Painful adjustments at Murray Goulburn

High-profile managing director Gary Helou has exited Australia’s biggest dairy producer, Murray Goulburn, and farmers face a painful year after severe downgrades to the co-operative’s profit forecasts and milk prices.

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Murray Goulburn emerged from a trading halt on Wednesday to cut its full-year profit guidance to between $39 million and $42 million – well below its February forecast of $63 million and less than half its May, 2015 prospectus forecast of $89 million.

The Victoria-based co-op also reduced what it will pay its suppliers for the rest of 2016, from $5.60 to $5.47 per kilogram of milk solids – short of the prospectus forecast of $6.05 for 2015/16.

The drastic changes follow Murray Goulburn’s board forensically examining the financial performance after trading results fell short of forecasts.

“It did become clear that we were facing a significant revenue shortfall and the farmgate milk price guidance could not be achieved,” chairman Philip Tracy said.

“The board was fairly disappointed at the quantum of the miss.”

Murray Goulburn said the stronger Australian dollar and poor sales of adult milk powder in China are to blame.

However Mr Helou’s departure comes after he and the board agreed the company “will be best served under fresh leadership”.

Mr Tracy said history would judge Mr Helou “as a visionary leader” who had helped Murray Goulburn become a globally recognised food business.

In a statement, Mr Helou said that during his time at Murray Goulburn, the group had transformed its capabilities and delivered premium milk prices for dairy farmers.

“While maintaining this price has proven difficult in current market conditions, I firmly believe MG has the foundations in place to support a strong and successful business in the years ahead,” Mr Helou said.

Chief financial officer Brad Hingle also announced he will resign.

Murray Goulburn will now borrow between $95 million and $165 million to fund a special support package that will top up suppliers’ farm gate price of between $4.75 and $5.00, with the subsidy to be recovered over three years.

Murray Goulburn’s listed entity, MG Unit Trust, was punished, plunging 90 cents, or 42 per cent on Wednesday to $1.24.

Murray Goulburn acknowledged dairy farmers will be hurt by the price cut, especially given very dry conditions in many areas.

Mr Helou will stay on briefly to help interim CEO David Mallinson, currently executive general manager of business operations.

Growth in sales of adult milk powder in China had been extremely strong in the first half of 2016, and management significantly lifted second half sales forecasts and production.

But growth slowed, and Murray Goulburn was left holding excess stock.

Morgans senior analyst Belinda Moore said the cut to the farmgate milk price would result in some dairy farmers struggling to make a profit.

The move has industry implications as Murray Goulburn generally set the farmgate milk price that other dairy processors follow, she said.

“In the meantime, there’s some management uncertainty. The management team needs to be rebuilt from this, and it’ll take time for confidence to rebuild,” Ms Moore said.