FROM OUR LAND TO YOURS
ANNUAL RE P O R T
2 010
THE LAND OF PLENTY
A FEW OF OUR KEY INGREDIENTS
2,300,000 HECTARES IN WEST COAST RE GION
2,875 MM ANNUAL RAINFALL
1,860 HRS ANNUAL SUNSH INE
CONTENTS Set apart from the rest of New Zealand by the Southern Alps, the West Coast provides us with a unique dairy farming environment. Here, we are blessed with heavy annual rainfall and abundant sunshine, ideal for growing pasture and dairy farming.
Five Year Trends...........................................................................11 Chairman’s Report.......................................................................12 Corporate Governance Report.....................................................16 Chief Executive Report................................................................18 Audit Report.................................................................................26 Directors’ Declaration..................................................................27 Balance Sheet..............................................................................28 Income Statement.......................................................................29 Statement of Comprehensive Income.........................................30 Statement of Changes in Members Funds..................................31 Statement of Cash Flows.............................................................33 Notes to the Financial Statements..............................................34 Statutory Information..................................................................59
Maylene and Tim Burden, Kowhitirangi, supply number 236
OUR MISSION: Our mission is central to the way we act and the way we run our company. Westland Milk Products’ Mission is;
THE FARMLAND TO YOUR FACTORY
To be the preferred supplier of premium quality dairy and nutritional products, exceeding our customers’ expectations and maximising sustainable returns of our shareholders.
OUR VALUES: UNITY
DEDICATION
RESPECT
LOYALTY
We come from a pioneering background where teamwork was and still is of paramount value
We are dedicated to providing a positive environment for the betterment of all
From the milking of the cows to our products ultimate destination we are respectful and proud of everyones contribution
Our loyalty and genuine openness is ingrained in everything we do
0 9 / 10
SE A S O N IN REVIEW » 2nd highest payout on record » Total milk processed by the company increased over 5 percent on the previous year » A season in which the company had to manage sharp price fluctuations in the marketplace, the effects of a volatile NZ dollar, and some very wet weather particularly at the start of the season » Further increase in sales and returns from colostrum » A focus on the need for environmental sustainability both in the business and on farm » An exhaustive and comprehensive business review has been completed » Changes at senior management level to put in place a very capable, enthusiastic executive team, with its attention on creating value for our customers and lifting returns to shareholders » Introduction of the “Westland Way for Excellence” – a programme designed to lift operating efficiency right throughout the company » The company continued to play a significant role in the West Coast economy » Westland’s new storage and office facility at Rolleston and EasiYo’s new manufacturing facility at Albany in Auckland opened » During the season 100% ownership of EasiYo was achieved and the business continued to perform well with total annual sales just under $30 million
FROM OUR TEAM TO YOURS
FIVE YEAR TR E N D S
NZIFRS
NZIFRS
NZIFRS
NZIFRS
NZGAAP
2010
2009
2008
2007
2006
502
479
478
467
464
Milk Fat - Own Supplier [M kgs]
26.246
25.018
24.692
24.292
23.752
Protein - Own Supply [M kgs]
19.517
18.339
18.329
17.885
17.410
Milk Received From Suppliers [M litres]
Milk Solids Received from Suppliers [M kgs]
45.763
43.358
43.022
42.178
41.163
119,175
113,503
113,516
111,582
106,917
Average Milk fat %
5.23
5.20
5.16
5.19
5.12
Average Protein %
3.89
3.80
3.83
3.82
3.75
74.00
73.00
72.00
74.00
73.00
Average Milk Solids per Farm [kgs]
Protein : Fat Ratio % Finest Milk %
97.10
96.30
95.90
98.32
98.93
Production [Tonne] - Powder
47,114
42,831
51,279
46,192
45,880
Production [Tonne] - Butter
23,480
22,283
19,467
18,380
18,254
Production [Tonne] - Protein
4,017
3,762
2,502
1,607
1,283
Production [Tonne] - AMF
3,668
3,427
5,622
3,979
3,846
Turnover [$Million]
422
364
501
295
241
Total Assets [$Million]
335
284
326
314
271
Total Equity [$Million] (Incl. shares classified as liabilities)
182
172
181
186
157
Payout to Shareholders - Fat [cents/kg]
443
301
533
306
274
- Protein [cents/kg]
962
654
1,158
666
595
- Operating Surplus [cents/kg]
645
411
829
472
416
- Retentions [cents/kg]
(30)
47
(30)
0
(1)
- Net Average Payout [cents/kg]
615
458
799
472
415
54
60
55
59
58
133
77
116
156
139
10
(8)
5
13
12
Equity : Assets Ratio [%] Current Ratio [%] Working Capital to Total Assets Ratio [%]
TOTA L E Q U I T Y (Incl. shares classified as liabilities)
PAYO U T TO SHAREHOLDERS
MILKSOLIDS
(Dollars in Millions)
(Cents per Kilogram)
(Million Kilograms)
182.50
180.65
186.17
799
45.76
171.54
43.36
43.02
42.18
157.38
41.16
615
458
472 415
10 09 08 FINANCIAL YEAR
07
06
10 09 08 FINANCIAL YEAR
07
06
10 09 08 FINANCIAL YEAR
07
06
11
12
CHAIRMAN’S REPORT The continuing volatility of the dairy industry – price fluctuation, currency relativity and the weather all played their part in making the 2009/10 season challenging for suppliers, staff and directors. Such is the nature of our business.
