Wmp annual report

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