Difficult six months for MG: CEO

Murray Goulburn (MG) chief executive Ari Mervis has said the last six months had been “particularlydifficult” for Australia’s biggest dairy processor.

The co-operative reported a $31.9 millionloss, for the first half of the financial year, with revenue down by 14.8 per cent to $1.18 billion.

“The reported loss should not come as a surprise to anyone, it was anticipated last October,” Mr Mervis said.“It has been a particularly difficult six months.”

In its half yearly report, MG also reporteda sharp drop in milk intake.

It was down 20.6pc to 1.6billion litres, largely due to farmers switching factories.

The co-operative said 60 per cent of the lost milk had shifted to other competitors, while seasonal conditions accounted for 25pc of the decline and weather for 15pc.

“The farmers have a look at their supplyand what they want to do, but the other one wasbecause some of the other processors had contractual obligations they had to meet; they had to go out and source milk, at what might not be a sustainably competitive price,” Mr Mervis said.

“Theysourced milk from outside of their contracts.”

He saidhe was about to start a round of consultations,with farmers in in each MG region.

“I am not under any illusions our reputation does require an enormous amount of work on it –we will do everything we can, to honor what we say.”

“I think what they will see is we are authentic and transparent, and we take this business particularly seriously.”

Mr Mervis declined to comment on the handling of the milk supply support payment package (MSSP), which came after the co-operative suddenly cut farmgate prices, last April.

REVIEW UNDERWAY: Phil Tracy, MG chairman, and new chief executive Ari Mervis.

The MSSP provided a$183 million advance to suppliers, in recognition of the size and lateness of the reduction in the cut.

“Certainly, I do intend doing a comprehensive review of the entire business and one of the things I will be understanding, more fully, over the course of the next month or so, is the MSSP, its costs and how best to goforward.”

He said he was unable to make comment on claims, by farmers at the Traralgon Australian Competition and Consumer Commission hearing, that they were fearful stepdowns could occur again.

“I am not in a position to make any guarantees, I can’t really comment, specifically, on the detail, at this early stage.”

He also said he was not in a position to give predictions, or forecasts, about the future of MG’s Rochester and Gippslandplants.

An offer to meet with Gippsland’s National Party MPs, who were seeking assurances about the future of the Leongatha and Maffar plants, remained open.

“We did offer an audience to all three of them, but unfortunately, none of them were able to meet with me, on that day.”

Mr Mervis said he was currently carrying out a “thorough, asset and cost base review” of the entire business.

“In order to ensure we are competitive and can pay the appropriate price to our supplier base, we need to be assured we have the right asset base.

“That is well very progressed, I am very impressed with the quality of the information that has come forward and the data.

“Weare still working through that, and will make a proposal to the board, at the appropriate time.”

Mr Mervis said there was no timeline for current chairman, Philip Tracy to step down.

“The board are very advanced, in terms of their thoughts and processes in that regard, and as soon as they are in a position to do so, they will expedite that,” he said.

“I think its important, for the sustainability of the board that you do have a chairman in place, and Phil has said he will stay in place, until the board elects a new chairman.”

He said farmers he had spoken to since his appointment, a fortnight ago, had said conditions were improved and milk production was rising.

“We are seeing commodity prices improving, and they are going to their long term averages, what we have also seen is a significant improvement in climatic conditions.”

Mr Mervis also flagged a further small step-up, for farmers.

Mr Mervis saidMG maintained it would hold a full year available weighted average southern milk region farmgate milk price of$4.955 per kilogram, milk solids (kg/MS).

That was based on a milk intake of about 190 million kg/MS.

“As a result of changed supplier milk flows, the current farmgate milk pricehas risen from $4.86 per kgms to $4.92 kg/MS.

“The remaining potential step-up is therefore $0.03 per kg/MS.

“This is subject to there being no further material deterioration in milk intake, dairy commodity prices and the Australian dollar/US dollar exchange rate remaining broadly in-line with current spot as well as no adverse change in trading conditions or regulatory environments in key markets.”

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