It has been a year of change, not only in the fortunes of the payout but at a company level both in the roles of governance and senior management. I write this report while still in my first ten months as Chairman a time
Against this background it is pleasing to be able to report that it was a year Westland Milk Products can look back on with satisfaction.
for me that has been challenging and exciting as well as a steep learning curve. I am proud of the way the Company has taken on board the lessons of the past few years and moved forward. I would like to pay tribute
At the start of the season the Board was signalling a final payout figure in the $4.50 - $4.90/kgms range.
to my fellow board members, our independent directors, deputy chairman Mike Havill, our CEO Rod Quin
After a great effort right across the company, the final payout figure was $6.45, less a retention of
and his staff, for their help and support.
30 cents/kgms.
THE SOUTH ISLAND LEGACY > CHAIRMAN’S REPORT CONTINUED
15
One of the biggest challenges for
The company’s long-term strategic focus
image. For this reason the Company
the company and for suppliers is the
will continue to be on creating value with
with supplier input will be introducing a
increasing volatility of the market. There
key customers and enabling the delivery
Westland Code of Compliance.
are several reasons for this trend, among
of maximum returns while striving to
them the removal of EU subsidies, the
strengthen the long-term business
Once again total milk processed by the
emergence of Oceania as a genuine price
security of our farmer shareholders.
company increased, up over 5 percent on
setter, the trend to lower stock holding
the previous year. That increase was made
by customers and greater use of dairy
Achieving those objectives will mean
up partly from non-shareholder milk and
stocks as government aid.
moving ever further up the value
growth in our own supply. This increase is
chain and that, in turn, means that
a testament to the resilience of the West
Obviously, these factors are beyond
retentions from payout will continue to be
Coast dairy farmers given the position they
farmers’ control. But the message is
necessary. We will move ahead – but we
started the season from. It is pleasing to
simple: increasingly we must farm
will do so prudently.
report that since the company’s decision
preparedness to think outside the square,
We can be proud of what has been
has been over 60 percent.
on farm and in every part of our business.
achieved already. We have a world-class
It will not necessarily be the biggest or
manufacturing plant, we have built a new
There have been changes at senior
strongest businesses that survive in
storage and office facility at Rolleston
management, one of the biggest being
agriculture but those that are willing to
and our EasiYo investment gives a strong
the retirement of Hugh Little from the
adapt to change.
and growing presence in the retail dairy
company, it is well documented as to
foods market.
Hugh’s achievements but once again on
for change. To me that means a
to go it alone back in 2001, milk growth
Westland Milk Products’ firm
behalf of the Westland Dairy industry I
commitment to a so-called “pure”
But we don’t have the option of stopping
thank Hugh for his lifelong dedication and
co-operative raises eyebrows in some
there. The future of Westland Milk
service to the company.
quarters. The reason we retain that
Products requires us to push further down
structure can be attributed as much to
the added value road and seek efficiencies
To our Senior management I thank them
pragmatism as it can to principle. Due to
at every stage of the production process,
for the professional approach, enthusiasm
the geography of our collection area there
from paddock to customers.
is no other business model that would
and dedication they bring to the Company and I look forward with anticipation to the
allow farmers from South Westland to
Seeking the added value dollar will
Karamea the equal opportunity to grow
make demands of all in the company
their farming businesses. The reasons
– not least farmers. Consumers are
In concluding I look forward to next
the Company chose to stay on its own
prepared to pay premium prices for what
season and beyond with confidence that
nine years ago are as relevant today as
they recognise as premium products. A
Westland Milk Products is in good shape,
they were then.
quality image is comprised of multiple
good heart and on track.
results this team will deliver.
elements, key amongst them, consumer
Bill O’Reilly, Lake Kaniere, supply number 278
We carry minimal redemption risk and
perception. Years ago what passers-
target a debt-to-equity ratio around 60
by saw of dairying from the road
percent. That means security in times of
mattered little. That’s not so today and
financial stress and uncertainty, such as
it will be less so tomorrow. Perception
has prevailed over the last couple of years
becomes reality. Our industry’s
and we must be mindful that volatility is
external “appearance” is increasingly
the new norm.
