave

Pre-employment payments No payments were made prior to the appointment of an individual as consideration for agreeing to assume a position at Mackay Sugar Limited.

Page 24: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

Securities received that are not performance related

No key management personnel are entitled to receive securities as part of their remuneration package whether related to performance or not.

Cash bonuses and performance-related bonuses

The terms and conditions relating to bonuses granted as remuneration during the period to key management personnel and, to the extent different, the five executives receiving the highest remuneration during the period are as follows:

Options and rights granted

No key management personnel are entitled to receive options or rights as part of their remuneration package.

PRoceediNgS oN BehALf of the comPANYNo person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the period.

BoNUS detAiLS of memBeRS of keY mANAgemeNt PeRSoNNeL ANd otheR execUtiVeS

Director/executive name Remuneration typeReason for

grant (note a)

Percentage vested/paid

during year %

Percentage forfeited

during year %

Expiry date for vesting of payment

Key management personnel

Q L Hildebrand Cash (a) 44 56 31/05/2010

S Pienaar Cash (a) 50 50 31/05/2010

J-C Gassin Cash (a) 33 67 31/05/2010

M L Gayton Cash (a) 50 50 31/05/2010

D A Langham Cash (a) 0 100 31/05/2010

W G Kemter Cash (a) 0 100 -

Note (a) Cash was awarded as part of the Company’s incentive scheme based on performance. Such persons were deemed to have satisfied the prerequisites for the receipt of their awards being behaviour competancies and KPI measures based upon elements covered in the performance based remuneration outlined previously.

DIRECToRS’ REpoRT

22 | Mackay Sugar Limited | Annual Report 2010

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Mackay Sugar Limited | Annual Report 2010 | 23

iNdemNificAtioN of officeRSThe Company has paid premiums to insure Directors and officers against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting for the Company, other than conduct involving a wilful breach of duty in relation to the Company.

RoUNdiNg of AmoUNtSThe Company has applied the relief available to it in Australian Securities Investment Class Order 98/100 and, accordingly, amounts in this report and associated financial statements have been rounded to the nearest thousand dollars where appropriate.

AUditoR’S iNdePeNdeNce decLARAtioNA copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 24.

This report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors.

AS Cappello Director

JR Magill Director Dated: 26/08/2010

Page 26: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

diRectoRS’ decLARAtioN

The Directors of the Company declare that:

1. The financial statements and notes as set out on pages 26 to 34 are in accordance with the Corporations Act 2001 and:

a. Comply with Accounting Standards; and

b. Give a true and fair view of the financial position as at 31 May 2010 and of the performance for the 11 month period ended on that date of the Company; and

2. In the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

Dated this twenty-sixth day of August 2010.

AS Cappello Director

DIRECToRS’ REpoRT

JR Magill Director

AUditoR’S iNdePeNdeNce decLARAtioNUnder section 307C of the Corporations Act 2001To the Directors of Mackay Sugar Limited:

I declare that, to the best of my knowledge and belief, during the 11 month period ended 31 May 2010, there have been:1. No contraventions of the auditor independence requirements

as set out in the Corporations Act 2001 in relation to the audit; and

2. No contraventions of any applicable code of professional conduct in relation to the audit.

BENNETT PARTNERS Chartered Accountants

DARRYL CAMILLERI Partner

Dated: 27th August 2010 At: First Floor 122 Wood Street MACKAY Qld 4740

24 | Mackay Sugar Limited | Annual Report 2010

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Mackay Sugar Limited | Annual Report 2010 | 25

for the 11 month period ended 31 may 2010 ConCISE fInAnCIAL REpoRT

Mackay Sugar Limited | Annual Report 2010 | 25

Page 28: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

The concise financial report is an extract from the full financial report for the 11 month period ended 31 May 2010. The financial statements and disclosures in the concise financial report have been derived from the 2010 financial report of Mackay Sugar Limited (Mackay Sugar or the Company). A copy of the full financial report and auditor’s report will be sent to any member upon request.

The discussion and analysis is provided to assist shareholders in understanding the concise financial report. The discussion and analysis is based on Mackay Sugar Limited’s financial statements and the information contained in the concise financial report has been derived from the company’s full 2010 financial report.

