MG slashes 360 jobs, scraps contentious farmer repayment plan

MG slashing 360 jobs, scrapping contentious farmer repayment scheme


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UPDATED: Murray Goulburn Co-op has paid dearly for last year's farmgate price cuts, now being forced to close factories and reshape its business.

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► RELATED: Drastic action to fix MG’s `fundamentally unfair’ situation

Financially-stretched Murray Goulburn Co-operative (MG) has buckled under the weight of bad publicity and dairy industry pressure, abandoning its controversial milk price repayment program.

The decision will be paid for by three dairy factory closures – part of a massive shake-up in MG’s business plans.

MG is also scrapping plans to make big capital investments in new dairy Beverages and nutritional production facilities.

In a bid to halt the decline in milk supplies to the co-op, all future farmer repayments due to be made under the Milk Supply Support Program (MSSP) will be forgiven.

The vexed program was introduced a year ago to claw back over-payments to farmer suppliers after depressed international prices and an unexpectedly high exchange rate forced MG’s contentious mid-season cuts to farmgate payments.

The dairy giant is, however, cutting production costs with a large scale asset closure program, which will see factories shut in northern Victoria at Rochester and Kiewa, and Edith Creek in Tasmania.

The plant closures are expected to achieve up to $50 million in annual savings from 2019, but will involve the loss of about 360 jobs.

MG, the company behind the Devondale brand, said initial savings were likely to be worth about $15m in 2017-18.

The MSSP, which has been temporarily on hold since the last quarter of last year, was to recommence from July.

MG will also make a payment to continuing and retired suppliers who made MSSP contributions between July and September last year, and to any suppliers who recommence supplying milk to MG by July 31 this year.

Writing off the MSSP will cost the company about $148m.

The dairy co-op has paid dearly for its retrospective farmgate payment cuts and the MSSP claw-back program, suffering a big exodus of farmer suppliers from its ranks in the past year.  

It acknowledged the need to “mitigate the risk of further milk loss” by forgiving the MSSP.

The company is forecasting it will keep this year’s farmgate milk price at $4.95 a kilogram of milk solids, despite milk values actually averaging about 20 cents/kg being lower.

It has, however, suspended dividend payments to MG Trust shareholders and is to review its dividend payout ratio.

It expects the total write-downs and associated deviation from its profit sharing mechanism will cost up to $410m, including non-recurring costs and a potential debt-funded milk payment.

Closing the three dairy factories will cost about $60m in related capital expenditure costs, while almost $100m in asset values will also be written off in the process.

MG will also write down $62m relating to the “carrying value” of the now-dumped nutritional formula and dairy beverages projects and various other assets.

The big changes are part of an asset and business footprint review of its business undertaken in tandem with the appointment of new managing director, Ari Mervis, in February and chairman, Philip Spark, last month.  

The company described the tough decisions as an appropriate response to reduced milk intake across the network in the wake of its slump in supplier numbers and production output.

“These decisions are a continuation of efforts to address MG’s cost base, improve efficiencies and ultimately increase earnings and farmgate milk pricing,” Mr Mervis to farmers and shareholders.

Closure of the Edith Creek plant in North West Tasmania comes just five years after MG spent about $14m upgrading its bottling line at the site, which it bought in 2006.

 Murray Goulburn's dairy plant closures in Victoria and Tasmania will achieve up to $50 million in annual savings from 2019, but will involve the loss of about 360 jobs.

Murray Goulburn's dairy plant closures in Victoria and Tasmania will achieve up to $50 million in annual savings from 2019, but will involve the loss of about 360 jobs.

The plant is set to be shut by the end of this year, while the Rochester site will close by next March and Kiewa will be closed in September 2018.

Mr Mervis said the Rochester and Kiewa closures would occur in a staged manner, commencing in August this year.

“These initiatives will ensure MG has an improved processing footprint going forward,” he said, acknowledging, in particular, the impact to the Rochester, Kiewa and Edith Creek communities.

“We are acutely aware of the impact our decisions will have on various stakeholders.

“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.

We recognise this has been a challenging period for suppliers and appreciate their ongoing support.

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