Westland Milk Products lowered its forecast payout for shareholders for the current season by about 3 percent due to weaker than expected sales.
Westland, which has signed a conditional agreement to sell the co-operative to Inner Mongolia Yili Industrial Group for $588 million, now expects to pay farmer-shareholders $5.80-$6 per kilogram of milk solids, down from a previous forecast of $6-$6.20/kgMS.
In contrast, in late February Fonterra Co-operative Group raised its forecast on rising Asian demand and now expects to pay $6.30-$6.60kg/MS.
Chairman Pete Morrison said factors driving Westland’s revision included the fact that the last quarter’s sales targets for infant and toddler nutrition will not be met. “While we have seen increased production of ITN by 29 percent, the budget was reliant on the business achieving 52 percent sales growth, and now the forecast sales growth is 34 percent.”
He said the situation reinforces Westland’s need to have better and more direct sales channels and to reduce its reliance on third party distributors.
Morrison said that the board continues to believe that one of the benefits of the proposed deal with Yili is that it will provide a “strong route to market as one of the world’s leading dairy producers.”
Last week, Westland said it had signed a conditional agreement to sell the co-operative to Inner Mongolia Yili Industrial Group for $3.41 per share in a deal worth $588 million, including debt and liabilities.
The proposed transaction is through a scheme of arrangement and requires the approval of 75 percent or more of the votes of shareholders in each interest class who vote. At least 50 percent of the shares have to be voted in each of six classes of shares.
Under the terms of the deal, farmers who are existing suppliers upon the implementation of the scheme will receive the benefit of the new owner’s commitment to collect milk and pay a competitive payout of a minimum of the Fonterra farm gate milk price for 10 seasons from the season commencing August 1, 2019.
Yesterday, New Zealand First Primary Industries spokesperson Mark Patterson warned against the deal, saying “the highest margins are closest to the consumer and we can’t capture those profits for New Zealand if we don’t own those value chains.”