Dairy processor Murray Goulburn says it needs to complete a $1.31 billion takeover by Canadian dairy giant Saputo to maintain its forecast farmgate milk price and avoid further losses of milk supply.
Murray Goulburn’s milk intake fell by nearly 30 per cent to 1.1 billion litres in the first half of the financial year because it wasn’t able to pay dairy farmers a competitive price for their milk.
Murray Goulburn chief executive Ari Mervis said any dairy processor’s primary asset was access to milk.
”The first half of this financial year has continued to be challenging for MG,” he said on Wednesday.
“The inability to pay a competitive milk price has resulted in a substantial loss of milk.”
Suppliers have been leaving Murray Goulburn since the debt-laden processor slashed the prices it was paying for milk in April, 2016, and introduced a deeply unpopular support scheme that required farmers to repay loans made to compensate for the price cut.
The co-op dropped the support scheme, shut down three plants and cut 360 jobs in May, 2017, in moves to restructure its finances, but the farmer exodus continued.
Mr Mervis said that since April 2016, Murray Goulburn’s annualised milk intake had plunged from about 3.5 billion litres to an anticipated 1.91 billion litres for the 2018 full year.
But, he said, since the Murray Goulburn board had agreed to Saputo’s takeover proposal in October 2017 and consequently lifted the farmgate milk price from $5.20 to $5.60, milk intake had stabilised.
Murray Goulburn on Wednesday maintained its forecast farmgate milk price for the full year of $5.60 per kilogram of milk solids, but said its outlook was subject to the successful completion of the Saputo transaction before June 30, 2018.
“In the absence of a transaction, this may trigger further milk loss which could lead to an impairment and potential covenant breaches which may result in the potential loss of creditor support,” Mr Mervis said.
Murray Goulburn on Wednesday reported a net loss of $27.5 million for the six months to December 31 – better than the $31.9 million loss of a year earlier.
The bottom line was pulled back by $62.7 million in tax adjustments related to the proposed takeover by Saputo.
Excluding those tax adjustments, Murray Goulburn booked an underlying net profit of $14.4 million, up 53.2 per cent from a year earlier, as the co-op cut costs, reduced products lines, and commodity prices improved.
Shares in Murray Goulburn’s listed entity, the MG Unit Trust, were steady at 82.5 cents at 1243 AEDT.
NET LOSS, LESS MILK FOR MURRAY GOULBURN
* First-half net loss of $27.5m, from net loss of $31.9m
* Revenue down 5.1pct to $1.12bn
* Dividends and distributions still suspended