Dairy market volatility and price cut decision force WCB downgrade

Posted by Daniel Palmer on 28th May 2009

Warrnambool Cheese and Butter Factory (WCB) has this morning announced a profit downgrade as continued dairy market volatility and decisions made earlier in the year continue to bite.

“Continuing volatility in factors affecting the Company’s financial performance means that the Company’s net loss is likely to exceed the $10-12m foreshadowed earlier in the year,” the dairy firm advised in a statement. “The continuing volatility means that the final amount of the loss cannot be accurately determined at this stage.”

The factors alluded to were a stronger Australian dollar, global dairy price weakness, costs from their delayed joint venture proposal with National Foods and some loss of milk supply. The volatility in the dairy sector has weighed on the company since last year, but their difficulties escalated in April after cutting prices to their suppliers.

The price cut led to outrage amongst farmers and a subsequent reinstatement of the price by WCB. However, some farmers had already left – leaving a gap in supply.

“Since the milk price reinstatement, a number of milk suppliers that were at risk of leaving WCB have indicated they will remain with WCB, some suppliers have returned to WCB and others are expected to return over the course of the next few weeks,” they reported following the reinstatement last month.

The failure to pass on the price cut saw the company issue a profit downgrade, which meant a cancelling of a rights issue that would help them pay the $105 million owed to National Foods for the proposed Australian Cheese Company joint venture.

WCB has been required to pay interest to National Foods since May 4 for failing to settle the deal and there remains no sign of imminent closure.

WCB extends CEO term
In more positive news, Warrnambool Cheese and Butter announced an extension of the contract of CEO John McLean.

Mr McLean, who was the Managing Director of WCB from 1975-2007, took over in April after the resignation of Neil Kearney. The company said he would take charge in the interim as an executive recruitment team searched for a long-term successor.

Chairman Frank Davis said that the critical need for the Company in the current environment was to focus on its core business and servicing its suppliers, with Mr McLean’s continuing presence at the helm “critical to that strategy”.