New UHT plant construction starts
Construction is underway at Fonterra’s new UHT cream plant at Edendale, Southland following a groundbreaking ceremony recently.
Tatua's 86 supplier families will receive $7.10/kgMS for milk supplied last season; Fonterra is paying its 100% shared up suppliers only $4.65/kgMS and Westland $4.85/kgMS.
Tatua has also retained a whopping 63c/kgMS for capital expenditure; Westland retained 10c/kgMS.
Fonterra chairman John Wilson congratulated Tatua on its results but notes that the two co-ops cannot be compared. "We are quite a different dairy business and our farmers appreciate that," he told Rural News.
Fonterra benchmarks its performance against global dairy co-ops like European giants Arla Foods and FrieslandCampina, based on the return on capital.
"At the moment, we are among the best in the world when compared with the Arlas and FrieslandCampinas."
Last season, all dairy processors were hit by lower commodity prices. Benchmark whole milk powder prices declined from US$3250/t at the beginning of the year to US$1850/t by the end of the year, down 43%.
Tatua chairman Steve Allen says despite market weakness the company recorded a strong result due to its product mix of caseinate, WPC and AMF (anhydrous milk fat) being preferred throughout the year, and improved margins on its specialised added value businesses as a result of the falling New Zealand milk price.
Foreign exchange management continued to be a challenge with the NZ dollar falling throughout the year.
"Our foreign exchange hedging policies have achieved an overall conversion rate of 0.7570 -- a strong performance," says Allen.
Milk supply from Tatua suppliers was 15.7m kgMS vs 13.2m kgMS in 2013-14.
"Milk from our farmers continues to be outstanding in quality with average somatic cell counts at historically low levels," he says.
At Westland, the lower commodity prices affected total revenues, down 23% to $639m.
Chief executive Rod Quin says Westland, like dairy companies globally, has been adversely impacted by the "significantly lower" market prices last season.
He says continuing its move into more value-added production is the best strategy to ensure shareholders competitive and sustainable returns.
Fonterra's final payout of $4.65 comprises a farmgate milk price of $4.40/kgMS and a dividend of 25 cents/share.
Chairman John Wilson says extremely challenging trading conditions globally had affected all parts of the cooperative's business.
"Falling global dairy prices due to a supply and demand imbalance impacted the milk price, while the dividend reflected the higher [cost of expanding the co-op's capacity] to support milk growth in New Zealand, essential investments in China, and the cost of maintaining a higher advance rate through the season.
"Stronger performance in the second half resulted in normal earnings before interest and tax almost doubling, with good growth in our consumer and foodservice businesses and a major push in our ingredients business to offset low milk prices with improved margins."
On the rise
Recent gains in global dairy prices have prompted dairy companies to raise their payout forecasts for this coming season.
Fonterra has lifted its forecast by 75c to a range of $5.00-$5.10/kgMS; it comprises a farmgate milk price of $4.60 and a forecast dividend range of 40-50c/share.
Westland has lifted its forecast payout by 30c to $4.90/kgMS to $5.30/kgMS.
Westland chief executive Rod Quin is cautiously optimistic.
"The current market has shown signs of increasing demand and price recovery," Quin says. "The key contributors to Westland's pay-out are the prices for skim milk powder, casein and butter, and a growing contribution from infant and toddler nutrition."
Tatua chairman Steve Allen says recent upturns in prices on the Global Dairy Trade auction are positive, but global milk supply continues to exceed demand. Until this corrects, further upward, price movements may be limited, he says.
"In announcing a strong result for 2014-15, we are mindful that the 2015-16 year will be challenging. Demand remains fragile, climatic conditions are uncertain and we anticipate continuing volatility in prices and exchange rates. Despite this, we expect our focus on specialised added value products to continue to hold us in good stead."
