In a sign of the impact the falling milk price is having on the food sector, food company Murray Goulburn (MG) said it will be closing down factories and reducing its farmgate milk price in a bid to address its “cost base, improve efficiencies and ultimately increase earnings.”
This will include closure of MG’s manufacturing facilities at Edith Creek, Rochester and Kiewa, forgiveness of the Milk Supply Support Package (MSSP), total write-downs of up to $410 million, and a dividend suspension.
The factory closures, the company said, are expected to impact some 360 employees while at the same time delivering a net financial benefit of $40 million to $50 million per annum. Overall, MG said that it anticipates a net financial benefit in FY18 from the closures of approximately $15 million.
However, the dairy company said that it needed 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 also announced that it will write off farmers loans incurred in the MSSP, with all future repayments of the MSSP which were to recommence from July 2017 ceasing, meaning the company will write-down $148 million.
Due to weaker trading conditions, the FY17 forecast available FMP of $4.70 per kilogram milk solids is expected to be fall to $4.60 per kilogram milk solids.
The company said that it remained “committed to paying a FY17 average FMP of $4.95 per kilogram milk solids.”
In order to protect against any potential further losses this financial year, MG has provided access of up to $30 million of additional debt funded milk payments, so as to maintain the forecast FMP of $4.95 per kilogram milk solids up until the end of this financial year, the company said.