Booming Tatua in Westland deal

By PHILIPPA STEVENSON

Tatua has done its first major deal with another dairy company since last year's industry deregulation - fellow independent Westland.

In the annual report released yesterday, the Waikato-based dairy industry top payer said international demand for the specialist minor milk protein components which had made it so profitable was likely to exceed production.

Chairman Alan Frampton said an agreement had been signed with Westland to extract the proteins, which Tatua would buy and market.

Other deals were likely, including more with Westland, which is tipped to follow the high-tech example of Tatua, one of the world's leading manufacturers of specialised dairy-based proteins and protein derivatives.

"Tatua technology and marketing expertise are being combined with the excellent-quality milk supply and processing skills available at Westland," Frampton said. "The extraction equipment was commissioned on time and on budget and is producing good quality product."

The two companies have long been regarded as likely partners, especially since the 10-year general manager of Tatua Nutritionals, Barry Richardson, became Westland chief executive in March.

But before that, the only two small co-ops to survive the merger process which created Fonterra, had worked together on submissions on the deregulating legislation. They have since joined forces to challenge the Government-commission valuation of Dairy Board shares.

Frampton used the annual report to air Tatua's dissatisfaction with the $3.51-a-share valuation by Macquarie Bank which realised the company more than $28 million in the year.

His company and Westland have deemed the valuation too low for the asset built by generations of farmers over 60 years. Fonterra has said the valuation is too high and the matter goes to arbitration next month with a decision expected next year.

The directors of each company had a fiduciary duty to ensure their shareholders received fair value, including those in the former Kiwi and NZ Dairy Group which formed Fonterra, Frampton said.

But the dispute was just one cloud in an otherwise momentous year in which Frampton said Tatua increased its profitability and payout to a record level.

Fonterra subsidiaries NZMP and NZ Milk still marketed a range of Tatua products but company staff had travelled extensively "to maintain and deepen customer relationships". Inquiries had increased dramatically from the direct contact.

Frampton reiterated comments, made after Tatua's stellar $6.77 payout put Fonterra's $5.30 in the shade, that payout comparisons between the two very different companies were "largely irrelevant and, perhaps, misleading in a deregulated environment".

Tatua's revenues were partly insulated from the full impact of the commodity price cycle but could still be affected, particularly in its sales of surplus cream to Fonterra. The company no longer had the benefit of Dairy Board price forecasting and would need to set up its own facility.

Meantime, the best commodity forecast was Fonterra's $3.70 payout prediction for the year to next May over which Tatua expected to maintain a large margin, Frampton said.

Chief executive Mike Matthews said Tatua's accomplishments in the first year of deregulation meant it was well placed to expand its value-added activities.

The company's after-tax profit of $19.5 million, compared with last year's $941,563, was made on revenues of $111 million, compared with last year's $93.9 million.

The profit included a $19 million gain on the sale of the Dairy Board shares which had been valued at $8 million, and after milk payments to farmers of $62.5 million.

Tatua spent $1.2 million on research in the year, and Matthews told a biotechnology meeting recently that research and development should be integral to business.

"It needs to be thought about and acted on every day," he said.

Tatua had taken a suite at the University of Otago's Centre for Innovation as part of its work to develop more new products.

The 14-year-old Tatua Nutritionals had a range of products which included a formula used by Japanese hospitals to feed patients who have had throat or stomach operations. It also had lactoferrin for use in infant formula, made in a process that took 10,000 tonnes of milk to make one tonne of product.

The company was the world's largest lactoferrin producer, after output grew from 300kg a year 10 years ago to 6000kg now. Nutritional exports were worth $70 million.