Westland payout hit by product mix

The revenue result has been driven by increased milk volumes from shareholders – up 21% at 753 million litres.

Chief executive Rod Quin says the result, while strong compared to recent seasons, did not meet Westland's strategic goal of providing superior returns to its shareholders. The co-operative confirmed an operating surplus to shareholders for the 2013-14 season of $7.57/kgMS.

Quin says that while $7.57/kgMS is an above average payout, Westland's board and management acknowledge it is not as industry competitive as it has been in prior seasons. The payout gap was driven by the price difference between wholemilk powder, which was a star performer for the industry in this year, and casein and skim milk powder - Westland's main volume products - which suffered from relatively lower international prices.

Westland has a well-developed strategy in place to move away from commodity ingredients and provide competitive and sustainable returns, Quin says.

"The implementation of this part of the strategy commenced in 2012 with the commissioning of our first nutritional products facility at Hokitika," he says. "This allowed us to make more profitable value-added products such as infant nutrition ingredients. Its success encouraged us to invest in a larger $102 million nutritionals dryer, also at Hokitika, which will be commissioned in August 2015. The board has now confirmed it will continue with that line of strategic investments by approving $40 million for an Ultra High Temperature (UHT) milk processing plant to be located at the company's Rolleston site near Christchurch."

China expansion
The cooperative has also boosted its commitment to expansion in the Chinese market by establishing a sales and marketing office based in Shanghai.

Quin says the potential in China remains considerable, with the growing demand for imported dairy products there far beyond what New Zealand companies are able to supply.

"With the establishment of the China office, Westland is more able to develop, service and maintain relationships with customers and officials there. The Shanghai office will be staffed by a mostly local Chinese team."

UHT plant
Westland's plan to expand into the UHT milk market – its first ever retail milk product – is also largely aimed at China. "This is a high value product with excellent prospects for Westland," Quin says. "Comparatively little of China's milk is delivered fresh through refrigerated outlets as it is in New Zealand. Rather, most milk is consumed as a UHT product that does not need refrigeration, and we see that market continuing to expand.

"All this investment has the one aim, to improve shareholder incomes by increasing profitability and reducing our reliance on the highly volatile ingredients market."