Overseas bidders in race for Koroit

08 Jun, 2018 05:20 PM
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Lino Saputo says he sees a potential opportunity for selling more Australian dairy products into Mexico in the wake of impending tariffs on US dairy exports to that country.
We are optimistic .... that milk will come back to its rightful home.
Lino Saputo says he sees a potential opportunity for selling more Australian dairy products into Mexico in the wake of impending tariffs on US dairy exports to that country.

Overseas bidders are in the race to buy the former Murray Goulburn Koroit factory in Victoria’s Western District.

New Zealand, European and Chinese players, as well as Australian players, were interested in buying "one of the jewels in the MG crown", Saputo chief executive Lino Saputo Jr said in a conference call on June 7.

His comments came as the company announced a profit drop for the last quarter on the back of higher costs and lower international prices.

Mr Saputo also flagged that the company was chasing more milk for its Australian operations, saying it was "realistic" for the MG assets to be processing 2.1-2.2 billion litres, up from 1.6 billion litres, excluding Koroit.

He also hinted that the company was looking at some of MG's contracts, saying "we are not in the business of buying market share".

Mr Saputo said he also saw a potential opportunity for selling more Australian dairy products into Mexico in the wake of impending tariffs on US dairy exports to that country in response to US president's Donald Trump's tariffs on steel and aluminium from Mexico.

He said the company with the acquisition of Murray Goulburn was "delighted to become Australia's top dairy processor".

"By acquiring this deep-rooted industry player, we strengthen our presence in Australia with the intention to foster strong supplier relations, to grow our milk intake and to review our operations as we focus on maximising the network we inherit," he said.

Mr Saputo said Koroit would not be sold at a discount, despite the sale being forced by the Australian Competition and Consumer Commission.

"The agreement that we took with the ACCC when we decided to acquire MG was that we would carve out Koroit from day one," he said.

"So there is a separate management team that is not attached to MG that is running the Koroit facility."

The Koroit factory was processing about 300 million litres with the potential to get up to 800 million litres - not far from the size of Warrnambool Cheese and Butter when Saputo first acquired it.

"It is a sizeable asset and a sizeable platform as a standalone business," Mr Saputo said.

Saputo had "packaged that plant with all of its financials disclosed to potential buyers" and was seeking as the first stage non-binding offers.

It would then take the best 3-4 bidders into stage two to get "more concrete and binding numbers", he said.

More milk

Mr Saputo said the company's number one priority in Australia was to get more milk through its plants.

"Right now ... in some cases, we are running some plants at 30 or 40 per cent of their capacity utilisation," he said.

"We are optimistic as we continue to talk to dairy suppliers in different regions that milk will come back to its rightful home."

A step-up payment earlier this year "to pay leading competitive prices" was part of a commitment the company had made to dairyfarmers in Australia.

"I think that has gone over extremely well," Mr Saputo said.

"The goodwill that we have generated over the last four years by operating WCB seems to be carrying through into the MG acquisition."

Mr Saputo said he was confident that as long as the company was "fair", "responsible", "loyal" and paid a leading price, it could get plants "running easily to 70, 80 per cent of their capacity utilisation, if not close to 90 to 95 per cent".

He also flagged that the company was working to merge the two organisations "as one entity, one division, Saputo Dairy Australia, under one umbrella".

"We've identified strong players both at MG and WCB that will carry this business moving forward," he said.

Saputo was also looking at the MG plants and what they would require in terms of capital expenditure.

"We understand where some of the great opportunities lie, we are very mindful and we are very aware of some of the problem issues and problem plants within the system and we do have plans and ideas to tackle those," he said.

Mr Saputo said it was also looking at "right pricing products to market, whether that would be domestic or international".

"We don't give product away in the market even though some of our competitors try to do that," he said.

"We need to be profitable."

He said the MG infrastructure had the potential to generate the type of returns generated at WCB.

World markets

Mr Saputo said overproduction of milk compared with demand was behind the lower international prices that impacted the company's results.

"The real weakness in commodity prices around the world are coming from those dairy-producing countries around the world that have an ability to export," he said.

"So I am thinking the United States, I am thinking the EU 27 (European Union) and I am thinking New Zealand specifically.

"They re the ones that are going to move the needle."

Mr Saputo again called for dairy co-ops to curb overproduction.

"I will say this once again - and I have said it a number of times before - I think there needs to be a little more leadership at the co-op level around the world and I am saying this publically to the stakeholders in the dairy industry," he said.

"My intention here is not to divide the industry but rather to bring the industry together.

"And I think we all need to be a bit more responsible as we move forward to have proper economics at the farm level."

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