Murray Irrigation Ltd will announce a massive loss of nearly $75 million for its main business in the 2015-16 year at next month’s annual general meeting.
The company has been forced to write down assets by $66 million due to water recovery from the Murray-Darling Basin Plan.
Before water recovery under the plan, MIL had assets designed to deliver over 1000GL a year.
However, with more than 27 per cent less water it now expects to deliver an average of 600GL.
CEO Michael Renehan said with more than 27 per cent less water entitlements “some of our older assets are underutilised against their book value yet the cost of carrying those assets, and the depreciation each year, significantly reduces our capacity to return a neutral or positive EBIT which ultimately needs to be considered when we calculate fees and charges”.
“An independent assessment of our business assets returned a significantly lower value than that on our books, which means an impairment, or write-down, was needed to revalue the assets in the accounts.
“This one-off write-down of assets in this year’s financial reports will improve our returns in the future, complementing the cost cutting measures we have already implemented to help us control the fees and prices we charge for our service.
“Impairment is a standard accounting practice and is effectively an adjustment on our books. It has no impact on our service or the use of those assets.’’
Mr Renehan said the business is in a transition phase with ongoing network modernisation, but a clear priority is the need to address costs to manage the business across boom and bust water scenarios.
“We have restructured the business for this transition phase while we complete our modernisation, at the same time as identifying the need to address costs as a clear priority,” Mr Renehan said.
“In 2014/15 the company delivered 739GL and made a $1.5 million loss at EBITDA (earnings before interest, tax, depreciation and amortisation). That loss only got worse once you added depreciation.
“In 2015/16, despite only delivering 340GL the company managed to reduce operating costs by $3.5 million and return a positive EBITDA, however, accounting for asset depreciation means we still returned a negative operational EBIT.
“What this showed us is that as a business we can operate at break even, even in years of low water availability, if we can address underlying business costs and revenue streams. availability
‘‘The ongoing modernisation of the business presented us with the opportunity to conduct a wholesale review to secure the long-term financial sustainability of the company, including looking at the value of assets to ensure they are valued against the current business and not what the business used to be.”
Murray Irrigation chairman Mark Robertson said the results were delivering on the board’s objectives to make Murray Irrigation financially sustainable.
“We gave that objective to CEO Michael Renehan when he joined the business last year and it is testament to his efforts that we are already seeing the results to commercialise the business by restructuring and identifying the three drivers of price, volume and cost,” Mr Robertson said.
Murray Irrigation will provide a complete report on its financial results at its annual general meeting to be held at the Deniliquin Golf Club from 7pm on Thursday, November 17. Presented as a community service by Southern Riverina Suicide Prevention Resource Group and the Southern Riverina News