Westland Milk's payout at low end of guidance; cuts 2019 forecast
By Rebecca Howard
Sept. 26 (BusinessDesk) - Westland Milk Products has cut its forecast for the 2019 season due to weak global butter prices and announced a farmgate return near the bottom end of guidance.
New Zealand's third-largest dairy company said its final milk payout for the 2018 season was $6.12 per kilo of milk solids, less a 5 cent retention. That delivered a net average result for shareholders of $6.07 per kgMS. The cooperative had forecast a payout of $6.10 to $6.40 and the retention enabled it to report a pre-tax profit of $3.3 million for the 12 months ended July 31.
“This year’s payout was at the lower end of our range and was affected by global commodity prices, the impact of Cyclone Fehi, and a strike at the Port of Lyttelton. We also didn’t meet our production and processing targets for the year," said chairman Pete Morrison.
“It was essential to retain a degree of payout to ensure a strong balance sheet and leave us options for capital expenditure to drive growth.”
Looking ahead, Morrison said the current decline in global butter prices prompted the board to reduce the forecast payout for 2019 to a range of $6.50 to $6.90. He said that's in line with other milk processors.
Top line sales had not been "as good as they could have been," however, the cooperative is seeing improvements with a new sales team, Morrison said.
He reiterated the cooperative is currently reviewing its capital structure to respond to high debt and limited financial flexibility issues. Shareholders will get an update at the Dec. 5 annual meeting.
In July the cooperative appointed Macquarie Capital and DG Advisory to consider potential capital and ownership options to create a more sustainable capital structure and support a higher payout. All options were on the table in the process expected to run for several months.
Options to be considered in the strategic review include continuing the current cooperative model with its capital constraints, introducing a cornerstone investor to provide new capital to fund growth, and a merger or divestment of the cooperative.