Bio-nutrient boost for Bega

Non-dairy products may include specialist grain and animal protein micro-nutritional extracts to complement dairy proteins needed by the booming 'nutriceutical' ingredient market, including nutritional formula makers.

The diversification push has already seen Bega ramp up its focus on extracting micro-nutritional protein components from milk solids, bolstering its long-established position in the infant formula and lactoferrin protein ingredient markets.

Bega is now one of the world's bigger producers of lactoferrin, which sells for more than $600,000 a tonne (compared to conventional bulk milk powder at $3000/t).

High-value dairy nutritional production at its Tatura plant in northern Victoria increased by 23 per cent in 2013-14 after upgrades to the site's lactoferrin extraction and demineralised whey powder capacities.

In April the NSW farmer-based company also began blending and canning its own branded infant and nutritional powders at Derrimut in Melbourne, receiving export accreditation from China in July.

Buoyed by its growing nutritional powder business and other value-added product sales, Bega recorded a 6.5pc rise in revenue to $1.06 billion and paid a 13.3pc increased total shareholder dividend of 8.5 cents a share for 2013-14.

A $100 million payout (and $44m profit) from January's sale of its 17.5pc stake in Warrnambool Cheese and Butter also left the company with funds to invest in capacity upgrades and $8m in net cash assets.

Executive chairman Barry Irvin told this week's annual general meeting Bega had refreshed its strategic plan for the next six years, adding bio-nutritionals and "science-based innovation" to its core product focus of cheese, whey powder and nutritional products.

New micro-nutrition products potentially on the radar, depending on research projects with university partners and others, may include colostrum, lipid vitamins and amino globular proteins.

Mr Irvin noted the business balance spanning cheddar, cream cheese, bulk cream, milk powder and protein concentrates had optimised value-added opportunities available from its milk pool, placing Bega in a better position than many of its competitors when global dairy commodity prices slumped about 45pc this year.

"While the company's product mix did not allow us to fully exploit the extreme upside of record powder prices (in early 2014) we were able to maintain a competitive position in the market," he said.

However, Russian trade sanctions, big increases in global production in the past year and dairy stockpiles in sectors of the Chinese market are expected to flatten Bega's profits after a stellar 2013-14 performance.

Although he expected global dairy prices to improve within six months, Mr Irvin tipped Bega's normalised profit for the 2014-15 year would be broadly in line with fiscal 2014's $42.1m.

"Our view remains there is strong underlying demand for dairy products, particularly in Asia, there is a long-term projected shortage of supply and Australia and, more specifically, Bega Cheese is well positioned to benefit from that demand," he said.

To help keep pace with that dairy demand Bega has signed up more than 90pc of its suppliers to a $25m program to lift milk production 20pc via a three-year sustainable improvement plan involving regular on-farm audits and bonus payments of three cents a litre.

Bega shares traded about the $5.17 mark this week.

Meanwhile, newly-listed Australian Dairy Farms has began trading on the Australian Securities Exchange with its initial 20c shares peaking around 24c each.

The farming company, based on two dairy farms at Brucknell in south-west Victoria, plans to acquire enough land to take its production to 50m litres a year by 2016.

It floated 59m shares in a $9.3m capital raising early this month and has attracted US-based Och-Ziff Capital Management Group as a key investor with a 9pc stake.