Line of credit on hand to maintain $5.20

By Stephen Cooke

Murray Goulburn will consider debt funding of up to $100 m to shore up the current farmgate price of $5.20 kg/milk solids (MS).

The co-op announced its 2016–17 financial results last month.

It confirmed it would maintain its current opening price of $5.20/kg MS, saying on the basis of its current budget, it believes it will be able to fund this milk price out of current year earnings.

A final price above this remained under review.

It said any price above $5.20/kg would be 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 received 2.7 billion litres of milk in 2016–17, down 21.8 per cent on the previous year. It estimates this year’s milk intake to be 2b litres. CEO Ari Mervis said milk from MG suppliers yet to leave has been factored into this estimate. 8 per cent of the total expected loss was yet to leave.

MG Directors will deviate from the Profit Sharing Mechanism to the extent required to pay a full year price of $5.20/kg MS, by providing access to up to $100 million.

This effectively means a lower payout to shareholders and unit holders.

However, the Board has already announced it has suspended dividend payments. No final dividend was declared in last month’s announcement.

MG CEO Ari Mervis said the co-op had asked its advisers Deutsche Bank to "corral" unsolicited investor interest so they can consider all options.

It was also working on correction an “unfocused growth agenda” created by previous management. It has since cut spending on advisery fees and consultants by 30 per cent.

Murray Goulburn also announced:

  • 2016–17 revenue of $2.5b was down 10.3 per cent on the previous year
  • The co-op took 35c/kg MS from internal funds to achieve the final 2016–17 milk price of $4.95/kg MS
  • The co-op posted a 370.8 million dollar loss for the 2016–17 financial year
  • Its gearing level (the proportion of borrowed funds to equity) is 37.7 per cent, up from 29 per cent the previous year