Murray Goulburn’s $31.9m loss

Australia’s biggest dairy processor, Murray Goulburn (MG), has reported a$31.9 millionloss, for the first half of the financial year.

In its half yearly report, MG said revenue was down $1.2 billion, or 14.8pc, as new chief executive Ari Mervis told shareholders it had been a “particularly challenging time.”

The co-operative also reported a sharp drop in milk intake, down 20.6pc to 1.6billion litres.

The company said that wasdriven byaggressive market competitiveness for milk supply and seasonal conditions.

It reporteda netloss, after tax, of ($31.9) million, with the company saying it expected end of year debt to be broadly in line with last year.

“The first half of this financial year has been a particularly challenging time for MG,” Mr Mervis said.

“Recordrainfalland high levels of competitor activity have reduced our milk intake, impacting revenue and our ability to fully recover fixed costs and overheads.

“In addition, although the recent increases in the global prices of dairy commodities are welcome, they have not recovered in time to impact on MG’s first half sales volume.”

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.”

Mr Mervis said he was pleased with progress on cost and working capital intitiatives, which remained a priority.

“The release of cash from working capital and continued improvement in cost efficiencies will be a key focus in the second half of this financial year.”

Sales for dairy food internationals were down 10.8 pcand the ingredients business continued to be impacted by the low commodity price environment.

Revenue from MG’s dairy foods segement fell19.7pc, $558 millionwhile segment contribution fell 17.2 pcto $54.5 million.

Lower cross-border sales had a significant impact on the sector, as the channel stabilised after a peak in the first half of 2016, particularly in sales of adult milk powder.

MG’s ingredients sales revenue fell 9.1pc, driven by lower milk allocation, however ongoing reductions in working capital supported revenue.

The nutritionals business was broadly in line with the same time in 2016.

Other segment revenues from MG Trading and milk broking were $141 million.

Mr Mervis said conditions for MG Trading remained challenging, while brokingwas broadly flat.

MG’s new state-of-the-art consumer cheesecut and wrap plant at Cobram, was now in commercial production and work continuedto enable MG to exit the legacy consumer cheese plant.

Commercial trials of MG’s new packaging formats wereprogressing well.

Mr Mervis said while MG remained committed to investments in those areas, they would remain under review, as recent changes in product markets were assessed.

“In particular, the regulatory environment in China for infant formula remains fluid as further details of potential regulatory impacts continue to emerge. Capital will not be expended until the opportunity is clearer and MG will continue to update stakeholders as these reviews are completed. “

The board had declared a fully franked, interim dividend of 1.7 cents per share/unit, to be paid on March 30.

MG continuedto target a cash release from working capital of $100 million to $110 million by end of the financial year.

MG has successfully implemented a headcount reduction and other cost reductions, principally in procurement.

“These initiatives are on track to deliver $10mto $15mof these savings in this financial year(net of costs) and $50 million to $60 million annualised from FY18,” Mr Mervis said.

“Finally, significant advances have been made on a business review of our assets and distribution network, which if progressed may deliver further efficiencies and value into the milk pool in the future.

“The review is focussed on aligning our organisational capacity and capabilities with future milk intake.”

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