Westland Milk makes case to be NZ poster-child for clean, green dairy

Westland Milk Products says it's a better poster child for New Zealand's clean, green image than some of its rivals and having returned to profit it is now focused on ensuring its returns to farmers stay competitive as it grows.

"When people think of New Zealand they think of clean water, green pastures, forest-covered hills and snowy peaks," said chief executive Toni Brendish, who started in September 2016. "Westland is the exemplar of this landscape. Our shareholders' farms literally border world heritage national parks. More than 90 percent of our rivers meet or exceed the criteria for 'swimmable'."

The company also has a simpler story to tell about the providence of its products, she says. "We can literally connect our customers with our farmers whose families have farmed in the same place for generations. They have a passion for their product and a story to tell that can connect the grower to the consumer in a way that a much larger entity would struggle to do."

Hokitika-based Westland eked out a profit of $1.5 million in the 12 months ended July 31, from a loss of $10.3 million a year earlier and has forecast a payout to farmers of $6.40-$6.80 per kilogram of milk solids. The company's 400-plus shareholder-suppliers received an average payout of $5.18/kgMS for the 2016/17 season, compared with the $6.15/kgMS paid by Fonterra Cooperative Group before dividends. Its payout for the 2015/16 season of $3.88/kgMS was the lowest of any New Zealand dairy company.

Since starting with the company, Brendish has focused on reducing production costs, which had been running ahead of rivals. Today she said Westland was on track to reach targeted savings of $78 million, or about $1.20/kgMS, by seeking efficiencies from its processes and systems and trimming costs for transport and logistics.

"Everything we are doing is focused on improving return, growing the company, and diversifying and segregating product to build a high value-high return base that puts a smaller company (compared with Fonterra) like ours on a much more sustainable footing, than trying to survive in the far more volatile bulk commodities arena," she said.

The company has refreshed its governance and leadership team in the wake of criticism about its lagging returns to farmers. Last month shareholders approved a plan to shrink its board to eight from 11 including three independents chosen for their competence. In February it appointed Pete Morrison as chair, replacing seven-year veteran Matt O'Regan. It also has a new chief operations officer, Craig Betty, and in August named Dorian Devers as chief financial officer.

Brendish said Westland's strategy is to grow as "a nutrition company", meaning it is interested in diversifying beyond its milk-based business.

"Increasingly, Westland is moving away from being a 'dairy' company, to being a company that provides nourishment, and that means we will not always be solely reliant on milk. Future products might well contain other ingredients to enable us to reach into the small high-value niche markets where opportunities are still growing exponentially," she said.

Much of Westland's catchment is on the West Coast, where there is a natural barrier to rival processors seeking milk suppliers. However, it also collects milk in Canterbury, where it jostles with rivals including Synlait Milk and Fonterra.

"All Westland shareholders do have a choice. Those in Canterbury and the Maruia areas can choose other companies to supply to, and even those on the Coast have choices," she said. "They can, for example, simply exit dairying and covert to other forms of farming." She said while Westland collects milk in Canterbury, "it is this West Coast connection that differentiates us and opens doors for our differentiated products."

"We have signalled that the 2017/18 payout will be competitive, and that has already seen shareholders express a willingness to stay on with Westland whereas, it is fair to say, 12 months ago there was some talk about taking other choices," Brendish said.

(BusinessDesk)