Company Interview / Paving the way for carbon solutions

Key points:

Midway (ASX: MWY) reports $2 million profit, announces dividendsMidway exports wood fibre to Asia and grows its carbon businessContracts secured; climate manageable but affected by global pulp market dynamics

Anthony McKenna, CEO of Midway (ASX: MWY) reports an underlying profit of $2 million, improving by $5.1 million from last year. The company announces an ordinary dividend of 1.6 cents and a special dividend of 14.5 cents per share, fully franked.

Anthony explains that Midway (ASX: MWY) exports high-quality wood fibre to China, Japan, and Indonesia. The company is growing its plantation carbon business, providing solutions for emitters and investors seeking carbon emission offsets or Australian carbon credit units.

Looking ahead, Anthony highlights secured contracts for most of the wood fibre volume for the first half of the fiscal year, along with growing interest from major emitters for carbon solutions. He mentions that climatic issues are manageable, but global pulp market dynamics remain a key factor.

Full unedited transcript below:

0:11

Sticking with the reporting season and in the smaller end of the market, would fiber exporter midway has reported an underlying profit of $2 million, which is an improvement of about 5.1 million on the previous year. It's declared an ordinary dividend from FY 24 earnings of 1.6 cents per share, fully franked special dividend of 14.5 cents per share. So let's find out what is going on at midway limited CEO Anthony McKenna is joining me now to discuss Anthony, welcome to ACS. Thanks so much for joining us. I would like to start this one by you just introducing us to Midway Limited. And what exactly it is that you folks do there.

0:52

Yeah. So midway is an Australian wood fiber exporter. Uh, we've got operations in five major forestry areas around Australia We export wood fiber to pulp and paper mills in China, Japan and Indonesia. Um, and importantly, we have a plantation carbon business, which is a new business for us, but it is rapidly growing, uh, where we provide solutions for emitters or for companies looking to or investors looking to get exposure to, um, carbon emission offsets or Australian carbon credit units. Yeah. Okay. So how much of the revenue mix would that be right now and what are the goals?

1:32

Yeah. So it's it's a start up part of the business for us. It's a natural adjacency to the business that we've always done in managing, um, plantations and establishing plantations, uh, and generating commercial returns from them. Uh, the standalone carbon business, uh, made a small loss that EBITDA level for this year, but we'll be profitable next year and has a good, um, trailing, uh, contract base that is, is building. Well. Okay. So let's talk about this results coming through for the full year. So positive underlying EBITDA s I'm not sure what that is actually a 14.2 million. So that's a big improvement on the previous year. So what improved to drive that result? Yeah. So we've improved the volumes that we're exporting as well as eliminating some of the loss making businesses. And um, it's you can say it's a big turnaround. Um, EBITDA is EBITDA, um, before significant items

2:32

or effectively underlying EBITDA. Okay. So it's underlying EBITDA. Okay. So and what were the significant items like what have you, what have you had to sort of take into account. So so historically we take out the, um, revaluation of uh, the plantation estate, which we've now nearly sold the whole lot. We've settled the final tranche in the next month. Uh, and that's usually most of the, the eliminations from that, that figure. Okay. Um, and so when you are looking ahead, because the outlook oftentimes is what it's all about. Where is most of the demand coming from and how much of that is already contracted? Like, do you have quite a lot of visibility when it comes to the outlook? So on the outlook, there's two, two parts to our business. The wood fibre business, um, feeds into the pulp markets and as the pulp markets have volatility, then we get exposed to some of that volatility as well. Uh, we have the contracts for most of the volume that we'll be exporting for the first half of this

3:31

financial year, um, secured and working closely with customers for, for the balance of the financial year. At this stage, the market is looking, um, encouraging. Uh, and then on the carbon side, what we're doing is we're working with, uh, major emitters, and we're seeing more and more interest from them as they're feeling urgency as the pressure is coming on with safeguard mechanisms or other commitments to net zero or net reduction in carbon emissions. And they're looking for ways to offset those emissions and approaching companies like us who, plant trees and sequester carbon in the wood fiber to provide them with solutions, either through partnerships or through supplying Australian carbon credit units. And so is there, as there often is when you're exporting Australian products into Asian countries, particularly China and Indonesia. Is there a premium paid for the type of wood, fibre and pulp that we can send into those markets? So Australia produces a high quality and high density wood fibre,

4:31

which does achieve a significant premium over the, um, the plantations that come out of Vietnam, for example. So, um, yes, we do get a good price for Australian exports. And, but it is a global marketplace that you are susceptible to, to global pricing, right?

4:48

Yes it is. Yeah. I find it fascinating. We don't talk about this a lot. And so other challenges I would imagine, you know, you are at the mercy of weather, you know, at the mercy of of some of those sort of cyclical forces that any agri business is susceptible to. So what are the challenges that you'll have to face potentially Anthony, in the year to come?

5:11

Yeah. So a lot of the, um, climatic issues are more manageable in, uh, forestry and plantations than they are in, in normal agriculture because it's a much longer crop rotation. So you plant trees and you harvest them 12, 14 years later. Uh, and so the weather impacts are less the bigger impacts that we face are the, the, um, the movements in the, in the global pulp market. And there's some really encouraging dynamics happening there with the Chinese increasing their pulp mill capacity, which means that they have a greater demand for woodchips, uh, which really plays into our businesses hands. Um,

5:53

so that's, that's a real positive. And they do require a, a portion of the high quality wood fiber, but then they're also sourcing domestic, domestic Chinese wood fiber and wood fiber from Vietnam as well.