Sector News

Murray Goulburn to close three facilities, ‘forgive’ debt

May 3, 2017
Food & Drink

Murray Goulburn, Australia’s biggest dairy processor, has attempted to boost its farm members at the expense of shareholders with $410m in writedowns and a suspension of dividends.

The hybrid farmer-owned cooperative with an ASX-listed arm (MGC) announced this morning that it will shut three factories and axe its loathed “clawback” of milk overpayments from farmers, as it grapples with a loss of nearly 20 per cent of its milk supply in the past year.

Murray Goulburn says it will shut its Rochester and Kiewa factories in Victoria and the Edith Creek factory in Tasmania. Its joint venture with Danone at Kiewa will not be affected.

The plant closures will cost $99m but the co-op said from the 2018 financial year it should get a net benefit from the closures of $15m.

The dairy producer will also “forgive” its euphemistically-named “Milk Supply Support Package” or milk cheque clawback from farmers. The closures were flagged in The Australian last week.

Murray Goulburn said about 360 jobs will be lost in the plant closures, which will cut costs by $40-60m over the next 18 months. These job cuts follow last year’s slashing of 200 head-office positions last year.

Murray Goulburn said the immediate scrapping of the controversial MSSP, introduced late in April last year to force farmers to payback some of their milk cheques received in previous 10 months of 2015-16, would cost the business $148m.

Farmers who have already paid back MSSP payments to Murray Goulburn since May last year will be refunded.

The move is designed to stop the rush of dairy farmers quitting Murray Goulburn for rival processors, after loosing trust and confidence in the cooperative. Murray Goulburn’s market share has slipped from 37 to 29 per cent due to its price cuts and debt demands. This package is aimed at boosting farmer numbers.

But the forecast farmgate price of $4.95 a kilo was maintained despite the fact rivals like Fonterra are paying farmers $5.20 a kilo.

“All future repayments of the MSSP which were to recommence from July 2017 will cease,” the company said.

“MG will also make a payment to continuing and retired suppliers who made MSSP contributions between July and September 2016, and to any suppliers who recommence supplying milk to MG by 31 July 2017.”

MG is immediately suspending all dividend payments to ASX investors and shareholders, including it’s next final year 2016-17 dividend.

The dairy company has also scrapped its planned investments in its dairy beverages and nutritionals businesses.

The moves follow Murray Goulburn’s major asset and footprint review after the departure of former chief executive Gary Helou and last year’s milk price crash.

“These decisions are a continuation of efforts to address MG’s cost base, improve efficiencies and ultimately increase earnings and farmgate milk pricing,” the company said.

Mr Mervis took over the job running Murray Goulburn in February, replacing acting chief David Mallinson who is expected to leave.

Last week the ACCC took action against MG and its former boss Gary Helou and his finance chief Brad Hingle alleging unconscionable conduct and misleading statements over the cut in farmgate prices last year.

The ACCC took the unusual step of not seeking monetary penalties against MG for fear these would simply hurt its farm members.

At the 11.15am (AEST) official market open, shares in Murray Goulburn’s listed unit trust dived 10.6 per cent to 0.92 cents.

Source: The Australian

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