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Murray Goulburn loses $108m Woolies deal

AAP logoAAP 28/07/2016 Trevor Chappell

Troubled dairy co-operative Murray Goulburn has lost its contract to supply supermarket giant Woolworths with private-label cheese, UHT, adult milk powder and cream to smaller rivals Bega Cheese and Freedom Foods.

Murray Goulburn will lose $108 million in annual revenue, which equates to about 3.75 per cent of the $2.87 billion it took in 2015.

The dairy co-operative, has kept its contract to supply Woolworths with private-label shredded mozzarella and butter, said on Friday that the financial impact in the 2017 financial year would be limited given the timing of the completion of existing contracts..

Murray Goulburn will direct the manufacturing capacity that was devoted to the lost Woolworths contracts to other markets, which it said would limit the impact on future revenue and earnings.

Murray Goulburn interim chief executive David Mallinson said the company still had a strong relationship with Woolworths.

"We believe our tender to retain this business was competitive, whilst balancing acceptable returns for our products given the current environment for our farmer/suppliers and investors," Mr Mallinson said.

A Murray Goulburn spokesperson said on Friday that the loss of the Woolworths contract from January 2017 would be offset by a five-year contract that Murray Goulburn has to supply private-label cheese to Coles from February 2017.

The Coles contract, which Murray Goulburn announced in February 2016, will generate $130 million in annual revenue.

Even so, the loss of the Woolworths contract represents more bad news for a company trying to repair relations with its dairy farmer suppliers after repeated cuts to the price it pays for their milk.

In April, managing director Gary Helou resigned after he said the farmgate milk price provided in February was no longer achievable, and issued a profit warning.

Murray Goulburn is also facing a class action from disgruntled investors in its listed entity, MG Unit Trust, who claim the company made misleading or deceptive claims to the market.

Shares in MG Unit Trust, were 11.0 cents, or 8.8 per cent, lower at $1.14 at 1455 AEST on Friday.

Bega Cheese had risen 40 cents, or 6.9 per cent, to $6.20, and Freedom Foods was 3.0 cents, or 0.65 per cent, lower at $4.57.

Bega Cheese said on Friday that it would supply a significant component of Woolworths' private-label cheese from January 2017.

Freedom Foods said it would supply a significant component of Woolworths' private-label UHT milk, starting later in 2016.

The Freedoms Foods Pactum Dairy Group UHT operation in Shepparton, Victoria will supply Woolworths with the private-label UHT dairy milk range.

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