Dairy shake-up continues as Murray Goulburn gets set to announce cuts

One year ago, MG created havoc in the industry when, after predicting an increase in farmgate prices to over $6 a kilo of milk solids, it slashed them below $5 a kilo.

The action helped cut its milk intake by at least 20 per cent, though this was also due in part to last year’s wretched season, in which heavy rain decimated supplies.

The Murray Goulburn (MGC) stock price fell from a high of $2.14 on April 21 to as low as 82 cents by May 19.

It has barely budged since trading in late morning trade at 98 cents a share, up one cent on Monday’s close.

New boss Ari Mervis is expected to unveil his new plan next Monday, and it will include details of which of his 10 plants will be shut in order to accommodate the fact that supplies have fallen.

The industry is speculating the Maffra and Rochester plants in Victoria will go, with a question mark also hovering over the milk plant at Kiewa.

Mervis is new to the game, starting at the company in early February and an industry outsider who has shifted over from the beer industry.

He has a new chair in former Ferrier Hodgson corporate undertaker John Spark who replaced dairy farmer Phil Tracy.

Much of the restructuring work was completed under the reign of former boss David Mallinson who cut head office staff by 10 per cent or about 200 people.

More cuts are likely.

MG’s share of the local milk production peaked at 37 per cent in the 2015 financial year but has fallen since with all processors boosting their share and arch rival Fonterra increasing to over 18 per cent from 17 per cent.

Fonterra’s farmgate price is $5.20 a kilogram, well above MG which underlines the competitive disadvantage MG faces.

Next week’s statement is also due to underline working capital and other changes to restore the company’s balance sheet and put its finances back into a competitive position.

Rising global prices will help along with a better season.

 

Source: The Australian

Link: http://www.theaustralian.com.au/business/opinion/john-durie/dairy-shakeup-continues-as-murray-goulburn-gets-set-to-announce-cuts/news-story/0712a74166e451c4fcc896434f90c8b6

 

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