a component of its overall quality
Matt O’Regan Chairman
16
CORPORATE GOVERNANCE REPORT >BOARD
> CORPORATE GOVERNANCE REPORT
17
Audit Committee The audit committee is responsible
The company, the board, each director
The company’s constitution provides for the
for assisting the board in discharging
and each shareholder of Westland have
parent board to comprise eight directors
its responsibilities relative to financial
the rights, powers, duties and obligations
nominated and elected by the supplying
reporting and regulatory conformance. In
set out in the Companies Act 1993 and
shareholders, two directors appointed by
addition the audit committee is responsible
the Co-operative Dairy Companies Act
the board and a managing director (if one is
for ensuring the recommendations of
1996 except as these are negated or
appointed).
the external auditors are actioned by
modified in accordance with these acts
management, monitoring corporate risk
by the Constitution. The Constitution
Those eight directors comprise, five Ward
assessment and the internal controls
is registered and available on the
Directors, one each elected by shareholders
instituted by the company and supervising
Companies Office website or on request
in the Southern, Central, Lower Grey
special investigations when requested by
from the Company Secretary.
Valley, Reefton/Inangahua and Buller/
the board.
Tim Burden, Kowhitirangi, supply number 236
Karamea wards and three General Directors nominated and elected by supplying
This committee is chaired by Appointed
shareholders from the whole company.
Director, David Spence, and currently comprises Chairman Matt O’Regan, General
EasiYo Products
Freshfood Group Limited, Freshfood
benefits by the company, to a director
Ward and General Directors retire from
Director & Deputy Chairman Mike Havill
The Chairman of the Board, Deputy
Systems Limited (UK) and EasiYo Limited
for services as a director, or in any other
office at the annual meeting in the third
and Ward Director Noel Robb.
Chairman and Chief Executive Officer of
(Delaware, USA).
capacity if the board is satisfied that to do
year after their last election.
Westland Co-operative Dairy Company
so is fair to the company, provided that
Remuneration Committee
Limited together with Director Maurice
The board and its committees also meet
the shareholders by ordinary resolution
Each year the board undertakes an evaluation
The remuneration committee reviews the
Eng sit on the board of the wholly owned
from time to time in confidential sessions
authorise such remuneration or other
of the performance of each director which
remuneration of the Senior Management
subsidiary company EasiYo Products Limited.
without senior management present.
benefits. Generally the board reviews
may extend to identifying individual training
Team. This committee is chaired by
These sessions deal with management
Shareholder Director remuneration annually.
and development plans where appropriate.
Chairman Matt O’Regan and currently
> BOARD MEETINGS
comprises Appointed Director Graeme
performance and remuneration issues and discussions with external auditors
Appointed Directors
All new directors are inducted and receive
Harrison, Deputy Chairman Mike Havill and
The Directors receive comprehensive
to promote a robust and independent
The constitution provides that the board
the opportunity to undergo training and,
Ward Director Raelyn Lourie.
information and reports on Westland’s
audit process.
may determine and authorise payment of
along with other directors, undertake
operations before each meeting including
remuneration, or the provision of other
> REMUNERATION
annual familiarisation tours to different
Westland Farm Centre
reporting on the activities of the subsidiary
divisions of the company across both the
The Chairman of the Board, Chief Executive
Westland Farm Centre Limited and the
Hokitika and Rolleston locations.
Officer and Chief Financial Officer of
EasiYo group which includes EasiYo
Shareholder Directors
other capacity if the board is satisfied that
Westland Co-operative Dairy Company
Products Limited, FreshYo Products
The constitution provides that the board
to do so is fair to the company. Generally
Limited sit on the board of the wholly
International Limited, Arendal Investments
may determine and authorise payment
the board reviews Appointed Director
owned subsidiary company Westland Farm
Limited, YoLife South Korea Limited,
of remuneration, or the provision of other
remuneration annually.
> BOARD COMMITTEES The board of directors has two formally constituted committees –
Centre Limited.
benefits by the company to an appointed director for services as a director, or in any
18
CHIEF EXECUTIVE’S REPORT
The 2009/2010 season was one of genuine satisfaction with the delivery of the 2nd highest payout on record coming immediately after the effects of the global financial crisis had left its mark on Westland.
