Murray Goulburn set out plans for new plant in March

Murray Goulburn set out plans for new plant in March

Murray Goulburn, the Australian dairy group, has said it is weighing up its plans to build a nutritional powders plant at its site in Koroit in the south-east of the country.

The co-operative announced plans for the new plant in March as it unveiled deals to supply infant formula makers Kalbe and Mead Johnson.

Murray Goulburn, which has had a difficult 12 months, wrote to its suppliers this week to quash what it said was "speculation" it had decided not to pursue the project but admitted it was reviewing whether to put the investment at its site in Koroit.

"It has come to my attention that there is some speculation that Murray Goulburn has made a decision to not pursue our nutritional plant project at Koroit. I wish to advise that this is not the case. As we advised as part of our supplier presentations recently, we are revisiting all our capital projects to ensure that they are the most effective use of the capital that we have raised. It is with this in mind, that we are considering other potential locations for the nutritionals plant to ensure that we have the most appropriate and cost-effective location. At this stage no final decision has been made," interim CEO David Mallinson wrote.

"It is important to note that Koroit remains a critical centre for our operations and this review will not impact our current activities or workforce. We are also very mindful of the significant role Murray Goulburn plays in the communities in which it operates and the contribution that we make to regional Victoria.

When Murray Goulburn announced in March the plans to add a nutritional powders plant at the Koroit site, it said the project was subject to the final approval of its board and the company receiving planning permission. The Koroit factory, 300km west of Melbourne, is Murray Goulburn's largest production facility, with an intake of close to 1 billion litres of milk a year for the production of skim and whole milk powders, as well as dairy foods including cheese, butter, cream and infant formula.

However, Murray Goulburn had said it had earmarked AUD260-300m (US$198.1-228.6m) for the project and forecast, subject to getting the necessary approvals, the first phase of the plant would be up and running in early 2019.

"The nutritional powders investment at Koroit is a key enabler of MG's strategy to shift to more stable and higher value-added dairy foods. It firmly positions Murray Goulburn as the region's premier producer and supplier of nutritional
powder," the company said when it announced the deals with Kalbe and Mead Johnson on 15 March. Under the plans, Mead Johnson would put a packaging plant on the site.

Two weeks before the announcements on the contracts with Mead Johnson and Kalbe, Murray Goulburn had warned "weakness" in the prices of dairy commodities meant its ingredients and nutritionals division was forecast to "materially under-perform" expectations for the financial year. The news came alongside Murray Goulburn's results for the six months of the year, which included a 13% fall in revenues to and a loss of AUD25.4m, down from a profit of AUD31.8m a year earlier.

The following month, Murray Goulburn issued a profit warning for the year, a move to cut the price it pays farmers for milk and the departures of MD Gary Helou and CFO Brad Hingle from the business.

Murray Goulburn announced its full-year results in August. Click here for our key takeaways from the numbers and from the company's comments on its prospects.