STL Chair Mark Gray said this decision has been taken in order to reduce costs, drive greater efficiencies, and remove a clear conflict of interest, which will better position STL to serve the industry into the future. As a result, STL has notified Queensland Sugar Limited (QSL) of its intention to terminate the Operating Agreement under which the BSTs are currently operated.
“As the asset owner STL already meets all operating costs, and approves and funds all capital investment, so collectively it makes sense that we operate these BSTs,” Mr Gray said.
“A simplified structure will streamline operations, eliminate duplication, and remove the inherent conflicts of interest in the current outsourced arrangements.”
A lot has changed since the advent of grower and marketing choice in 2017 and the Operating Agreement is now of diminishing value and is not ideal to meet the future strategic challenges facing STL.
It is now timely to bring the operations function in-house in order to reduce costs, drive greater efficiencies and remove a clear conflict of interest.
A simplified structure with STL having direct operational responsibility will remove the inherent conflicts of interest that arise as QSL is a significant customer, the current operator and also a major shareholder.
In the industry’s highly competitive marketing environment, this change will put all customers on an equal footing, which is ultimately the best outcome for all users.
It will remove the unnecessary duplication that exists due to the allocation of costs incurred from the QSL Board, Executive, support functions, insurance policies and auditing requirements, amongst others.
Insourcing will also enable STL to better pursue its diversification strategy in a far more direct and focused manner, while continuing to prioritise the needs of the sugar industry, who will always be our primary customer.
By assuming direct responsibility for the operation of its terminals, STL is better able to drive efficiencies and cost savings for users.
The BST’s play a vital role in the industry’s supply chain and by taking operational responsibility we can more directly drive continuous improvement and innovation.
STL recognises it is the custodian of assets owned by the entire sugar industry. We will continue to invest in maintaining, upgrading, and renewing them to service the needs of the industry.
A simplified operating model will enable STL to remove duplication, reduce costs, eliminate a conflict of interest, and enable STL to more actively pursue diversification opportunities without compromising our services to the Sugar Industry.
STL already pays all Operating Costs, all Maintenance Costs and funds all Capital Investment.
Under the current operating model, STL incurs QSL overhead costs as a result of having to pay a significant proportion of the costs associated with the QSL Board, the CEO, members of the Executive Team, as well as duplicated insurance costs and audit requirements to name just a few.
Many of these duplicated corporate overhead costs will not be required with insourcing, delivering a cost saving for STL and therefore industry.
STL has consulted widely with industry over recent times. During such consultation we received different views on a range of issues, including management of the terminals.
Specific consultation on a decision to insource operations is subject to strict legal obligations regarding market sensitive information and these must be strictly adhered to by STL as a company listed on the NSX.
STL has commenced an active program of engagement with all industry stakeholders to explain the reasons for our decision to insource operations. This will be ongoing.
There has been extensive confidential consultation with QSL, much of which is explicitly documented.
STL has been engaging with QSL for several years on a strategic partnership, commercial arrangements, a performance framework, alternative operating structures and a review of the Operating Agreement. All of these discussions have proven to be unsatisfactory.
This is a matter governed by the Operating Agreement signed by STL and QSL in 2017. Under this commercial contract both parties agreed to allow STL to insource operations.
STL intends to offer employment to all site based operational employees on the same terms and conditions of employment, same rates of pay, recognising their prior service and all accrued entitlements.
Under the Operating Agreement, the formal termination date is 30 June 2026. STL believes this change could happen much sooner which means the Sugar Industry would see the benefits earlier.
The pricing model has been agreed with customers under the provisions of a Storage and Handling Agreement. STL has no discretion to change prices in a way which is inconsistent with this agreement.
STL has applied a consistent dividend policy in line with market practice for this type of business. There are no plans to change this long-standing policy.
Day-to-day operations will not be affected. STL is simply bringing operations inhouse under a simplified and ultimately lower cost management structure. The expertise of existing site based operational employees is highly valued and they will be offered continuing employment on the same terms and conditions as at present.
The STL Board and Executive also has extensive domestic and international experience in transport, logistics, shipping, supply chain management, operations, engineering, financial management and agriculture.
Prior to 2000, the Bulk Sugar Terminals were owned by the Queensland Sugar Corporation with different operational arrangements. This highlights the fact that change has always been a feature of the Sugar Industry.
As indicated earlier, there is unnecessary and avoidable duplication in corporate overhead costs. This is just good business practice, especially as STL already meets all operating costs and funds all capital expenditure.
The sugar terminals are industry assets that sit on STLs Balance Sheet. There is absolutely no reason why STL would want to reduce maintenance on these assets as this would compromise the reliability of STL’s service to the Sugar Industry and ultimately impact the value of STL. STL already meets all maintenance costs.
Servicing the needs of the Sugar Industry WILL ALWAYS be STLs top priority.
Where we can find opportunities to use assets better without compromising the services provided to the Sugar Industry, we will give this consideration. The work STL is now undertaking in Bundaberg is an example of this.
Without diversification in terminals such as Bundaberg, either costs will increase due to declining utilisation or profits will reduce due to asset write offs.
Elimination of duplicated costs will fully offset the loss of tax concessions currently enjoyed by QSL. There is no need to pay another party to manage a business STL can manage itself.
As a listed company, STL has far higher reporting obligations than QSL. For example, STL must disclose detailed cost breakdowns and also remuneration arrangements of key management personnel and the Board.
This is further demonstrated by comparing the material presented in the Annual Reports for the two entities.
STL is a publicly listed Company governed by a Board of 7 Directors including 2 Grower nominated Directors, 2 Miller nominated Directors and 3 Independent Directors including the Chair. This structure has been designed to ensure no group can exercise control.
STL applies strict protocols to manage potential conflicts of interest of all Directors.
All Directors are fully aligned with STL’s core function to maintain the quality of industry assets and ensure efficient terminal operations.