Murray Goulburn boss exits after profit downgrade, unit trust units slump by more than one-third

Wednesday 27th April 2016

Murray Goulburn managing director Gary Helou and chief financial officer Brad Hingle will exit Australia's biggest dairy company after it downgraded forecasts for its milk payment and profit, and announced a support package for its farmers.

Unfavourable currency movements, weaker than expected Chinese demand for adult milk powder and inventory writedowns forced Murray Goulburn to slash its profit and milk price payouts. Units of the cooperative's MG Unit Trust, which were halted on April 22, shed more than one-third of their value to as low as A$1.335 when they resumed trading on the ASX, the lowest since they listed on July 3.

The dairy group is forecasting a farmgate milk price of A$4.75 to A$5 per kilogram of milk solids, missing the forecast of $5.60/kgMS. Profit is expected to be A$39 million to A$42 million, below the forecast A$63 million given in February, which itself was a downgrade from last year's prospectus target of A$89 million.

"The board and Mr Helou have agreed that stewardship of the company going forward will be best served under fresh leadership," the company said in a statement to the ASX. It named David Mallinson, general manager of business operations, as interim chief executive of Murray Goulburn and MG Responsible Entity, which oversees the listed trust.

Hingle resigned "following Mr Helou's decision to step down" but will stay on long enough to assist with finalising the 2016 results.

The board "remains committed to its strategy of shifting Murray Goulburn's product mix from commodity products to higher margin, value-added and ready-to-consume dairy foods and will continue to focus on transforming MG into a first choice dairy foods company," it said. The board realised that "greater focus is required to support the execution of this transformation."

The company cited a series of unfavourable circumstances that led to the downgrade, which amounts to a reduction of between A$170 million and A$220 million in the 2016 distributable milk pool (DMP). Movements in the Australian dollar compared to forecast eroded the DMP by about A$32 million, while lower-than-expected adult milk powder sales in China amounted to an impact of A$60 million to A$100 million. As a result of that, the company would take a charge of A$40 million to A$54 million against inventory, it said.

Murray Goulburn was caught out by a drop in demand for adult milk powder in China, after sales tripled in the first half, prompting the company to ramp up production.

"As a result of this slowing growth rate and the resulting impact on revenue, a revised sales forecast has been undertaken for 4Q16 which has significantly reduced expectations for the remainder of the financial year," it said, adding that the company still sees strong growth potential for its adult milk powders in China.

As a result of the downgrade on the incomes of its farmers, who were already facing difficult El Nino-driven growing conditions, Murray Goulburn announced a support package that will top the milk payment back up to A$5.47/kgMS for 2016. That will require it to borrow between A$95 million and A$165 million, which will be offset by a receivable on its balance sheet amortised over three years. Murray Goulburn said it will recoup the funds via deductions from milk payments over the next three years.

BusinessDesk.co.nz

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