November 2, 2017 / 5:06 PM / in 18 days

Canadian dairy Saputo woos Australia farmers in Murray Goulburn rebuild

WINNIPEG, Manitoba (Reuters) - Saputo Inc (SAP.TO), one of Canada’s largest dairy producers, aims to return Australia’s Murray Goulburn Co-operative (MGC.AX) to profit by aggressively pursuing more of the country’s milk supply, its chief executive said on Thursday.

The Montreal-based company agreed last week to buy the co-operative (MGC.AX) for C$1.3 billion ($1.02 billion)including debt, and has already planned 15 meetings with Australian dairy farmers in the next two weeks, CEO Lino Saputo Jr said.

“In the three years we’ve been operating in Australia, we’ve gained a lot of goodwill with dairy farmers,” he said on a conference call with analysts.

Murray Goulburn collects 1.7 billion to 1.9 billion litres of milk annually, far below its peak of 3.5 billion litres.

Saputo, which entered Australia three years ago with its acquisition of Warrnambool Cheese & Butter Factory, hopes to eventually increase volumes to between 2 billion and 3.5 billion litres annually, Saputo Jr said, without giving a time frame.

The co-operative’s plants are modern, but not all run near capacity, leaving room for improvement under a new operator, he said.

Murray Goulburn has potential to generate A$175 million to A$180 million of earnings before interest, tax, depreciation and amortization (EBITDA), or core earnings, per year, approaching the A$200 million it recorded in 2014, Saputo Jr said.

“With the right focus, the right people in the right place, the right decisions at the right time, we believe MG can come back to its historical levels of profitability,” he said. “We’re very confident about that.”

The deal rescues Murray Goulburn, maker of Devondale milk and cheese, after a disastrous foray into China. In fiscal 2017, the co-operative lost A$371 million.

The deal, expected to close in the first half of 2018, would make Saputo Australia’s top milk producer and expand its access to China, the worlds fourth-largest fluid milk consumer.

Saputo Jr also told analysts he expects “tweaks” to Canada’s dairy system, in which prices, supplies and imports are tightly controlled, once the North American Free Trade Agreement is renegotiated, but no fundamental changes.

Saputo’s shares dipped 2 percent to C$45.43 in Toronto.

Earlier on Thursday, Saputo reported lower earnings, pressured by lower Canadian sales volumes.

($1 = 1.2801 Canadian dollars)

Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Tom Brown and Meredith Mazzilli

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