Murray Goulburn records $371 million loss, low milk intake

UPDATE: DAIRY co-operative Murray Goulburn has posted a $370.8 million after-tax loss for 2016-17.

Murray Goulburn recorded a massive $370.8 million after-tax loss for 2016-17. Picture: Chloe Smith

UPDATE: DAIRY co-operative Murray Goulburn has posted a $370.8 million after-tax loss for 2016-17.

The loss includes one-off costs of $405 million to abolish the hugely unpopular Milk Supply Support Package, or clawback from farmers of promised milk payments for 2015-16.

If the $405 million cost was excluded, MG would have made a profit of $34.7 million.

Revenue for the co-operative for the 12 months to June 30 this year was $2.49 billion, a 10 per cent fall from $2.78 billion recorded for 2015-16, according to the co-operative’s financial statements released today.

MG chief executive officer Ari Mervis said the company had made cost savings in 2016-17 of just more than $11 million — within its target range of $10 million to $15 million.

Mr Mervis said the company would continue to reduce costs through a range of measures, including a ban on all discretionary expenditure and a 30 per cent reduction in advisory fees and use of consultants.

Importantly, MG reduced its debt from $480 million as at June 30 last year to $445 million this year.

Mr Mervis said that paved the way to borrow $100 million from banks to prop up its farmgate milk price for this season to at least $5.20/kg MS, in line with a recommendation from its adviser Grant Samuel & Associates.

Grant Samuel said MG needed to curtail any further loss of milk intake.

MG revealed it is expecting to process only two billion litres of milk this season, down from its revised forecast of 2.3 billion litres last month.

Once Australia’s largest dairy processor, milk intake of two billion litres would be its worst receival in more than 20 years.

The revelation means MG and Fonterra are expected to process the same amount of milk this season after Fonterra had recorded a lift of 500 million litres of milk.

MG has confirmed that despite the milk loss it would hold its $5.20 a kilogram of milk solids opening southern region price, but warned a final farmgate milk price of more than $5.20/kg MS remains “under review”.

It said a final farmgate milk price was 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.

MG confirmed that since it announced its strategic review in June, its adviser 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,” the MG statement 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 farmgate milk price on a sustainable basis, the 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.”

Mr Mervis said its “difficult year” was the result of the lower milk intake and adverse seasonal conditions.

“In order to mitigate the resulting impact, a number of important initiatives have been undertaken,” Mr Mervis said.

“These included implementing the manufacturing footprint review, derecognising the contentious Milk Supply Support Package and delivering on previously announced cost out initiatives.”

MG’s financial report also revealed former managing director Gary Helou received $2,003,171 in his final remuneration from the company in 2016-17.

Former chief financial officer Bradley Hingle received $529,297 in 2016-17.

Mr Helou and Mr Hingle both left MG in April last year when MG announced a cut in the farmgate milk price.

Both are now subject to court action launched by the Australian Competition and Consumer Commission.

The ACCC earlier this year alleged MG engaged in unconscionable conduct and made false and misleading representations over the 2015-16 farm gate milk price.

The commission also alleged Mr Helou and Mr Hingle were “knowingly concerned” in this conduct.

The financial report also showed former MG chairman Philip Tracy, who retired at the end of March, received a total of $314,046.

Mr Mervis received a total $1,339,004 in 2016-17, including a $550,000 short-term bonus.

He began work at MG on February 13.

New chairman John Spark, who began on April 1, received $84,076.

Meanwhile, MG will pay a step-up on milk supplied by dairy farmers last season.

The increase of 4 cents a kilogram of fat and 8 cents a kilogram of protein will apply to all qualifying milk solids of “premium or acceptable” quality.

In a letter to suppliers, Mr Mervis said the step-up “will be paid as back pay to current suppliers on the payment date and will be paid with August milk proceeds, which are expected to be paid on 15 September 2017”.