AUS: H1 profits tumble at Warrnambool Cheese and Butter Factory

WCB HALF YEAR PROFIT IN LINE WITH NOVEMBER UPDATE

Warrnambool Cheese and Butter Factory Company Holdings Limited (WCB) today announced a half year net operating profit after tax of $15.3 million, a reduction of $15.4 million compared with the same period last year. After elimination of half year inventory valuation adjustments, which have no impact on full year earnings, underlying operating profit after tax was $10.7 million, in line with the recent market update.

Results for the first half of FY2013 were adversely impacted by heightened competition amongst processors sourcing raw milk in the local market, resulting in a milk price to revenue ratio of 70.4% versus 63.0% for the previous corresponding period.

"As indicated in our November guidance, first half FY2013 earnings have been impacted by subdued international market prices, a strong Australian dollar and higher than normal raw milk costs." said Chairman Frank Davis.

The full year FY2013 outlook remains difficult. There has been some improvement in international market pricing, however the Australian dollar has remained relatively high largely offsetting price gains. In addition, ongoing competition in the raw milk market is likely to keep upward pressure on farm gate prices paid to milk suppliers.

Given the reduced half year result and uncertainty around full year expectations, Directors have not declared a half year dividend.

Operations

WCB has continued its strategic focus on delivering business improvement initiatives and projects:
• High percentage of powder sales now in premium specification or customer specific applications with improved margins;
• Expanded customer specific formulations in cheddar and reduced fat cheese;
• Mitsubishi Corporation exclusive premium powder supply agreement;
• Launch of the Great Ocean Road branded cheese and fresh milk in Coles supermarkets.

New Business Initiatives

Consistent with WCB's strategy to build a portfolio of higher margin products and deliver more customer specific applications, the following initiatives will see the company enter new markets.

WCB develops premium low fat cheese for Kraft

After years of research, WCB has developed Australia's lowest fat cheese that delivers a great flavour and texture profile. Developed on behalf of Kraft, WCB's proprietary formulation is four times lower in fat than other leading 'light' tasty cheeses, making it the perfect choice for those looking for a reduced fat option. Marketed under the Livefree brand this unique cheese contains 80% less fat and half the energy of regular tasty cheese while maintaining a delicious cheddar flavour.

"For Kraft Foods to remain Australia's fastest growing food company, we must develop strong collaborative and innovative partnerships. There is no better example than that developed with WCB" - Kraft Director Simon Talbot.

WCB to enter the lactoferrin market

WCB and The Tatua Co-operative of New Zealand have signed a Memorandum of Understanding which will see the parties negotiate a formal agreement for Tatua to act as technology partner in the construction and commissioning of a lactoferrin plant at WCB's Allansford site. There has been robust growth in the lactoferrin market in recent years largely driven by rising demand for infant formula in Asia. Lactoferrin is a functional ingredient increasingly used in the manufacture of premium infant formula. Assuming execution of a formal contract with Tatua this quarter, it is anticipated the WCB lactoferrin plant will be commissioned in the fourth quarter of CY2013.

Instantised WPC capability upgrade

WCB is investing in a capability upgrade to its Allansford based Whey Protein Concentrate (WPC) plant to enable the production of WPC in instantised form. Instantised WPC is a premium form of the standard WPC 80 product which provides additional functionality for customer specific applications in sports nutrition, supplements and infant formula. The upgrade is expected to be commissioned in the fourth quarter of CY2013 with the first product in the market shortly thereafter.

It should be noted that WCB's half-year profit result does not normally reflect the expected proportional full year result of the Company. Due to industry and other seasonal factors, it is normal for the half-year operating results to exceed those of the full year. During the second half of the 2013 financial year the Company may be subject to:
(a) increases in milk prices that are retrospective from 1 July 2012;
(b) seasonal milk flow variations that may result in less effective utilisation of plant; and
(c) variations in foreign exchange rates.

Original source: Warrnambool Cheese and Butter Factory