Diversification Helps Bega Navigate Drought

By Glenn Dyer | More Articles by Glenn Dyer

A sharp rise in exports as well as better sales of two key consumer products bought or developed in the last year or so have enabled Bega Cheese to offset the ravages of the drought on its core dairy business.

Export revenue jumped a solid 17.3% to $230 million while higher sales of peanut butter and vegemite saw revenue up a very tasty 14% to $741.2 million for the first half.

On a statutory basis, the company’s half-year profit jumped 71% to $8.5 million. But on a normalised basis Bega’s half-year operating profit fell 21% to $15 million. The normalised result was driven down by $9.2 million before tax in costs for legal fees and an information system upgrade across the business.

Underlying earnings were impacted by drought-reduced milk supplies and the constriction on margins, particularly in Northern Victoria.

A softening in Chinese infant formula demand resulted in a reduction in volumes at Tatura, further reducing earnings during the half.

These issues saw a significant decrease in earnings from the Tatura Milk segment.

That was somewhat offset, however, by strong earnings from Bega Cheese. Bega reports that the branded consumer food and service business is continuing to grow both domestically and internationally.

Bega emerged from a trading halt on Monday morning and its shares were down 6.4% to $3.79 in early trading, half the initial loss of more than 13% in the selling wave in the first few minutes of trading.

They ended the day down nearly 1% to $4.01% as the wider market recovered on news of possible central bank intervention.

Bega had been due to release its interim results last week but had requested a trading halt before the market opened last Thursday, and last closed on Wednesday at $4.05.

The company asked for the trading halt warning that it may need to adjust its 2019 results.

On Monday the company confirmed there were problems with the 2019 figures, but not they were not significant.

Bega said, “these errors do not impact the profit and loss for first-half financial year 2020 and do not impact the earnings guidance for financial year 2020 communicated to the market in October 2019”.

Bega confirmed forecasts from last October for full-year normalised EBITDA (earnings before interest, tax, depreciation and amortisation) to be in the range of $95 million to $105 million for the current financial year which ends on June 30

The diary and consumer products group said its supply chain and customer shipments had “not been materially impacted by the (COVID-19) virus,” and it continued to monitor any potential direct and indirect impacts.

Bega will pay an interim dividend, down 9% or half a cent to 5 cents a share, a sign the board is not really confident about the outlook.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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