Bega Cheese executive chairman Barry Irvin has lambasted rival processor Murray Goulburn for posting an 88 per cent jump in net profit at the expense of its farmer suppliers.
Mr Irvin, who also tipped the worst may be over for troubled dairy farmers, said Murray Goulburn should have worn all the risk for leaving its decision to cut prices so late in the season, rather than clawing back prices it paid to farmers to protect its bottom line and pay shareholders.
Murray Goulburn is also moving to slash costs up to $60 million, and this will include cutting 200 jobs during the next few months.
“It’s notable to me that corporate and private companies didn’t do it [claw back prices to farmers],” Mr Irvin said.
“We didn’t do it. Warrnambool Cheese, Parmalat, Lion Dairy & Drinks; they didn’t do it. They sat there and said it’s too late, the risk is now ours and we will wear it. There is no good boasting about a profit if you have done it at the expense of one of your key stakeholders.”
Murray Goulburn, a co-operative that allowed external investors to gain a financial interest in the company via a sharemarket float last year, posted an 87.6 per cent jump in net profit to $39.8 million.
While in line with its April forecast, it is well below a prospectus forecast last July for $89 million.
Revenue slipped 3.3 per cent to $2.8 billion.
Murray Goulburn suffered from depressed global milk prices, lower Chinese demand and dry conditions hurting milk volumes in some regions.
Bega posted a 7.5 per cent jump in revenue to $1.2 billion and lifted net profit 132 per cent to $28.8 million. It benefited from a 50 per cent jump in earnings from its nutrients business, which processes infant formula for organic producer Bellamy’s.
Murray Goulburn, Australia’s biggest milk processor, reiterated its 2017 profit forecast for net profit of $42 million.
Shock and awe
The co-operative shocked the dairy sector in April when it downgraded its profit forecast and retrospectively cut the farm gate price to farmers 15 per cent.
Chief executive Gary Helou and chief financial officer Brad Hingle resigned.
Murray Goulburn launched a “milk supply support package” to provide loans to farmers to help cover their cash flow. It will recoup the “support payments” via lower milk payments during the next three years.
“They put all the pain of the lack of risk management onto their farmers and they are out there calling it a support package,” Mr Irvin said.
“It is so offensive.”
Murray Goulburn interim chief executive David Mallinson defended the company’s profit.
“Our profit is up but we don’t retain profits, they are distributed out,” he said.
“What we did last year was raise $500 million, which retired debt and therefore we reduced interest. The interest saving goes back into the milk price.”
Mr Mallinson said two-thirds of the dividend was paid to farmers and a third was paid to external unitholders. This amount was about the equivalent of what would have been paid in interest payments if it had not raised external equity.
The company’s support package has cost about $183 million, more than the $95 million to $165 million it anticipated in April.
As a result it will embark on a $50 million to $60 million cost-cutting drive, of which $10 million to $15 million would be achieved in fiscal 2017.
This includes slashing 200 jobs, mostly from its head office.
Morgans analyst Belinda Moore said fiscal 2017 would be another tough year for Murray Goulburn but this was “as bad as it gets”.
“I feel for the dairy farmers, these are awful time but importantly, in the past couple of months dairy prices are improving,” Ms Moore said.
“I’m impressed the new management team has come out with a proactive strategy to turn around the business including cutting costs and working capital.”
Worst is over
Mr Irvin said he was starting to see supply and demand coming back into balance after a prolonged three-year downturn, which was the longest downturn he could remember.
Murray Goulburn lost about 240 million litres of milk supply, or about 6 per cent of its volumes, which the processors said was a combination of farmers retiring or leaving to rival processors.
In April, Mr Tracy, who is paid $325,000 as Murray Goulburn chairman, extinguished short-term incentive payments to executives.
Mr Helou, who departed in April, took home $2.8 million in salary and non-monetary benefits but forfeited $494,000 in long-term incentive payments.
Bega’s annual report released on Thursday shows Mr Irvin’s salary increased 20 per cent to $677,646, largely due to a $100,962 short-term incentive payment.
Bega chief executive Aidan Coleman’s pay packet leapt to $1.4 million, boosted by a $595,000 short-term incentive payment.