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Australia's largest dairy processor resets Asian growth strategy, shares slump
May 2, 2017 / 3:32 AM / in 7 months

Australia's largest dairy processor resets Asian growth strategy, shares slump

SYDNEY, May 2 (Reuters) - Australia’s Murray Goulburn on Tuesday abandoned its push into high-valued dairy products for Asian consumers and signalled big writedowns, lopping more than 15 percent off its shares.

Newly installed CEO Ari Mervis said the country’s largest dairy processor would not go ahead with a planned investment in high-margin nutritional and dairy drinks, marking an abrupt shift for a company that was relying on premium products to drive returns.

“These have been difficult decisions to make, however, they are necessary steps to ensure the future strength and competitiveness of Murray Goulburn,” Mervis said in a statement.

Murray Goulburn also said it would close three manufacturing plants and forgive debt owed to the company as part of a financial assistance package issued late last year to farmers.

Shares in Murray Goulburn’s publicly traded MG Unit Trust posted their biggest one-day loss in a year after the dairy processor said it expected financial writedowns of A$410 million ($309 million) as a result of the changes.

MG Unit Trust was trading down 11 percent at $0.92 at 03016 GMT at a seven-week low.

“The announcement represents a major reset of Murray Goulburn,” said Michael Harvey, a dairy analyst at Rabobank.

“It signals that Murray Goulburn is still very much in recovery and that process may take several years.”

The company had previously adopted a strategy of paying above market rates to secure sufficient milk supplies, but fell to a half-year loss in February of nearly A$32 million after soft Chinese demand for its high-margin products.

The latest financial writedowns come just days after Australia’s competition regulator said it would take legal action against Murray Goulburn, alleging the company did not inform its farmers early enough that its strategy was failing.

In April 2016, Murray Goulburn cut the price it paid suppliers by 20 percent in a move that angered farmers, who said the cut came so late in the season that they had little chance but to continue producing at a loss. ($1 = 1.3261 Australian dollars) (Reporting by Colin Packham; Editing by Richard Pullin)

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