Westland reduces payout forecast

 On-going global oversupply of dairy products and the impact of a relatively high New Zealand dollar continue to have an effect on dairy prices, Westland says.

Chairman Matt O'Regan told shareholders yesterday that Westland's predicts the payout to be around $5 to $5.40/kgMS. Advance payments to shareholders will also see adjustments to reflect the lower dairy prices and resulting lower cash flows into the business.

"This will be unwelcome news for shareholders, but not unexpected," O'Regan says. "At our October shareholder meetings we warned suppliers that the high level of in-market stocks held by dairy customers was producing downward pressure on prices, especially in the area of bulk milk powders where the majority of our business is still conducted. Farmers will have also noted that bank and industry commentators have widely predicted this continued downward pressure on pay-outs throughout the industry."

O'Regan says earlier in the year supply concerns due to drought, food safety and regulatory caused many of New Zealand's dairy customers to overstock and the current situation is the result of this.

"These concerns are not significant at present and in-market inventory is slowly being consumed. But, customers are generally comfortable with their inventory positions into the first quarter 2015, so we do not expect a sudden uplift in demand.

"The lesson from this," O'Regan says, "is that Westland's drive to produce more value added products – such as our move into base infant formula powders and our recent announcement of an investment in a UHT milk plant – is the right direction to take so we are less reliant on the highly volatile commodity markets in future."

O'Regan says the payout will undoubtedly be a challenge for many farmers and budgets will be tight. However, he notes that the company has systems and processes in place to offer every support it can to shareholders who might struggle financially.