“MG has experienced a difficult year as a result of the significant reduction in milk intake and adverse seasonal
conditions,” said Mervis.
He pointed out in a company statement that the dairy giant has “implemented manufacturing footprint review, de-recognising the contentious Milk Supply Support Package (MSSP), and delivering on previously announced cost out initiatives.”
Mervis has announced MG has a new management team which will oversee a comprehensive strategic review that covers the dairy giant company’s strategy and corporate structure, including the Profit Sharing Mechanism and capital structure. He said this will push further improvement for the company.
Profit has declined the Dairy Foods segment by 8 percent to $1,221 million, which was largely driven by lower adult milk powder (AMP) sales, which declined by $93 million, compared with FY16 when cross border sales for this product grew significantly. Lower AMP sales also resulted in MG recording lower Devondale branded sales, which were down 14 percent to $502 million.
Ingredients business benefited from improved commodity prices in FY17 with average sales per tonne up 10.5 percent, net of the impact from a higher average exchange rate. However, total Ingredient and Nutritional sales were $958 million, down 12 percent. MG’s Ingredients sales fell 7.0 percent, and Nutritionals sales contracted by 34.5 percent as a key international customer increasingly self-sufficient.
“The FY17 year has tested the strength and resolve of MG and its suppliers. The coming months will be pivotal for the future of the business as the Board and management finalise substantial business improvement programs and third parties are given an opportunity to submit formal proposals to the company. MG’s FY18 milk intake remains firmly in the hands of its suppliers, and with their support MG looks forward to a constructive year,” said Mervis.
Despite difficult trading conditions, at year end MG had reduced net debt after cash by $35 million to $445 million. MG’s gearing level at year end was 37.7 percent, up from 29 percent in FY16 as a result of material impairments due to MG’s business and footprint review, including the MSSP de-recognition.
The strong focus on working capital resulted in a 31 percent reduction in closing net working capital, releasing $164 million in cash. MG has not recognised $68 million of tax assets relating to its asset and footprint review.
MG has announced that the farmgate milk price is set above $5.20/kg MS, which remains under review and is subject to various factors including favourable movements in exchange rates and dairy commodity prices over the balance of the financial year, as well as retaining appropriate levels of milk intake.
The Board of Directors has agreed that MG has the ability to deviate if necessary from the Profit Sharing Mechanism to the extent required to pay an FY18 FMP of $5.20/kg MS, by providing access to up to $100 million.