Westland Milk Products - annual report

Westland Milk Products - annual report

Westland’s added value strategy will benefit shareholders says chairman

A substantial investment into increasing Westland Milk Products’ capacity to produce high value nutritional products will improve returns for shareholders, predicts board chairman Matt O’Regan.

Hokitika-based Westland Milk Products, New Zealand’s second biggest dairy co-operative, has released its annual report recording a total group revenue for the 2013-14 financial year of NZ$830 million – up 46% on the previous year. This was driven by increased milk volumes from shareholders – up 21% at 753 million litres, and the movement towards higher value products, which now contribute 14% of the company’s sales volume.

At the same time, O’Regan acknowledged that Westland’s final result for the 2013-14 season, at an operating surplus of $7.57 per kilo of milk solids, did not meet Westland’s strategic goal of providing superior returns to its shareholders.

“We have informed shareholders of the main reasons that led to a less than competitive payout for 2013-14,” O’Regan says, “and assured our shareholders that our entire focus is on improving that performance considerably.

“To that end we are investing a substantial sum into advancing our strategy to move increasingly into product ranges where we can add value, improve profitability and reduce our vulnerability to the cyclic nature of the dairy commodities market.”
O’Regan says that the success of the co-operative’s first full year of making nutritional products in its new dryer at Hokitika has reassured the company that it is on the right path toward more competitive and sustainable returns for shareholders.

“We have followed that up by approving an investment in an even bigger dryer at Hokitika which, at a cost of more than $102 million, is the biggest single investment the board has approved. That dryer will be commissioned in August 2015 and will be followed by a $40 million UHT plant at our Rolleston premises, Westland’s first venture into retail-ready milk.

“I am confident this strategic direction will generate the competitive returns our shareholders are asking us to achieve,” O’Regan concluded.

Westland CEO Rod Quin says the focus on new plant and products is being supported by an investment in sales and marketing resources, especially in China. The co-operative has established a sales and marketing office based in Shanghai and has recruited some of the local specialists it needs to drive its push into branded markets, particularly infant formula and packaged UHT milk.

Quin says the potential in China remains considerable, despite a recent slowing of the market there, but Westland is also spreading its market exposure risk by making inroads into other countries such as Indonesia.

“Overall, Asia’s demand for imported dairy products will continue to be 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 to better enable us to identify and access the niche markets we can take advantage of to grow our company performance and improve shareholder returns.”
Farm Excellence

Quin says Westland is matching its drive for added value at the product end by also working directly with shareholders on a programme to add value to the on-farm end. He says the co-operative’s drive for sustainability, quality and traceability will boost its reputation as a credible player in the more profitable but highly demanding nutritional products market.

“The higher you go in the value-added chain,” Quin says, “the more exacting are customer demands governing not just the obvious things like quality and food safety, but also traceability. Customers want to be able to follow the story of their product from the cow to the retail shelf – and also expectations of our performance in areas such as animal welfare and environmental responsibility.”

To that end, Quin says, Westland is expanding and upgrading its Code of Practice, incorporating it into a new overall Farm Excellence programme (FarmEx).

“Westland trades on its quality, safety and naturalness, which are often represented in our marketing by the magnificent scenery of the West Coast,” Quin says. “This cannot be mere window dressing. We must demonstrate in real and practical terms that what we say about our processes and products is backed up on the ground. Our customers deserve nothing less.”

Quin says the FarmEx roll-out covers far more than environmental matters, taking in farm and staff management, health and safety, record keeping, animal welfare, and even the aesthetic appeal of farm properties to the eyes of visitors.

“Our customers should be able to visit any of our shareholders’ properties any time and be completely satisfied with what they see and learn about how that property is run and its contribution to the high quality products Westland makes.”

O’Regan says Westland’s strategy to move into added value products is a huge investment that would not be done if the company was not sure it was the right direction to take.

“We know that our shareholders will continue to meet the dual challenges of farming sustainably while maintaining quality and production levels. We have an exciting future ahead of us that will reward shareholders and confirm that the West Coast’s decision to go its own way in New Zealand’s dairy industry was the right one.”

See the full annual report here: http://westland.co.nz/eng/our-company/finance-and-membership/

ENDS

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