Westland Milk Products is on track to deliver forecasts

30 November 2011

WESTLAND MILK PRODUCTS ON TRACK TO DELIVER PROJECTED SHAREHOLDER BENEFITS - AGM

Westland Milk Products is on track to deliver forecast benefits from the construction of its new reverse osmosis plant in Rolleston, shareholders were told at the cooperative’s annual general meeting today.

Chief executive Rod Quin says; “Our newly built reverse osmosis plant in Rolleston and dryer modifications in Hokitika have positioned us well to deliver a 10-15c per kilogram of milk solids benefit to shareholders this season.”

In summarising the previous financial year Westland chairman Matt O’Regan told shareholders 2010-2011 had been a season of “difficult climatic conditions”.

However, the cooperative’s decision to utilise its DIRA milk capability and process supply for external sources contributed to a 14 per cent increase in milk processed. The additional milk led to an approximate 5c per kilogram of milk solids reduction in fixed costs with an overall contribution of more than 20c per kilogram of milk solids to the end of year final payout of $7.70. A lift in sales volumes from 78,000 tonnes to 90,000 tonnes boosted revenue to a record $525 million.

“Our customers appreciated the additional volumes produced and our ability to keep pace with their growth rates,” O’Regan said. “Westland is now focused on working with selected customers to deliver the highest returns from a product portfolio which is changing a range of nutritional products with higher margins.”

Westland chief executive Rod Quin says a strategic review earlier in the year formed the catalyst to source additional share backed milk supply from Canterbury farmers and further invest in Westland’s nutritional capability.

Stage One, involving the construction of the Rolleston plant was complete while Stage Two involving the installation of batch blending equipment and the modification of Drier 6 at Hokitika, is planned for commissioning in August/September 2012.

“This plant will develop our capability to deliver beyond the seven thousand tonnes of Growing Up Milk Powder we manufacture today,” Quin says.

Stage Three, involving further investment in Westland’s nutritional capability, is currently in the planning phase. International Advisors have been appointed to develop the funding models for this investment whilst maintaining Westland’s pure co-operative model at $1.50 per kgMS share.

O’Regan says the dairy landscape continues to evolve. “Here in New Zealand new dairy companies have sprouted up and it is expected more will attempt to enter the industry.

“Looking at international markets we know that agricultural policy in Europe has undergone reform. A key result is the removal of country specific milk quotas in 2015. As a consequence we can expect a surge in milk which is likely to end up as skim milk powder and butter produced for the international markets. Prices could suffer as a result and what we do between now and 2105 to shift our dependence on these products will be the key to providing sustainable competitive payouts.”

The dairy industry can also expect to see continued volatility as international markets and climatic conditions present challenges into 2012. But shareholders can take comfort that the long-term outlook for the dairy industry remains positive and that demand for innovative dairy products continues to match global population growth.

Westland reiterated its forecast operating surplus of $6.60 - $7.00 per kgMS excluding Colostrum and before retentions for the 2012 season. The advance rate also remains at $4.60 per kgMS for payment December 20th.

ENDS

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