Westland forecast payout stays

The announcement, made last week at its annual meeting in Shantytown, contrasts with Fonterra's late October 45c/kgMS cut to its opening forecast of $7.15-7.25/kgMS including dividends. Fonterra blamed softer commodity prices and a stronger New Zealand dollar.

At Westland's meeting chief executive Rod Quin said the new reverse osmosis plant at Rolleston, Canterbury, and dryer modifications at Hokitika will generate an extra 10-15c/kgMS for shareholders this season.

Further dryer modifications at Hokitika and batch blending equipment – stage two in the firm's strategic development programme – should be commissioned for the start of the 2012-13 season.

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

Stage three, involving further investment in Westland's nutritional product capability, is still in the planning phase. Quin has previously acknowledged a processing plant at Rolleston is being considered.

Westland chairman Matt O'Regan told the meeting 2010-11 was a season of "difficult climatic conditions."

However, use of DIRA milk for the first time, and processing milk for other companies, increased throughput 14%. This extra milk diluted fixed costs 5c/kgMS and made an overall contribution of more than 20c/kgMS to the 2010-11 final payout of $7.70/kgMS.

Sales volume increased from 78,000t to 90,000t, which, with increased prices, took revenue to a record $525m.

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

Speaking to Dairy News after the meeting, O'Regan said a good start to this season had kicked supply at least 10% ahead of last year but a wet November on the Coast reduced feed quality and production. "Now we're 6-7% ahead."

Westland is again taking its full allocation of DIRA milk, and so far has four farms supplying it from Canterbury. Fonterra has been scoping the possibility of recruiting supply from the West Coast.

O'Regan says the dairy landscape continues to evolve, with new dairy processors and more expected to attempt to enter the industry. Meanwhile he points to changes in Europe influencing international markets.

"We know 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 huge surge in milk which is likely to end up as skim milk powder and butter produced for the international markets."

Prices could suffer and action between now and 2015 to shift dependence on these products "will be the key to providing sustainable competitive payouts," he says.

Shareholders can take comfort in a positive long-term outlook for dairy and demand for innovative products continues to match population growth, O'Regan adds.