FSC insolvent as losses & debts accumulate

  • 23rd November 2011
  • 2011
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The Fiji Sugar Corporation’s 2011 operating loss shot up by $18m to $37m compared to $19m the previous year.

This is revealed in the Corporation’s Annual Report released last week. Total accumulated losses stood at $123m as at 31st May.

The published accounts show FSC’s total borrowings at $218m ($105m non current and $113m current).

The Corporation’s independent auditors have commented as follows regarding FSC’s ability to continue as a going concern:


The Corporation incurred significant losses during recent years. During  the year ended 31 May 2011, the Corporation incurred a loss of $36.4m. The Corporation has generated negative cash flows from operations of $32.9m for the year ended 31 May 2011.

As at 31 May 2011, total liabilities of the Corporation exceed total assets in net liabilities of $102m. The current liabilities exceed the current assets by $97.2million.

The Corporation has significant debt repayment commitments amounting to over $113m during the financial year ending 31 May 2012. Furthermore, the Corporation will require funding to meet its working capital requirements and capital expenditure.

The above conditions and other matters as disclosed in … the financial statements indicate the existence of a material uncertainty that may cast doubt about the Corporation’s and the Group’s ability to continue as a going concern. 

Surviving on borrowed funds

According to the independent auditors, the Corporation’s survival is dependent on continued financial support from the government to meet its working capital requirements, capital expenditure and to fund its operating losses. As per the notes to the financial statement, the Corporation has:

“ Significant debt repayment commitments amounting to over $114m during the next 12 months, including $72.4m repayable to the Government. The Corporation will require significant funding to meet
its working capital requirements, capital expenditure and fund the operating losses. Total funding requirements for the financial year ending 2012 and 2013 is projected to be around $171.6m…

Given the financial position and the debt levels of the Corporation and recurring losses being incurred by it, the business operations will require restructuring of debt and additional equity or funding. 

Salvage plans:

As the Corporation may not be able to continue as a going concern, the Government is committed to providing the following assistance to bring the required reforms and improvements, says the Report:

• In the short and medium term, the Government continues to provide financial and other support to the Corporation and the sugar industry, the Corporation’s debt is restructured and additional equity and/or funding provided by the Government to enable the Corporation to meet its commitments and obligations on a timely basis;

• Improvements are achieved in cane supply volumes and quality together with significant improvements in mill efficiency and performance with improved TCTS and reduced mill operating cost.

• Sugar industry reforms are achieved and funding for the sugar industry at large is made available for a long term sustainability and survival of the sugar industry and the Corporation.

The Government as the majority shareholder has made a commitment to support and assist the industry given its the importance to the national economy. Government’s support is evident by:

• The Government guarantee of $120 million valid until 31 May 2012

• Funding of $72.4 million provided during the year

• Funding of $56.5 million provided subsequent to balance date

• Meeting the finance cost on the advance of $8.4m from the Sugar Cane Growers Fund. 

FSC admits mill inefficiency

In its notes to the Financial Statements, FSC admits that despite the mill upgrade programme being substantially completed during the year ended 31 May 2011, the TCTS ratio “continues to be high and the mill is [sic] operating below desired efficiency levels”.

The industry, particularly the growers who have a 70% stake in it, have lost hundreds of millions in the last three seasons because of chronic milling inefficiency which continues through to this season as well.

TCTS ratio of 10:1 (tonnes of cane to tonne of sugar) remained consistent from 2001 through to the 2007 seasons, rising to 11.2 (2008), 13 (2009), 14 (2010). In these three years because of milling inefficiency, the industry lost 304,000 tonnes of sugar worth at least an estimated$300m.

At the same time, the price per tonne of cane dropped from $59 ($71 in devalued dollar terms) in 2008 to $49 in the 2010 season. And the industry barons are wondering why the farmers are losing interest in cane growing!

The significant drop in cane price coupled with the massive losses incurred through milling inefficiencies (running into hundreds of millions of dollars in the past three years) have made cane farming a non-profitable enterprise. Farmers have been thoroughly demoralized and will need substantial assistance to continue in cane farming. So far, compared to the millions of taxpayers’ funds that have gone to prop up FSC, monetary assistance to growers has been paltry. Whatever assistance has been given, is largely in the form of loans.

Meanwhile, a large delegation, headed by the interim Prime Minister and Minister for Sugar, is on its way to London to attend a two day ISO seminar… ” to learn from other leaders in the industry worldwide on how to further improve our systems” says FSC chairman Abdul Khan.

The trip is estimated to cost around $250,000, according to industry sources.