Murray Goulburn (MG) has enjoyed a positive first half of 2016 despite feeling the effects of low global commodity prices and the oversupply of milk largely caused by European overproduction.
The co-operative recorded a 61.2% increase in net profit in the first half although its revenue dropped by 3% to $2.8 billion compared to last year’s result.
“FY16 has been a challenging year for our co-operative,” said MG’s interim Chief Executive Officer, David Mallinson.
“We faced an environment comprised of very challenging settings, including sustained low commodity prices, a volatile Australian dollar, changes in Chinese regulations, and difficult seasonal conditions across many of our key regions.”
The company’s Dairy Foods business delivered positive results in the year, with the Devondale brand posting annual sales of $580 million (up 45 percent from FY15).
“MG’s Dairy Foods business continued to deliver consistent growth in very challenging conditions, in particular the performance of the Devondale brand which continues to grow and now has annual sales of $580 million,” Mr Mallinson added.
The Ingredients business, which is highly exposed to commodity prices, was severely impacted by the very low commodity price environment in the first half of 2016 and suffered a 26% reduction in sales.
However, Mr Mallinson said that MG’s Nutritionals segment provided some offset to the performance of Ingredients, with revenue growing 50 % in the year, driven by strong demand from B2B customers for Australian sourced nutritional products.
“Our Ingredients business continued to be heavily impacted by global commodity prices, which were offset to a degree by excellent growth by our Nutritionals business,” Mr Mallinson pointed out.
He said the successful year for MG was also reflected in the company’s balance sheet, and in particular, its net debt position.
“Net debt at closing was $480 million, with gearing at 29.0 percent. We have made early progress in sustainably reducing working capital, removing $51 million predominantly from receivables in FY16 with a target to remove a further $100 million to $110 million from working capital in FY17,” Mr Mallinson concluded.
“Our capital projects will be tailored, particularly our planned dairy beverages investment, to ensure capital is deployed only if appropriate returns are achievable. MG’s net debt of $480 million is a prudent level for the current environment, whilst giving MG the balance sheet strength to progress important investment for the future.”