Forestry Play Midway Felled After “Particularly Disappointing” Downgrade

By Glenn Dyer | More Articles by Glenn Dyer

Shares in forestry company Midway plunged 21% yesterday to an all-time low of $1.81 after it issued a sharp earnings downgrade at its annual general meeting.

Shareholders were told Midway now expects December half-year 2019-20 earnings before interest, tax, depreciation, and amortisation (EBITDA) to fall more than 50% than 2018-19 EBITDA of $37.1 million.

Midway Managing Director, Tony Price told the meeting the overall volume of wood fibre exports and the average price received from customers during the last few months had materially affected the earnings outlook for 2019-20

“First half wood fibre export shipments are substantially down compared with last year and Midway now expects first-half EBITDA in FY20 will be more than 50 percent lower than the previous corresponding period, “ Mr. Price said.

“As a result of this first half weakness, and down-side risks to volume and pricing in the second half of the financial year, we now expect full-year EBITDA to be materially lower than consensus forecasts for FY20.”

The news saw the sell-off and the shares ended the day down 20.6% at $1.85, an all-time closing low

Chairman Greg McCormack blamed a surplus of paper pulp in Brazil and US tariffs on Chinese paper imports in his speech to the meeting which was held in Melbourne.

“The revised 2020 outlook is particularly disappointing for all of us as it follows three consecutive years of solid profit growth and good returns to shareholders, and we believe we are putting in place the right long-term growth strategy to grow earnings and returns to shareholders,” he said.

“The board is confident that the imbalance in the pulp market will be relatively short-lived…international industry experts now expect global pulp prices to rebound during the 2020 calendar year and we expect that this will flow through to a more healthy wood fibre outlook in due course.”

Mr. McCormack assured shareholders that Midway was taking all steps under its control to minimise the impacts of the global market downturn on earnings and shareholder returns including an aggressive cost savings program, efficiency initiatives, more active marketing programs and new revenue-raising initiatives.

“The revised 2020 outlook is particularly disappointing for all of us as it follows three consecutive years of solid profit growth and good returns to shareholders, and we believe we are putting in place the right long-term growth strategy to grow earnings and returns to shareholders,” Mr. McCormack said.

Midway will pay a final dividend of 9 cents a share, taking full-year dividends to 18¢.

While cash flow has been adversely impacted by a global slow down in the paper pulp market, Midway’s balance sheet ”remains in good shape” and it has extended banking facilities.

It will write off $2 million for its 25 percent stake in New Zealand company ADDCO Fibre Group, which has been forced into voluntary administration.

Mr. Price told shareholders. “ We will also be reviewing the value of all other investments as part of our normal financial reporting processes.”

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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