Income statement

The net profit before income tax for the 11 month period ended 31 May 2010 was $44.3 million. This represents a $38.0 million increase in net profit from the 2009 financial year.

The 2009 season crop of 5.289 million tonnes was up 1.3% on the 2008 season crop. This increase in crop combined with an increase in the sugar content in the cane resulted in higher sugar production. The sugar price improved significantly against the previous financial year to $465.62 per tonne IPS sugar compared with the 2008 season price of $346.22 per tonne IPS sugar. The net effect of the $119.40 per tonne increase in the sugar price together with the higher sugar production resulted in an increase of $95.078 million in total sugar revenue.

Molasses production for the 2009 season increased by 11.2% as a result of the higher crop tonnage and molasses yield compared to the 2008 season. The molasses price for the 2009 season increased by 15.1%. The net effect was an increase in molasses revenue of $4.8 million compared to the previous year.

Electricity sales increased by $1.2 million on the previous year to $2.5 million. The increase in the 2009 season length of 2.20 weeks (13%) compared to the 2008 season had a significant affect on the revenue from Renewable Energy Certificates. Also, problems with the Marian Mill boilers and the impact on power export in the prior season were resolved in 2009 which resulted in higher electricity export sales.

The net effect of the above revenue items resulted in an increase in gross profit of $38.8 million or 32.0% for 2010 compared to the 2009 financial year. Revenue from non-operating activities in 2010 included the profit on the sale of land of $0.5 million.

Controllable maintenance and operating expenses were similar to the previous year at $69.3 million (2009: $70.0 million). Administration expenses decreased from $34.9 million in the 2009 financial year to $32.5 million in 2010 financial period. The $2.4 million reduction was mainly due to an 11 month period for 2010 compared to a 12 month period for 2009. Distribution and marketing expenses decreased by $1.8 million due to reduced freight and storage costs associated with the sugar being sold under the domestic selling arrangements. This cost reduction was due to a combination of lower sugar storage requirements and lower sugar storage rates for the 2009 season.

The profit from equity accounted investments decreased by $2.8 million on the previous year to $8.4 million as a result of an 11 month period for 2010 compared to a 12 month period for 2009, reduced sales and a decrease in gains on the mark-to-market of derivative financial instruments of $0.5 million.

Finance costs decreased by $1.3 million on the previous year as a result of decreased bank funding required, a decreased effective cash rate as well as the 11 months versus 12 months reporting period.

Depreciation is mainly a function of the tonnage of sugar cane crushed. Despite similar cane tonnages for both years, depreciation increased by $0.6 million on the previous year to $9.5 million. This increase was mainly due to capital expenditure in the previous year which resulted in a higher capital base for the current reporting period that was subject to depreciation for the full financial period.

Other expenses increased by $4.1 million on the previous year to $5.3 million for the 2010 financial period. The increase was mainly due to a $3.9 million impairment loss incurred on inventory, plant and equipment recognised as held-for-sale as a result of the closure of Pleystowe Mill.

Balance sheet

Total equity increased by $77.6 million on the previous year to $258.9 million as at 31 May 2010. This increase was mainly due to an increase in the profit for the period of $38.0 million to $44.3 million and movements in the valuation of the sugar pricing hedging positions of $29.1 million. It is a requirement that the sugar pricing forward contracts be valued at the end of the financial period. This valuation has resulted in a derivative financial asset of $3.5 million as at 31 May 2010 compared to a derivative financial liability of $29.1 million as at 30 June 2009. This movement is a result of a reduced sugar futures market value at the end of the financial period.

Other movements in equity include $4.6 million for capital raising, a $0.5 million reduction in the asset revaluation reserve and a $5.9 million reduction for the Company’s one-quarter share of the movement in Sugar Australia’s and New Zealand Sugar Company’s hedge reserve.

Net debt decreased by $42.4 million to $21.8 million. Net debt was made up of bank loans of $30.0 million, lease liability of $2.8 million, interest bearing deposits of $2.2 million and unsecured notes of $26.6 million, offset by cash of $39.8 million.

