Murray Goulburn, what went wrong?
In July 2015, Australia’s home-grown dairy processor Murray Goulburn was publicly listed on the Australian Securities Exchange in a very success partial float.
Despite global milk solid prices plummeting at the time, Australia’s largest-dairy group saw its initial share price climb from a AUD $2.10 issue price to as high as AUD $2.42 within its first few days of trading.
Less than a year later, things have turned sour for MG with the share price today at AUD 86 cent, but what caused the milk to curdle?
Let’s have a look at the history…
2013: Considers partial ASX float
In November 2013 Murray Goulburn used its annual general meeting to reveal it was considering a partial float on the ASX as part of a capital structure review.
Other options being considered were increasing bank debt, off balance sheet funding, retention of profits and raising additional equity from farmer shareholders.
The board however signalled it was likely to recommend “enhanced capital structure” that maintains 100 per cent farmer control, but allows external investment in Murray Goulburn (a.k.a. a partial float).
2014: A good year for the company
2014 was a good year at MG with the company reporting sales revenue of AUD $2.9 billion for the 12 months ended 30 June 2014.
This was a 22 per cent increase on the prior 12 months.
The company reported growth across all major divisions of it company and MG was able to take advantage of high international milk prices.
“International dairy food prices were at very high levels during the 2013/14 year, underpinned by the strong demand from Asia and the Middle East,” Gary Helou, Murray Goulburn’s Managing Director said at the time of the financial announcement.
“Our focus on the value growth segments of Nutritional Powders and international Consumer and Food-Service dairy food exports, combined with the robust growth in Murray Goulburn’s milk supply helped Murray Goulburn deliver an exceptionally strong year,” he said.
With revenue coming in, in July 2014 MG opened an AUD $80 million dairy processing plant in Melbourne. The plant was built as a processing plant for the ten-year private label milk supply contract with Coles that MG entered into in 2013. It was also designed for other MG products.
2015: Partial ASX-listing
In April 2015 Murray Goulburn announced an extraordinary general meeting to vote on a new capital structure seeking approximately AUD $500 million in capital through a partial ASX float.
“After more than 12 months of consultation and discussion with our suppliers, we have arrived at a historic moment,” said Philip Tracy, Murray Goulburn Chairman at the time.
“At stake is our ambition for MG to be a world-class dairy foods business for generations to come,” he said.
Tracy revealed the funds would be used to invest in improving operational efficiencies, developing and selling value-added products and innovation. Shareholders had given the float the go-ahead by early May 2015 and the company successfully floated on 3 July 2015.
Despite the positive start for MG, things were not as rosy for the rest of the global dairy industry at the time.
In the same week as MG’s float cheese and milk powder prices fell an average 5.9 per cent on the Global Dairy Trade. Butter Milk Powder dropped 8.1 per cent from its previous trading event and cheddar dropped 4.9 per cent.
At the time the low prices, which continued throughout 2015, were attributed largely to an international oversupply in milk solids and continuing Russian trade restrictions.
Australian Food News reported on this at the time.
By the beginning of 2016 these tough environmental conditions had gotten to MG with the company listing it amongst reasons for a major slump in profits. In February 2016, MG announced a net profit of only AUD $10 million for the six months ended 31 December 2015.
This was a 34.1 per cent drop on the previous 2014 corresponding period.
“The first half has seen the continuation of the decline in Chinese imports of commodity dairy ingredients and the ongoing Russian embargo on dairy imports,” said Helou at the time.
“This has been compounded by increased European milk supply, resulting in a period of significant oversupply in global dairy commodity markets, driving commodity prices towards record lows,” Helou said.
In April 2016, MG requested and received an ASX trading halt for several days to return with an announcement that Managing Director Gary Helou was stepping down. At the same time it reduced its expected milk solid payout to farmers for the season.
With Fonterra soon after reporting a drop in its expect payout, there were next farmers asking for a review of the industry and this week the news this week investors have commended class action against MG for misleading statements regarding the company’s ASX float.