Warrnambool Cheese and Butter's profit has been slashed 88 per cent as a result of falling global markets.
The company also cited the high raw milk cost (farmgate price) relative to market conditions for the hit to its profit.
In a chilling warning for farmers, it said the farmgate price for the next season was going "to be more closely aligned with market conditions".
It announced a net operating profit after tax of $4.2 million for the year ended 31 March 2016 (FY2016), a decrease of $30.1 million or 87.8 per cent compared with the nine months ended 31 March 2015 (FY2015).
Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) decreased by $32.3 million or 56.6 per cent to $24.8 million compared to $57.1 million in FY2015.
"The decrease in profits is due to declines in global international commodity prices and a high raw milk cost relative to market conditions," it said.
Profits from the company’s consumer goods business, which includes the everyday cheese business, acquired from Lion-Dairy & Drinks in 2015, and the positive effect of the depreciation in the Australian dollar only partially offset the effect of the above.
The company also incurred acquisition costs of $2.1 million associated with the acquisition of the Lion business.
The company said international dairy prices were expected to remain weak for the next year, with global milk production remaining high and a limited change in demand.
Raw milk cost is expected to be more closely aligned with market conditions for the coming 2016-17 milk season.
The Australian dollar is currently lower than the FY2016 average but remains volatile.
The company said it intended to continue to improve its efficiencies, while remaining committed to producing quality products, innovation and growth, and will aim to maximise its operational flexibility to mitigate fluctuations in market conditions.
No final dividend was declared for FY2016 and the board does not intend to declare any as the directors have decided to retain cash to deleverage its balance sheet and for investment into the business for growth, investment and development.
– Australian Dairyfarmer