Westland Milk Products had like all dairy companies to manage sharp price fluctuations in the marketplace, the
The advantages of Westland Milk Products relative size, current single processing site and product mix
effects of a volatile NZ dollar, and some very wet weather particularly at the start of the season, all of which were
options enables an ability to work with key customers to develop interdependency as we endeavour
managed proactively as we continued to develop strong customer relationships.
to become more relevant to their future. During the season we increased our direct relationships and focused on customers where we could create more value. As a result the majority of our sales program is with
During the season a number of changes were made at senior management level. The management team knows
customers in the Asia-Pacific region. We will continue to strengthen relationships as we look at further expansion
that its task is to build confidence in dairy as an investment. That is not done with fine words, but with results. We
of our milk processing capabilities.
have in place a very capable, enthusiastic executive team, with its focus on creating value for our customers and lifting returns to shareholders.
> CHIEF EXECUTIVE’S REPORT CONTINUED
21
To that end I have been encouraged by
an excellent supply chain with sufficient
the enthusiastic reaction of staff to the
flexibility and is able to make maximum
introduction of a programme, designed to
use of rail. Leveraging off rail in the new
lift operating efficiency right throughout
season we will see a “milk train” bringing
the company, known as the “Westland
non-shareholder milk across the Alps for
Way for Excellence.” This programme will
processing at Hokitika.
deliver results in the immediate term but importantly also over a longer time frame.
EasiYo continues to perform well. During
It is a best practice approach which delivers
the season 100% ownership was achieved
improvements progressively with core
through the purchase of the balance of
skills around problem solving being learnt
the shares previously owned by the Light
and put into practice by staff. The positive
family which founded the company. A new
response from staff right across the
manufacturing facility at Albany in Auckland
company confirms to me the programme
was opened during the year which has
will deliver real and measurable results.
tripled capacity and lowered costs. Export markets continue to grow and total annual
The company’s overall manufacturing and
sales from this business amounted to just
marketing program was again boosted
under $30 million. The growth strategy to
by the processing of third party milk from
develop value-add opportunities requires
the “other side” of the Alps. Such is the
a strong company balance sheet and
phenomenal rate of growth in Canterbury
reinforces the need for retentions to build a
that the processing of non-supplier milk
superior sustainable business.
will increase in the foreseeable future with real and obvious benefit to our company.
Finally, I would like to thank Matt O’Regan and the Board for the support they have
It is gratifying to record a further increase
provided. Similarly, let me place on record my
in sales and returns from colostrum, a
appreciation to the staff across the company
high-value product sold into the growing
for the way they have coped with what has
health market. Some 75 percent of
been in many ways a challenging season
the company’s 386 suppliers are now
where rebuilding credibility, confidence and
colostrum suppliers. The continuing
performance was necessary.
growth in demand, particularly from Asia, in products which consumers accept offer
And I want to pay tribute to our suppliers
health benefits is a reward for the efforts in
who have lifted milk production once more
building a premium product portfolio and
with an increase of 4.8%. This continued
augers well for future development.
milk growth is important, as it not only allows the company grow, but enables our
Another highlight during the season was
customers to plan to grow with us.
the opening of Rolleston, a strategic asset Westland Milk Products is an independent,
combining a dry warehouse and office
co-operative dairy company, owned by its
complex. With a single manufacturing
farmer shareholders. It has a history of
site in Hokitika, storage facilities at
almost 70 years of dairy production.
Rolleston and the majority of production going out of the country through the Port
Rod Quin
of Lyttelton, Westland Milk Products has
Chief Executive Officer
SENIOR MANAGEMENT
RJ Quin (CEO)
P O’Brien (CEO, EasiYo)
MW Lockington (Company Secretary)
L McIntyre (GM Quality & Technical Services)
KL Wallace (CFO)
GD Wafelbakker (GM Sales & Marketing)
BG May (GM Operations)
& BOARD OF DIRECTORS
MJ O’Regan (Chairman)
B Meyer NJ Robb
JD Sullivan MT Havill (Deputy Chairman)
JJ Wafelbakker RK Lourie
FT Dooley
DL Spence GT Harrison
2010 FINANCIAL
S TAT E M E N T S For the 12 month period ending 31 July 2010
Audit Report
26
Directors Declaration
27
Balance Sheet
28
Income Statement
29
Statement of Comprehensive Income
30
Statement of Changes in Members Funds
31
Statement of Cash Flows
33
Notes to the Financial Statements
34
Statutory Information
59
Westland Milk Products Head Office
Rolleston Office
PO Box 96, 56 Livingstone Street PO Box 138, 41 Westland Place Hokitika, New Zealand
Rolleston, New Zealand
Telephone: +64 3 756 9800
Telephone: +64 3 371 1600
Fax: +64 3 755 8208
Fax: + 64 3 347 4652
Email : info@westland.co.nz
Website : www.westland.co.nz