Oz processor’s year of ‘two halves’

Both the Great Ocean Ingredients and Warrnambool Cheese and Butter Japan joint ventures performed strongly in 2012 with a $A3.2 million contribution to net profits.

“Once again WCB has produced robust earnings for shareholders and milk suppliers in a year marked by a declining global economy and international commodity prices,” says chairman Frank Davis.

“The company was able to mitigate the impact of declining international revenues through its customer specific applications and plant capability upgrades to maintain comparably strong export prices.” 

Total milk intake for 2012 was 919 million L, a net 4.5% increase. Milk intake grew due to a 4.6% increase in supplier numbers and a 3.7% increase in milk sourced from other dairy companies. WCB paid average farm gate price of A41.4 cents/L.

A large investment was made in the recently announced five year Great Ocean Road national cheese supply agreement with Coles.

Total revenue for 2012 was $A497.8 million, down by 1.3% on 2011. Total sales were down 5.1% largely due to a decision to hold higher closing inventories on the prospect of improving prices in the new financial year.

“2012 was a year of two halves where strong prices were achieved in the first six months before declining sharply in the second,” says managing director David Lord. “A deterioration in the global economy combined with a high Australian dollar and a surge in global production put downward pressure on pricing in the second half.”

In 2011-12, WCB continued to deliver on its strategy to pursue growth in milk and cheese supply. The full year impact of 2011/12 capital project investment is set to be realised in 2013. These include:

Sungold Fresh Milk expansion - a 50% increase in plant capacity was completed in the first half 

Skim Milk Powder plant upgrade - upgrade of the powder plant was a key contributor to maintaining sales volumes and margins during the second half of 2012.

Mil Lel Specialty Cheese plant upgrade - capacity upgrade supported a 63.3% increase in sales 

Coles national cheese supply - the recently announced Coles five year cheese supply agreement provides underlying support for the Mil Lel plant upgrade and WCB’s strategy to expand its domestic retail business.

Early 2013 indications are for continued restraint in commodity prices for the first half of the financial year.

The impact of dry conditions in the USA is yet to be fully recognised. Analysts are now revising downwards their forecasts for growth in US milk production for 2013 and this may lead to improved commodity prices in the first half of the 2013 financial year.