Receivables decreased by $10.4 million to $25.7 million which was mainly due to seasonal timing factors associated with the sugar revenue receivables at the end of the reporting periods for the 2009 season that was different to that of the 2008 season. Payables increased by $7.5 million to $68.9 million which was mainly due to higher cane payment accruals for the 2009 season resulting from the one month earlier financial period close. Inventories decreased by $1.5 million mainly due to a reduction in finished goods stock (raw sugar and molasses). Assets held-for-sale of $7.9 million include $1.2 million for investment property, as identified in previous financial periods as well as $6.7 million for property, plant, equipment and inventories that are planned to be sold or scrapped as a result of the closure

DISCUSSIon AnD AnALYSIS of ThE2010 fInAnCIAL STATEMEnTS

26 | Mackay Sugar Limited | Annual Report 2010

Page 29: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

of Pleystowe Mill. These assets have been separated from the normal inventories and property, plant and equipment and are recognised as a current asset.

Cash flow statement

Net cash flow from operating activities increased by $77.6 million to $79.2 million. This was primarily due to the increase in sugar sales as a result of the improved sugar price and tonnage.

Capital expenditure increased by $14.5 million to $31.6 million. This includes $18.1 million on the co-generation project with the balance being stay-in-business milling capital. Mackay Sugar Limited invested $9.0 million into Sugar Australia Joint Venture during the period.

Movements from financing activities were a combination of the following: proceeds from the issue of B class investment shares $1.9, net margin loan facility repayments of $14.8 million, a decrease in interest bearing deposits of $1.6 million and an increase in Unsecured Notes of $1.5 million. Cash on hand increased by $27.5 million to $39.8 million.

27 | Mackay Sugar Limited | Annual Report 2010

Page 30: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

NOTE MAy 2010$’000

JUNE 2009$’000

Revenue from operating activities

Revenue 2 (a) 400 818 299 706

Finance revenue 2 (b) 847 729

Total revenue 401 665 300 435

Changes in inventories of finished goods (1 103) 7 480

Cost of sales (240 201) (186 401)

Gross profit 160 361 121 514

Revenue from non-operating activities 2 (c) 493 -

Maintenance expenses (35 041) (34 105)

Operating expenses (34 219) (35 896)

Administration expenses (32 507) (34 868)

Distribution and marketing expenses (3 729) (5 546)

Depreciation (9 516) (8 901)

Finance costs (4 656) (5 943)

Other expenses (5 274) (1 193)

Share of profits of associate and joint venture 8 367 11 189

Profit before income tax 44 279 6 251

Income tax expense - -

Profit for the period 44 279 6 251

Profit attributable to:

Shareholders of the company 44 279 6 251

the accompanying notes form part of this concise financial report.

InCoME STATEMEnTfor the 11 month period ended 31 may 2010

28 | Mackay Sugar Limited | Annual Report 2010

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Mackay Sugar Limited | Annual Report 2010 | 29

MAy 2010$’000

JUNE 2009$’000

Profit for the period 44 279 6 251

Other comprehensive income or loss

Impairment of property, plant and equipment (485) -

Fair value movements on cash flow hedges 35 050 (38 523)

Gain on translation of foreign associated company 112 96

Share of other comprehensive income of associated company 626 278

Share of other comprehensive losses of the joint venture (6 550) (1 075)

28 753 (39 224)

Income tax expense relating to components of other comprehensive income/(losses)

- -

Other comprehensive profit/(loss) for the period 28 753 (39 224)

Total comprehensive income/(loss) for the period 73 032 (32 973)

Total comprehensive income/(loss) attributable to:

Shareholders of the company 73 032 (32 973)

the accompanying notes form part of this concise financial report.

