Australia’s leading dairy processor, Murray Goulburn (MG), has announced its milk intake has been slashed by more than a fifth, while revenue has dropped by more than 10 per cent.
It reported a net loss after tax of $370.8 million, after the windback of the controversial Milk Supply Support Package (MSSP), footprint rationalisation and other one-off costs had been taken into account.
MG told the Australian Securities Exchange (ASX) last financial year it had received 2.7 billion litres of milk down 21.8pc.
Revenue stood at $2.5billion, down 10.3pc on the previous financial year.
MG’s chief executive officer Ari Mervis, said the co-operative had experienced “a difficult year” as a result of a significant reduction in milk intake and adverse seasonal conditions.
“In order to mitigate the resulting impact, a number of important initiatives have been undertaken,” Mr Mervis said.
MG confirmed it would be maintaining its opening Southern Milk region farmgate milk price of $5.20kilogram/MS (kg/MS).
“A final FMP above $5.20/kg MS remains under review and is subject to various factors including favourable movements in exchange rates and dairy commodity prices over the balance of the financial year, as well as retaining appropriate levels of milk intake,” Mr Mervis said.
“The Board of Directors has agreed that MG has the ability to deviate if necessary from the profit sharing mechanism to the extent required to pay a financial year 2017-18 farmgate milk price of $5.20kg/MS, by providing access to up to $100 million.”
MG said it believed it would be able to fund the milk price, out of this year’s earnings.
MG had implemented a review of its factories, rolled back the MSSP, and delivered on previously announced “cost out” initiatives.
“Furthermore, a new management team is now in place, and a comprehensive strategic review covering all aspects of MG’s strategy and corporate structure, including the profit sharing mechanism and capital structure, is accelerating,” Mr Mervis said.
Mr Mervis said MG and its advisor Deutsche Bank AG, had received a number of confidential unsolicited indicative proposals from third parties.
“These proposals have ranged from concepts around certain non-core assets to larger proposals including whole of company transactions,” Mr Mervis said.
“The Board has requested Deutsche Bank to seek more detailed proposals from these and other relevant parties so as to enable MG to assess the merits of such proposals.
“MG will consider any such proposals having regard to the overall interests of MG’s business and its suppliers, shareholders, and unitholders including: the ability to pay a higher FMP on a sustainable basis; value implications for shareholders and unitholders; the ability for MG to access capital as required into the future; and the impact on co-operative principles.”
Dairy foods sales dropped by eight pc, to $1,221m, largely due to lower adult milk powder (AMP) sales.
Sales dropped by $93m, compared to the previous year, when cross border sales grew significantly.
“Lower AMP sales also resulted in MG recording lower Devondale branded sales, which were down 14 percent to $502 million.
On the upside, the co-operatives ingredients business benefitted from improved commodity prices, with average sales per tonne up 10.5 percent.
That was net of the impact of a higher average exchange rate.
MG’s ingredients sales fell seven pc, and nutritionals sales contracted by 34.5pc, as a key international customer became increasingly self-sufficient.
“Total ingredient and nutritional sales were $958 million, down 12pc,” Mr Mervis said.
Despite difficult trading conditions, at year end MG had reduced net debt by $35 million to $445 million.
“The FY17 year has tested the strength and resolve of MG and its suppliers,” Mr Mervis said.
“The coming months will be pivotal for the future of the business as the board and management finalise substantial business improvement programs and third parties are given an opportunity to submit formal proposals to the company.”
Mr Mervis said MG’s milk intake remained firmly in the hands of its suppliers, and with their support MG looked forward to a constructive year.
