Bigger Bega looks to grow even more

Bega's profits rise to $20.6m, but grocery sector competition is stiff

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Bega’s first-half net profit jumped almost a third to $20.6 million for the six months to December 31


Competition encountered by its new spreads and sauces business is proving to be stiff, but the dairy company turned grocery goods producer, Bega Cheese, is happy to look at more food sector acquisitions.

Bega’s 2017-18 first-half net profit after tax jumped almost a third to $20.6 million, thanks largely to extra milk volumes and earnings from its newly bedded down Kraft brand purchases.

The six months to December 31 saw the company enjoy favourable seasonal conditions and the addition of more milk suppliers to its books, resulting in a 25 per cent intake lift to 456m litres.

The extra milk intake had helped manufacturing efficiencies, particularly at the big northern Victorian Tatura plant which received the bulk of additional receivals.

Group revenue grew 13.5 per cent to $705.2m.

Bega's acquisition of the Mondelez grocery business, which included Vegemite, was finalised in July and contributed about $137m to the revenue lift.

Bega Cheese executive chairman, Barry Irvin.

Bega Cheese executive chairman, Barry Irvin.

A solid first half positioned the company well to take advantage of growth opportunities in dairy and foods categories, the NSW South Coast based business’ bosses noted while releasing this week’s profit details.

Executive chairman, Barry Irvin, said further acquisition opportunities existed in both the dairy and food sectors.

His comments follow Bega losing out in last year’s bid to buy into the troubled Murray Goulburn co-operative’s asset base after Canadian dairy giant Saputo Inc won MG’s boardroom approval to take over the big dairy business, if shareholders and government regulators approve.  

Mr Irvin said the company expected continued growth in branded consumer and food services business, but the environment was “highly competitive”.

Chief executive officer, Paul van Heerwaarden, noted Bega had long held the view “we must expect the challenges and the opportunities in our business to constantly change”.

“We should direct strategy and investment to deal with that change,” he said.

Bega Cheese chief executive officer, Paul van Heerwaarden

Bega Cheese chief executive officer, Paul van Heerwaarden

The long term strategy and positioning of the company’s business platform would be the key to delivering consistent results, even in the face of market volatility and aggressive competitor behaviour.

The newly created Bega Foods division had been a focus of increased branding and promotion investment to ensure the success of the transition of Vegemite and Australia’s best selling Kraft peanut butter brand to the Bega name as well as other initiatives.

Despite a 19pc rise in cream cheese and 33pc increase in mozzarella cheese production, the iconic Bega cheese division actually reported a statutory loss after incurring transaction costs related to the acquisition of Mondelez and Queensland’s Peanut Company of Australia takeover late last year.

“The business has performed well, particularly when you take into account the significant corporate costs associated with the recent acquisitions and the highly competitive environment the business is operating in," Mr Irvin said.

However, he warned the increase in milk supply, much of it lured from disenchanted MG suppliers, would not be repeated to the same degree in the next six months.

Also noting the business’ newly formed connections with peanut croppers in southern Queensland, he said the company had a goal to ensure that provenance and long-term relationships with farmers in Australia were “very much part of the Bega story as it takes its products to the domestic market and around the world”.

Bega Cheese will pay shareholders a half-year dividend of 5.5 cents a share, up half a cent on the same interim period in 2017.

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The story Bigger Bega looks to grow even more first appeared on Farm Online.


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