Dairy group has profit dip but addressing competition and high dollar

Posted by AFN Staff Writers on 27th August 2012

One of Australia’s large dairy processors, the ASX-listed Warrnambool Cheese and Butter Factory Company Holdings (WCB), has today announced a strong net operating profit after tax of $15.2 million for the year ended 30 June 2012. Total revenue was down by 1.3% or $6.3 million on the previous year’s $497.8 million.

The net operating profit after tax of $15.2 million represented a $3.3 million (17.8%) reduction on the 2011financial year but was stronger than previous forecasts from the company.

“The company was able to mitigate the impact of declining international revenues through its customer specific applications and plant capability upgrades to maintain comparably strong export prices.” said Chairman Frank Davis.

Total milk intake of 919 million litres was a net 4.5% increase over 879 million litres in the 2011 financial year.

Both the Great Ocean Ingredients and Warrnambool Cheese and Butter Japan joint ventures performed strongly in 2012 with a $3.2 million contribution to net profits.

Fully franked final dividend of 11.0 cents per ordinary share brings the total dividend for 2011/12 to 15.0 cents per ordinary share, fully franked (2011: 15.0 cents) an increase in the payout ratio to 54%.

“Once again WCB has produced robust earnings for shareholders and milk suppliers in a year marked by a declining global economy and international commodity prices,” said Mr Davis.

The company said its balance sheet remains strong with gearing levels well within policy range despite a significant investment in the recently announced five year Great Ocean Road national cheese supply agreement with Coles.

Current Initiatives

In 2011-2012, WCB continued to deliver on its strategy to pursue growth in milk and cheese supply to meet its capital investment and demand growth. The full year impact of 2011/12 capital project investment is set to be realised in 2013.

These included:

–          Sungold Fresh Milk Expansion – a 50% increase in plant capacity was completed in the first half of the 2012 financial year with new customers coming on line in 2012 and 2013.

–          Skim Milk Powder Plant Upgrade – the technology based capability upgrade of the powder plant was completed in the first half and was a key contributor to maintaining sales volumes and margins during the second half of 2012.

–          Mil Lel Specialty Cheese Plant Upgrade – capacity upgrade supported a 63.3% increase in sales volumes in 2012.

Coles National Cheese Supply –  the recently announced Coles five year cheese supply agreement provides underlying support for the Mil Lel plant upgrade and WCB’s strategy to expand its domestic retail business.

The report says that the impact of dry conditions in the USA are yet to be fully recognised in international dairy prices however improved pricing is starting to be reflected in other agribusiness products. Analysts are now revising downwards their forecasts for growth in US milk production for 2013 and this may lead to improved commodity prices in the first half of the 2013 financial year.