Dairy co-op Westland Milk must change in order to survive, says Christchurch investment advisor Grant Williamson.
Westland, New Zealand’s second-biggest dairy cooperative, predicts its payout to shareholder suppliers will be in the range $6.75 to $7.20/kgMS for 2018-19.
The figure is in line with payout predictions of $7.00 from Fonterra and Synlait.
Chairman Pete Morrison says the shareholders will welcome the prediction; they are anticipating a payout in the range of $6.10 to $6.30 for 2017-18.
“This is a disappointing result as it is not as competitive as we had originally told shareholders we would be,” Morrison said, “but a number of one-off factors contributed to this.”
They included the impact of former-tropical cyclone Fehi, estimated to have cost at least 10c/kgMS. Lyttelton Port strikes added to the cyclone’s disruption and meant Westland incurred higher freight costs. And quality issues, while now improved, were more extensive than at first thought and took longer than expected to resolve.
“We are now seeing improved sales and a better sales outlook; there is a much improved performance by our infant and toddler nutrition (ITN) and UHT plants; and consumer butter has been, and we believe will continue to be, a star performer.”
Morrison said Westland is starting to see payback on its capital investments in ITN and UHT capacity of the last few years. While these had taken longer than expected to start delivering a return, they are now adding value. “ITN volumes are significantly up this year,” he said, “and UHT is close to capacity.”
Westland’s decision to enter the NZ retail consumer butter market with its Westgold brand has also paid off, Morrison said.
Westland continued to work on quality issues in the plant at Hokitika.
“Our percentage of ‘right first time’ processing was not good. However it has improved and that means less cost, and we are more able to deliver on time for the best price. We are still not satisfied with our performance on quality for the past year and believe this will further improve in the 2018-19 year,” Morrison said.
He expects butter to continue to be a good export earner.
“We see robust demand for butter in all sectors growing further in the coming year, with grass-fed growth showing even further potential. Westland is in a great position to take advantage of the growing demand for grass-fed dairy products.”
To make butter, Westland had to find markets for its skim milk powder and that is also looking promising, he said. “We believe NZ SMP will continue to trade at a premium due to the global ITN demand.”
“We are also benefitting, especially in the last few months, from finally having a complete executive leadership team.
“Our chief executive Toni Brendish has been in the role for 20 months and one of her first actions was to restructure leadership of the company to have the right people in the right roles for the direction we wanted to go.
“It’s taken a while to get all those people in place.
“We have had the full team since just before Christmas last year and they are delivering, with real expectations of continued improvement going into 2018-19.”