STATEMEnT of CoMpREhEnSIVE InCoME for the 11 month period ended 31 may 2010

Page 32: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

MAy 2010$’000

JUNE 2009$’000

Assets

Current assets

Cash and cash equivalents 39 834 12 365

Trade and other receivables 24 427 36 078

Other financial assets 8 997 5 871

Inventories 19 857 21 373

Assets held-for-sale 7 921 1 303

Total current assets 101 036 76 990

Non-current assets

Trade and other receivables 1 232 -

Other financial assets 18 111 16 797

Investments accounted for using the equity method 87 790 82 111

Property, plant and equipment 193 056 183 220

Investment properties 1 367 1 390

Total non-current assets 301 556 283 518

Total assets 402 592 360 508

Liabilities

Current liabilities

Trade and other payables 68 401 59 708

Interest bearing liabilities 30 036 43 631

Other financial liabilities 936 19 422

Employee benefits 3 453 3 653

Total current liabilities 102 826 126 414

Non-current liabilities

Trade and other payables 499 1 682

Interest bearing liabilities 31 626 32 998

Other financial liabilities 1 404 11 267

Employee benefits 7 287 6 804

Total non-current liabilities 40 816 52 751

Total liabilities 143 642 179 165

Net assets 258 950 181 343

Equity

Issued capital 4 584 1

Reserves 10 631 (18 122)

Retained profits 243 735 199 464

Total equity 258 950 181 343

the accompanying notes form part of this concise financial report.

STATEMEnT of fInAnCIAL poSITIon As at 31 may 2010

30 | Mackay Sugar Limited | Annual Report 2010

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Mackay Sugar Limited | Annual Report 2010 | 31

Ordinary share

capital

Retained profits

Asset revaluation

reserve

Foreign currency translation

reserve

Hedging reserve

Total

$’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 July 2008 1 193 213 8 597 (1 200) 13 705 214 316

Profit attributable to shareholders of the company

- 6 251 - - - 6 251

Other comprehensive income:

Adjustments from translation of foreign associated company

- - - 96 - 96

Cash flow hedges: losses allocated to equity

- - - - (38 523) (38 523)

Share of associated company’s hedging reserve movements

- - - - 278 278

Share of joint venture’s hedging reserve movements

- - - - (1 075) (1 075)

Total comprehensive income for the period

- 6 251 - 96 (39 320) (32 973)

Balance at 30 June 2009 1 199 464 8 597 (1 104) (25 615) 181 343

Dividends - (8) - - - (8)

Issue of share capital 4 583 - - - - 4 583

Transactions with owners 4 583 (8) - - - 4 575

Profit attributable to the shareholders of the company

- 44 279 - - - 44 279

Other comprehensive income:

Impairment of property, plant and equipment

- - (485) - - (485)

Adjustments from translation of foreign associated company

- - - 112 - 112

Cash flow hedges: gains allocated to equity

- - - - 35 050 35 050

Share of associated company’s hedging reserve movements

- - - - 626 626

Share of joint venture’s hedging reserve movements

- - - - (6 550) (6 550)

Total comprehensive income for the period

- 44 279 (485) 112 29 126 73 032

Balance at 31 May 2010 4 584 243 735 8 112 (992) 3 511 258 950

the accompanying notes form part of this concise financial report.

STATEMEnT of ChAnGES In EQUITY for the 11 month period ended 31 may 2010

Page 34: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

MAy 2010$’000

JUNE 2009$’000

Cash flow from operating activities

Receipts from sugar sales and other sales 416 142 274 026

Payments to suppliers for cane supplied (224 040) (168 999)

Payments to other suppliers and employees (121 693) (113 344)

Distributions received from associated entities 5 847 9 966

Interest received 847 729

Other revenue 6 774 5 146

Finance costs (4 656) (5 943)

Net cash provided by operating activities 79 221 1 581

Cash flow from investing activities

Proceeds from sale of investments 912 -

Contributions made to associated entities (8 970) (4 611)

Payments for property, plant and equipment (31 604) (17 087)

Proceeds on sale of property, plant and equipment 58 407

Proceeds on sale of property held-for-sale 937 -

Net cash used in investing activities (38 667) (21 291)

Cash flow from financing activities

Proceeds from issue of shares 1 854 -

Proceeds from interest bearing activities 61 510 30 254

Repayment of interest bearing activities (76 345) (10 944)

Decrease in growers’ loans 28 64

Decrease in unsecured deposits (1 608) (39 677)

Increase in unsecured notes 1 476 25 141

Net cash (used in)/provided by financing activities (13 085) 4 838

Net increase/(decrease) in cash and cash equivalents 27 469 (14 872)

Cash and cash equivalents at the beginning of the period 12 365 27 237

Cash and cash equivalents at the end of the period 39 834 12 365

the accompanying notes form part of this concise financial report.

