[IMG] . Dairy Murray Goulburn pre-tax profit result indicates...

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Dairy
Murray Goulburn pre-tax profit result indicates dairy co-op is not a lost cause
PETER HEMPHILL, The Weekly Times
February 14, 2018 12:00am

Subscriber only

ANALYSIS: A CAREFUL look at Murray Goulburn’s half-yearly accounts shows the co-operative may be in better health than it would have you believe.
While the financial results released last week show a statutory net loss after tax of $27.5 million for the first half of 2017-18, the profit before tax tells a vastly different story.
MG recorded a profit before tax of $35.1 million for the six months to December 31 last year off a milk intake of a measly 1.1 billion litres.

Peter Hemphill
This is more than double the pre-tax profits for the corresponding six month periods in 2014-15 and 2015-16 — both good milk intake years — when $13.5 million and $15.6 million was recorded, respectively.
Indeed, after posting a $15.6 million first half profit in 2015-16, MG went on to make a $57.5 million full-year pre-tax profit and an after-tax profit of $39.8 million.
No forecasts have been provided on the profit range for the full year this season, but indications are it will be healthy.
A look at the profit and loss statement for the six months to December 31 last year shows MG’s management has done a good job in reining in costs.
The 1.1 billion litre milk intake was extremely low for the half-year and, with receivals averaging about 58 per cent in the first half of the season and 42 per cent in the second half for the past three years, MG is on track to receive its forecast of 1.9 billion litres by June 30.
Just the same, it has not been that low since the 1990s.
MG management said the low milk intake was affected by the company’s ability to pay a competitive farmgate price.
MG’s farm gate milk price is probably a lower than competitors after a step-up announcement late last year, but now it is still relatively competitive.
While milk intake to December 31 last year fell more than 31 per cent when compared with the same six-month period in 2016-17, revenue dropped by only 5.1 per cent.
MG told The Weekly Times the pre-tax profit “reflects the impact of the improved commodity prices, allocation of milk into higher yielding products and cost reduction”.
The after-tax loss was only obtained by bringing forward some of the $259 million in unused tax losses and credits.
Shareholders should now be asking the MG board to justify why they are selling out to Canadian company Saputo Inc.
The half-yearly pre-tax profit indicates there is an argument for MG to perhaps roll over its finance, continue to hone costs and continue trading as its has this past six months, then utilise the unused tax losses and credits to benefit shareholders over the coming few years until it is back on its feet again.
Dairy industry sources have told The Weekly Times $240 million in bonds due to be repaid in August is the only secured liability in MG’s books and would be relatively easy to roll over or refinance.
They said one of MG’s major financiers and bond holders offered to financially help the beleaguered co-operative out last year by rolling over its finance in return for greater equity in the company and offer extra finance but it was knocked back because it was Chinese money.
MG should ensure shareholders are furnished with information covering all options when it releases its explanatory memorandum for the Saputo deal in the coming weeks.