Tatua Cooperative beats market with $7.10/kgMS payout for 2015

Tatua Cooperative Dairy Co, the Tatuanui-based dairy company founded 100 years ago, set the 2015 payout for its farmer suppliers at $7.10 per kilogram of milk solids, the highest of any New Zealand processor, while affirming a drop in payout for 2016.

Revenue rose to $286 million in the 12 months ended July 31, from $266 million a year earlier, the company said in a statement. Earnings before milk payout, retentions and tax fell to $121.2 million, from $136.4 million a year earlier.

Chairman Stephen Allen said the decline in pretax earnings reflected an increase in overall milk collection from farmers in the latest year and the "dramatic decline" in dairy prices. It equates to a payout $7.73/kgMS before retentions and tax. The company retained 63c/kgMS before tax.

Mr Allen told BusinessDesk Tatua had to set its payout at a level that ensured it had enough milk for the season but "what we're really trying to do is pay farmers a fair return for their milk and make continued investment in the company." Tatua enjoyed "an incredibly stable supplier base."

The company took in 15.7 million kilograms of milk solids from its suppliers in the latest year, up from 13.2 million kgMS in 2014. It typically buys in about 20% of its requirements each season from neighbouring producer Open Country Dairy, although it also sells product to it.

Tatua has already given guidance for the 2015/16 year of $6/kgMS before retentions as it struggles with the same weaker prices that have dented Fonterra Cooperative Group and other rivals.

"We are mindful that the 2015/16 year will be challenging," the company said. "Demand remains fragile, climatic conditions are uncertain and we anticipate continuing volatility in prices and exchange rates."

Tatua managed to underpin earnings in 2015 through a product mix of caseinate, whey protein concentrate and anhydrous milk fat, and improved margins on specialised, added-value products that benefit from a lower milk price.

"We're trying to move toward being a multi-dimensional food and nutritionals company," Mr Allen said.

Most of Tatua's milk comes from 119 shareholder farms located within 12 kilometres of its manufacturing facilities. It processes more than 200 million litres a year into dairy ingredients, dairy flavour ingredients, specialty nutritional products, bionutrients, and foodservice and consumer products, of which more than 94% is exported.

(BusinessDesk)