STATEMEnT of CASh fLoWS for the 11 month period ended 31 may 2010

32 | Mackay Sugar Limited | Annual Report 2010

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Mackay Sugar Limited | Annual Report 2010 | 33

Note3:Dividends No dividends were paid during the financial period.

MAy 2010$’000

JUNE 2009$’000

(a) 8% fully franked dividend was declared on B class investment shares on 31 May 2010 (paid 21 June 2010)

8 -

(b) Balance of the franking account at the end of the period 3 833 2 925

The franking account will be reduced subsequent to the period end as a result of the fully franked dividend declared per (a) above

(3) -

3 830 2 925

Note2:RevenueMAy 2010

$’000JUNE 2009

$’000

(a) Revenue from operating activities

Sale of goods 393 574 293 582

Services revenue 3 513 3 641

Dividends received – other corporations 3 102 1 981

Government subsidies received 274 227

Rental revenue 331 193

Royalties 23 43

Other revenue 1 39

400 818 299 706

(b) Finance revenue

Bank interest received – other corporations 845 719

Loan interest received – other persons 2 10

847 729

(c) Revenue from non-operating activities

Gain on disposal of property held-for-sale 493 -

493 -

Note1:BasisofpreparationoftheconcisefinancialreportThe concise financial report is an extract of the full financial report for the 11 month period ended 31 May 2010. The concise financial report has been prepared in accordance with Accounting Standard AASB 1039: Concise Financial Reports, and the Corporations Act 2001.

The financial statements, specific disclosures and other information included in the concise financial report are derived from and are consistent with the full financial report of Mackay Sugar Limited. The concise financial report cannot be expected to provide as detailed an understanding of the financial performance, financial position and financing and investing activities of Mackay Sugar Limited as the full financial report.

The financial report of Mackay Sugar Limited complies with all Australian equivalents to International Financial Reporting

Standards (AIFRS) in their entirety. The presentation currency used in this concise financial report is Australian Dollars.

The company has applied for relief available to it underASIC Class Order 98/100 and accordingly amounts in this concise financial report have been rounded to the nearest $1,000.

Change in reporting period

Since the last annual financial statements, Mackay Sugar Limited has changed the financial reporting period year-end date from 30 June to 31 May. This means that the financial period in this report will cover the 11 month period from 1 July 2009 to 31 May 2010. The comparative period in this report covers the 12 month period from 1 July 2008 to 30 June 2009. As a result the amounts presented in these financial statements for the two periods are not entirely comparable.

The reason for the change in the financial reporting year-end date from 30 June to 31 May is to better align the Company’s operations with the financial reporting period.

noTES To ThE ConCISE fInAnCIAL REpoRT for the 11 month period ended 31 may 2010

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Note4:Significantchangesduringthefinancialperiod

The following significant changes in the state of affairs of the entity occurred during the financial period:-

i. Rights issue: On 19 March 2010, Mackay Sugar Limited issued a prospectus for a non-renounceable rights issue of B class investment shares to investment shareholders on the basis of one B class investment share for every eight investment shares held, at an issue price of $0.80 per B class investment share. The rights issue closed on Friday 7 May 2010 and an amount of $4.76 million was raised under the offer. Currently, there are 5,952,597 B class investment shares on issue.

ii.Cogeneration project: During the period under review the Board approved the cogeneration project at an estimated cost of $120 million. Details regarding construction of the plant are included in the Chief Executive Officer’s section of the Annual Report.

iii.Refinery joint venture: In May 2010, Mackay Sugar Limited announced that its agreement with CSR to exchange its 25% stake in the refinery business for an 8.77% interest in CSR’s new sugar and renewable energy business, Sucrogen, had lapsed after the preconditions had not been satisfied. CSR has subsequently announced that it has entered into an agreement to sell its sugar and renewable energy business, Sucrogen, to Wilmar International Limited. The transaction is reported to be subject to the approval of the Foreign Investment Review Board and New Zealand Overseas Investment Office. Mackay Sugar Limited remains the owner of 25% of the Sugar Australia Joint Venture and New Zealand Sugar Company Limited and will engage with Wilmar International Limited to discuss the future expectations of the refinery joint venture.

