FAR from being closed or even downsized as a result of Murray Goulburn’s ‘Asset and Footprint Review’, the firm announced last week that the Leongatha plant is in line for a significant jobs and investment boost.
In more good news from the big co-operative, suppliers have been forgiven the $410 million ‘clawback’ impost, they will get back some of the funds already paid and the MG plant at Maffra will stay open.
The news could hardly have been more positive for Gippsland and for local suppliers but no one was getting too carried away in response, mindful of the devastating impact the closure of the Rochester, Kiewa and Edith Creek factories will have on those communities.
Although not mentioned in last week’s official announcement from MG, a spokesman confirmed the co-op’s attitude to Leongatha:
“Leongatha remains an important component in MG’s milk collection and processing footprint,” he said.
“Some production from Rochester and Edith Creek will transfer to Leongatha within the closure timelines provided for affected sites. It is expected that additional jobs will be created at Leongatha and we will be exploring redeployment opportunities with MG employees from the impacted sites.
“Overall we will be spending $60 million at Leongatha and Cobram to support the relocation of manufacturing from sites being closed.”
Official MG statement
Murray Goulburn Co-operative Co Limited announced the following decisions as a result of its asset and footprint review which has been undertaken in recent months, as an appropriate response to reduced milk intake across the network:
“These decisions are a continuation of efforts to address MG’s cost base, improve efficiencies and ultimately increase earnings and farmgate milk pricing and include:
• Closure of MG’s manufacturing facilities at Edith Creek, Rochester and Kiewa
• Forgiveness of the Milk Supply Support Package (MSSP)
• Total write-downs and associated deviation from the Profit Sharing Mechanism of up to $410 million, including non-recurring costs and a potential debt funded milk payment
• Dividend suspension and a review of dividend payout ratio
• FY17 forecast available Farmgate Milk Price of $4.95 per kilogram milk solids maintained
“It is intended that the Edith Creek facility in Tasmania will be closed by December 2017, the Rochester facility by March 2018 and the MG facility at Kiewa by September 2018.
“The Rochester and Kiewa closures will occur in a staged manner and are expected to commence in August 2017. These initiatives will ensure that MG has an improved processing footprint going forward.
“The closures are expected to impact approximately 360 employees. Once completed the closures are expected to deliver an annualised net financial benefit of $40 million to $50 million.
“MG anticipates a net financial benefit in FY18 from the closures of approximately $15 million.
“MG expects to spend $60 million of capital expenditure to enable the closures, which will be largely funded by maintenance capital expenditure no longer required at the sites.
“MG will write-down assets of $99 million (post tax $69 million) and expects to incur cash restructuring costs of approximately $37 million (post tax $26 million).
“These cash costs predominantly comprise redundancy and entitlement payments to impacted employees.”
‘Clawback’ is over
In order to mitigate the risk of further milk loss, MG also announced that it will forgive the suppliers’ MSSP debts.
“All future repayments of the MSSP which were to recommence from July 2017 will cease.
“MG will also make a payment to continuing and retired suppliers who made MSSP contributions between July and September 2016, and to any suppliers who recommence supplying milk to MG by July 31. 2017.
“As a result, MG will record a write-down of this asset of $148 million (post-tax $104 million). MG is taking this step in recognition of the unintended impact of the MSSP.”
Commenting on the outcomes of the review, MG’s Chief Executive, Ari Mervis, reinforced the importance of these decisive actions.
“At MG we are acutely aware of the impact that our decisions will have on our various stakeholders, including the communities in which we operate.
“We are committed to ensuring that we provide our affected employees with appropriate levels of support and the recognition that they deserve during this period of transition.
“MG will support employees by providing access to career transition and redeployment services as well as working with Federal and relevant State Governments to leverage existing programs.
“These have been difficult decisions to make, however they are necessary steps on the journey to ensure the future strength and competitiveness of Murray Goulburn. A strong MG is of fundamental importance to the Australian dairy industry and these decisions are necessary to lay the foundation for the future.”