SUCH has been the fallout from its first, disastrous attempt at recovering the $183 million it allegedly advanced to its suppliers, that Murray Goulburn has come out with a radically different Milk Supply Support Package (MSSP) after the completion of a review.
The amendments are as follows:
- The recoupment period for the MSSP has been extended from three years to six years
- Annual recoupment will be at 1c/litre, plus interest from July 1, 2017
- MG retains the right to accelerate recoupment in seasons of high farmgate milk payment
- The suspension of the MSSP, announced on October 20, 2016 (from October 1, 2016 – June 30, 2017) remains.
- There will be a “one off” $31.8 million reduction in the MSSP total
- Capped recoupment: That is suppliers who remain with MG will not have to fund the debt left behind by departing suppliers. They will pay no more than they were “advanced” by MG in the three months to the end of last season.
- $50 million step-up for suppliers, equal to an additional 2c/litre for a forecast $4.95 per kgms for the 2017 financial year.
MG and the Board are of the opinion that these changes will address a number of suppliers’ concerns. In addition, MG is confident that operational efforts, in particular the announced cost efficiencies, will ensure the co-operative can deliver a competitive FMP for suppliers. MG confirms the cost efficiency program is proceeding in line with expectations.
Chairman Philip Tracy said: “I am pleased to announce the completion of our MSSP review today. We have announced step-ups and an increase to our available FMP forecast. MSSP recoupment will be extended over a greater period, with our cost efficiency program expected to offset the contribution from FY18. The annual MSSP recoupment has essentially been halved, and no supplier will repay more than the support they originally received. This should contribute to confidence for suppliers, particularly given our balance sheet strength has allowed us to undertake these initiatives.”
MG announced its completed review on Thursday, October 27, ahead of its annual meeting on Friday, October 28.
The company said it had made the changes to the MSSP in the interests of all MG stakeholders.
“In April 2016 MG implemented the MSSP, which provided a $183 million advance to suppliers in recognition of the size and lateness of the reduction in the FY16 farmgate milk price (FMP). The intention of the program was to support suppliers’ cash flow and protect MG’s milk supply in the long term, with recoupment of the MSSP to occur over a three year period,” said MG in its announcement.
“However, substantial milk losses in the early part of FY17 have demonstrated that the MSSP was not operating as MG had originally intended and a review of the MSSP was warranted.
“In early September 2016 MG announced that it was conducting a review of the MSSP. As part of this review MG examined a range of options with regard to:
- The expected future size of the co-operative’s milk pool as Australia’s leading milk processor
- Appropriate level of support to MG’s vital suppliers
- MG’s ability to pay a competitive farmgate milk price in the future
- Appropriate debt and gearing levels for the co-operative
- Best use of the co-operative’s capital, including any impacts on MG’s plans to invest in identified growth projects including the proposed nutritionals and beverages investments
- The overall interests of all stakeholders including supplier/shareholders and unitholders
The changes have been supported by an opinion from an independent expert, Grant Samuel and Associates Pty Limited.
Chairman Philip Tracy said: “We believe the announcement today will improve the MSSP impact for our suppliers. During the review process, the Board and I were very conscious of ensuring a successful future of the co-operative, a very important element of which is our planned investments in nutritional powders and dairy beverages. The announcement today preserves MG’s ability to make these investments in the future, whilst maintaining prudent debt levels. We thank our suppliers and investors for their patience as we have worked through this review, and we now look forward to working together to rebuild our great co-operative.”
Murray Goulburn is Australia’s largest dairy foods company and one of Australia’s largest food and beverage companies with annual turnover of approximately 2.8 billion. Through its co-operative structure, Murray Goulburn has approximately 2200 supplier shareholders. Murray Goulburn manufactures and markets a full range of dairy and nutritional products such as cheese, milk powder, butter and fat, drinking milk and liquid milk products, nutritionals and value-added products, such as infant formula. Murray Goulburn supplies the grocery, foodservice and ingredients channels domestically and around the world, particularly in Asia, with its flagship Devondale, Liddells and Murray Goulburn Ingredients brands.