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Good summation of where we were 8 weeks ago. Unfortunately the...

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Newry2

2,916 Posts.

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01/10/17

14:55

Post #: 27579363
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Originally posted by Amused observer ↑

Just some simple observations out of the 2017 A/R.

1. Right up there on page 1 it states MGC produces a full range of dairy foods, ingredients and nutritional products and to support this it took in ~2.73 billion litres milk but only generated sales revenue of ~$2.5 billion. Blimey something is fundamentally wrong here.

2. Looks like they are paying for 2 CEO's - Ari and David. Unsustainable but we knew this and it is coming to a resolve soon I hear.

3. The forgiving of the MSSP put a serious dent in things to the tune of ~$180m but then it should never had a reason to be created in the first place.

4. Given the changes to the audit rules earlier this year the audit report is the most telling and frankly now shows what it should always have done.
(a) $781.2m in tangible assets with a surprising brands only worth $15.3m and goodwill only worth $6.8m. Really shows how fragile these are and for MGC they have been sorely tested in the last 2 years. They take years to build up and can be destroyed in days.

(b) the forgiveness of the MSSP has already been commented on.

(c) the debt situation has been reported as ~$464m but this little bunny tends to agree with the auditors
view and that is a more correct reflection is ~$778.9. Even though is referred to as committed, it is debt
that is incurred but just hasn't been paid out yet.

Not going to go into inventory, asset, IP, ICT or investment write-downs or sell-offs. Nor am going to go into cash-flow statement or remunerations plans etc. as they can all be read with ease and your own conclusions drawn.

From my apple box view it doesn't paint a fantastic picture to say the least but it may hold MGC in good standing for the future depending on what the Board decide on once it's Strategic Review is completed, compiled and submitted also what the ACCC releases in November in regards its view of what the industry at large needs and what impact that will show.

With a near parity intangible asset versus debt it means any offers from other parties are purely predatory and opportunistic and will be either a strategic offer with a no risk premium which suppliers/shareholders wont like or accept as it offers them nothing or even an earnings based offer but even that is problematic due to the milk supply loss of late and the current state of affairs with export in a depressed state due to the EU fallout and domestic in an oppressed state with $1/litre milk and $0.6/litre cheese contracts being left unaddressed.

MGC would be best served to engage them all, smile nicely, thank them for their time and their proposal and just shake their head in a declining motion and head back for more thinking as to "where to next?".

A full listing that removes some of the shareholders / ex-shareholder constraints or a major asset stripping and delisting and starting again as a small co-op with a small set of farmers - say 14 dairy farmers as that has a familiar ring of history about it.

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Good summation of where we were 8 weeks ago. Unfortunately the landscape has changed significantly in the mean time regards milk flow.

MGC Price at posting: 85.5¢ Sentiment: Buy Disclosure: Held
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