Dairy processor Murray Goulburn has reported a fall in its milk intake of almost 30 per cent in the first half of fiscal 2018, and attributed the drop to its “inability to pay a competitive milk price” to farmers.The processor reported a milk intake of 1.1 billion litres and total revenue of $1.1 billion in its first half results released on Wednesday.
Revenue was hit by the falling milk volume and dropped by 5.1 per cent, but the fall was partly offset by higher commodity prices and inventory sales.
Murray Goulburn has reached a deal to sell the business to Canadian dairy giant Saputo, but the proposed deal remains subject to approval from the Australian Competition and Consumer Commission and the Foreign Investment Review Board. The ACCC is expected to release the findings of its review of the proposed sale on March 1.
The processor warned of potentially serious consequences if the deal didn’t go ahead.
“While the transaction continues to progress as anticipated, if it does not proceed, and in the absence of an alternative transaction, MG may not be able to pay a competitive farmgate milk price. Further losses of milk flow may trigger an impairment to MG’s assets that could breach banking covenants and result in potential withdrawal of creditors’ support and an increased risk to MG’s ability to refinance its expiring debt facilities,” MG said.
In an interview with Fairfax Media MG’s chief executive officer, Ari Mervis, said the processor’s milk intake had stabilised since higher payments to farmers were announced last year and the Saputo deal was unveiled.
“Without milk basically we’re all aware there is no processor. And we appreciate that while for some of them a sale or disposal of Murray Goulburn may not be universally popular, I firmly believe that this transaction, if it completes, is in the best interests of all our stakeholders.
“It gives our farmers a really competitive milk price for the current financial year, which is something that a stand-alone MG was unable to do…it also provides them with certainty around the future,” he said.
Despite the sharp fall in milk volumes Murray Goulburn’s financial position improved during the first half.
Normalised profit before tax rose 213.6 per cent to $35.1 million compared to the first half of fiscal 2017, while normalised net profit rose 53 per cent to $14.4 million.
Revenue from the processor’s dairy foods segment rose 10.7 per cent to $617 million, and it reported an improved performance in the MG Trading division. But the processor confirmed its ingredients and nutritionals business “continued to be impacted by reduced milk intake, with segment revenue of $357 million, 25.9 per cent below first half fiscal 2017”.
The processor’s net debt fell by more than $200 million to $474 million.
Murray Goulburn forecasts a full year farm gate milk price for fiscal 2018 of $5.60 per kilogram of milk solids, subject to completion of the Saputo deal.
Mr Mervis said while management was addressing costs and commercial performance, MG remained exposed to competitive pressures.
“The first half of this financial year has continued to be challenging for MG. The inability to pay a competitive milk price has resulted in a substantial loss of milk,” he said.
Morgans analyst Belinda Moore said Murray Goulburn’s first half result had been overshadowed by the proposed Saputo transaction.
“It’s good to see a material improvement on the previous corresponding period. But the result, really, is probably being overlooked by the market,” she said.
Source: The Sydney Morning Herald
