One the face of it the 2015-16 results yesterday from two of Australia’s major dairy processors, Murray Goulburn and Bega Cheese, were a case of slump, what slump in the industry.
Both revealed lifts in full year profits, despite describing the 2015-16 financial year being described as one of the most troubling and difficult trading environments the industry has faced in recent years.
Global prices fell sharply in the year to June, but have rebounded solidly in the past month.
And if you look at the 2015-16 results for The a2 Milk Company yesterday, it further adds to the feeling that the June 30 year was pretty fabulous for dairying.
But clearly that is not the case given the self-inflicted problems at Murray Goulburn and the way they have impacted confidence in the entire sector.
And while not as bad as at Murray Goulburn, Bega Cheese saw itself impacted up as well by the poor publicity.
There was also the bad publicity from the silly cheap milk deal Murray Goulburn struck with Coles (the $1 a litre milk offer from both Coles, and Woolworths) and the boom in baby formula exports which helped the likes of a2 and rivals such as Bellamys, but by passed Murray Goulburn.
Bega and Murray Goulburn took conflicting approaches to dividends – Bega’s full year is up 1 cent a share to 9.5 cents a share, while Murray Goulburn will trim its payout to 7.41 cents from 9 cents a security the year before.
Murray Goulburn, which shocked the industry when it suddenly and retrospectively chopped prices paid to farmers in April, yesterday revealed a lift in profit after tax, to $40.6 million.
The result was struck on a 3.3% slide in revenue to around $2.7 billion.
Murray Goulburn, (which is Australia’s largest dairy processor) said it had met its downgraded profit guidance for the 12 months to June 30.
"At the time of our revised earnings guidance in April, MG made the decision to support our suppliers with a milk supply support package," interim CEO David Mallinson told the ASX.
"At the close of the year, this support totalled $183 million, net of $47 million of early repayments.
"This delivered an average cash price for milk to our suppliers of $5.53 kilograms per milk solids (kgms), after two consecutive years of farm gate milk prices above $6.00 kgms."
And Bega Cheese said its net profit after tax rose 132% to $28.8 million in the year to June 30.
Bega executive chairman Barry Irvin said the company was proud to maintain the farm gate price to farmers amid the slumping global market, and major cuts delivered by rivals Fonterra and Murray Goulburn.
Bega’s revenue rose 7% to $1.2 billion.
The company also cut its debt to $53.1 million, down nearly 10%.
Globally, dairy prices have slumped, but Mr Irvin said the company’s relationship with Bellamy’s Organic and vitamin company Blackmores had given it profitable exposure to the booming infant formula market.
Growth in the company’s nutritionals division soared by over 50% off the back of new relationships, bringing in revenue of nearly $220 million.
"[The 2016 season] will be remembered in Australia and parts of the world for all the wrong reasons," Mr Irvin said.
Bega produced 238,000 tonnes of dairy products for the year, up 6% on the prior year.
Another year of growth is tipped for fiscal 2017, although Bega opted against providing specific guidance.
“We expect continued revenue growth and improved financial performance in FY2017. Bega Cheese continues to maintain a strong balance sheet and the company is well positioned to grow its business both organically and through acquisition,” Mr Irvin said.
The result came with news current chief executive Aidan Coleman would retire in January.
“Aidan has done a wonderful job as CEO of Bega Cheese over the past five years,” Mr Irvine said.
Bega declared a final dividend of 5 cents a share, bringing total dividends to 9.5 cents for the last 12 months, up a cent on 2014-15. That is not the move of a company questioning the immediate future.
Murray Goulburn meanwhile says it will cut 200 staff as part of a restructure as it seeks to boost its 2016-17 profit pool by an extra $10 to $15 million.
The company confirmed a farmgate milk price of $4.80 per kilogram, in line with the guidance provided in April for a price of $4.75-4.85. However, this was sharply down on the co-operative’s previous forecast for a price of $5.60 per kilogram.
It was that cut and the fact that many of its farmers had been prepaid varying sums at the old price,which has caused all the angst among dairy farmers.
Murray Goulburn paid a final dividend of 3.91 cents a security, taking the full year payment to 7.41 cents a security, down from 9 cents for 2014-15.
Unlike Bega, the cut by Murray Goulburn is a sign the board wants to conserve cash. Bega shares rose 2% to $6.39, Murray Goulburn securities rose 0.7% to $1.30.