iv.Pleystowe Mill assets held for sale: Due to a reduction in the tonnes of cane being processed in recent seasons, it was determined that a three mill operation would have the required operating capacity to successfully process future tonnages. Therefore, in 2009 the Directors made a decision to mothball Pleystowe Mill and Mackay Sugar Limited operated with three mills during the 2009 crushing season (the results for this crushing season is reported in the financial report for the period ended 31 May 2010). This decision allowed the Company to decrease costs significantly thereby improving the profitability of the Company in the current period and into the future. After the successful completion of the 2009 crushing season with only three operating mills, the Company made a decision in February 2010 to permanently close Pleystowe Mill. This decision brought about the commencement of a program to dispose of Pleystowe Mill assets that could not be used at other mills and were not suitable to be retained for other purposes. Plant and equipment that can be sold has been identified and a process of sale through an ‘On-line Auction Sale’ is currently being arranged. The demolition of some buildings and non-saleable plant

for sale as scrap also commenced. The program of disposal is expected to run over a period of six months. The proposed disposal of the Pleystowe Mill assets does not constitute a discontinued operation. The Pleystowe Mill assets planned for sale but still on hand as at 31 May 2010 have been separated out of the normal property, plant and equipment assets and transferred to a new asset category ‘Assets held for sale’ in current assets. This has resulted in assets held for sale as at 31 May 2010 being made up of the following:

MAy 2010$’000

JUNE 2009$’000

Property, plant and equipment assets held for sale

6 608 -

Inventory held for sale 69 -

Investment property assets held for sale

1 244 1 303

7 921 1 303

Note5:Eventsafterthereportingperiodenddate

Since the end of the financial period, movements in the ICE No.11 raw sugar futures prices and exchange rates have resulted in variances to the “mark-to-market” calculation reported as cash flow hedges in the financial statements. As at the date of this report, the movements in the market-to-market valuations since 31 May 2010 are not significant.

In the opinion of Directors, no matter or circumstance has arisen in the interval between the end of the financial period and the date of this report, which significantly affected, or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in subsequent financial years.

Directors’ declaration

The Directors of Mackay Sugar Limited declare that the concise financial report of Mackay Sugar Limited for the 11 month period ended 31 May 2010, as set out on pages 25 to 34:

a. complies with Accounting Standard AASB 1039: Concise Financial Reports; and

b. is an extract from the full financial report for the 11 month period ended 31 May 2010 and has been derived from and is consistent with the full financial report of Mackay Sugar Limited.

This declaration is made in accordance with a resolution of the Board of Directors.

AS Cappello Chairman

JR Magill Deputy Chairman

noTES To ThE ConCISE fInAnCIAL REpoRT for the 11 month period ended 31 may 2010

Dated: 26 August 201034 | Mackay Sugar Limited | Annual Report 2010

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Mackay Sugar Limited | Annual Report 2010 | 35

noTES

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36 | Mackay Sugar Limited | Annual Report 2010

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Mackay Sugar Limited | Annual Report 2010 | 37

Page 40: MACKAY SUGAR LIMITED · Corporate Office Peak Downs Highway Racecourse via MACKAY PO Box 5720 Mackay Mail Centre Queensland Australia 4741 Mackay Sugar Limited ACN: 057 463 671 Phone

Mackay Sugar Limited ABN: 12 057 463 671

Corporate Office Peak Downs Highway

Racecourse via MACKAY PO Box 5720

Mackay Mail Centre Queensland Australia 4741

Phone 07 4953 8300 Fax 07 4953 8340

Web www.mkysugar.com.au Email [email protected]

Farleigh Mill Armstrong Street

FARLEIGH Queensland Australia 4741

Marian Mill Anzac Avenue

MARIAN Queensland Australia 4753

Pleystowe Mill Eungella Road

PLEYSTOWE Queensland Australia 4741

Racecourse Mill Peak Downs Highway

Racecourse via MACKAY Queensland Australia 4740

Copyright © September 2010