Tuesday, 02 May 2017 09:24

MG to close three factories, pay $4.95kg

Written by 
Ari Mervis Ari Mervis

Murray Goulburn will pay suppliers $4.95/kg milk solids for the current season and will repay clawback funds to existing and returning suppliers. It will also close its manufacturing facilities at Edith Creek, Rochester and Kiewa.

MG said that due to weaker trading conditions the FY17 forecast available FMP of $4.70 per kilogram milk solids is expected to be approximately $4.60 per kilogram milk solids.

However, it will pay a FY17 available average FMP of $4.95 per kilogram milk solids. It will use debt to finance this.

In order to mitigate the risk of further milk loss, MG announced it will “forgive” the Milk Supply Support Package, which it introduced to claw back money from suppliers.

All future repayments of the MSSP which were to recommence from July 2017 will cease.

MG will also make a payment to continuing and retired suppliers who made MSSP contributions between July and September 2016, and to any suppliers who recommence supplying milk to MG by 31 July 2017.

MG said it is taking this step “in recognition of the unintended impact of the MSSP”.

MG said it intends to close the Edith Creek facility in Tasmania by Q2 FY18, the Rochester facility by Q3 FY18 and the Kiewa facility by Q1 FY19.

“The Rochester and Kiewa closures will occur in a staged manner and are expected to commence in August 2017,” MG said in its statement.

The closures will cause 360 job losses for the surrounding communities.

MG said in its statement the closures are expected to deliver an annualised net financial benefit of $40 million to $50 million.

MG expects 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.

To enable MG to implement all of the above initiatives without impacting on the FY17 forecast FMP of $4.95 per kilogram milk solids, MG has chosen to deviate from the Profit Sharing Mechanism by an amount of up to $410 million.

The deviation includes the asset write-offs, non-recurring costs and potential debt funded milk payments, to the extent required.

“We are acutely aware of the impact that our decisions will have on our various stakeholders, including the communities in which we operate,” Murray Goulburn CEO Ari Mervis said.

“These have been difficult decisions to make, however they are necessary steps on the journey to ensure the future strength and competitiveness of Murray Goulburn.”

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