Westland Milk Products wants to diversify portfolio

Westland Milk Products wants to diversify portfolio

New Zealand dairy co-operative Westland Milk Products is to set up a NZ$40m (US$31m) UHT plant as part of plans to reduce its "vulnerability" to the dairy commodities market.

The facility at Westland's site in Rolleston will see the co-op move into what it called "retail-ready milk" for the first time.

Westland, New Zealand's number two dairy co-op, is also set to spend NZ$102m on a dryer at its site in Hokitika. Chairman Matt O'Regan said the project was "the biggest single investment the board has approved" and will be commissioned next August.

News of the investments were announced alongside annual results that included what chairman O'Regan called a "less than competitive payout" to its farmer members.

O'Regan acknowledged Westland's final result for the 2013-14 season, at an operating surplus of $7.57 per kilo of milk solids, did not meet the co-op's 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 and assured our shareholders that our entire focus is on improving that performance considerably," he said.

Westland CEO Rod Quin said the co-op was looking to support the investment in production with moves in sales and marketing. It said the business had set up an office in Shanghai as it looks to push into branded products, especially in infant formula and UHT milk.

"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," Quin said.

"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."

For the year to 31 July, Westland made profit of NZ$503,000, compared to NZ$13m a year earlier. At a pre-tax level, Westland broke even, versus a profit of NZ$17.4m the year before. "The volatility of the dairy industry is nothing new but the vagaries of the 2013-14 season, where we saw record high commodity prices and major variations between product prices, has been one for the record books," O'Regan said.

Revenue jumped 46.8% to NZ$830.2m amid what Quin said were "record" volumes.

The co-op, meanwhile, is reportedly proposing a new capital structure. Under the plans, Westland's farmer-members would be issued with investment shares each year as well as the existing milk share.