Bega Cheese says fierce competition amid a shrinking milk market has curdled its full-year result somewhat, with net profit more than halving to $11.8 million.
Higher finance and depreciation costs also contributed to a 59 per cent decline in profit from $28.8 million a year ago, even as the dairy producer increased revenue 13 per cent to $1.42 billion on a record milk intake of 1.06 billion litres.
Bega says the 3.0 per cent full-year earnings decline to $89.5 million reflected one-off acquisition costs related to the Koroit facility in western Victoria and the closure of its Coburg plant in Melbourne.
The Koirot deal, however, has positioned Bega as major supplier of retail and food service butter, milk powders and other specialist milk powder blends, while the launch of gluten-free Vegemite and the Bega Simply Nuts peanut butter range in FY19 also helped boost revenue.
Bega said its underlying earnings increased to a record $115.4 million for the 12 months to June 30, in line with recent guidance, and an increase of 5.0 per cent over the prior year.
Shares in the company rose on the results and had climbed by 5.13 per cent to $3.995 by 1100 AEST.
Chairman Max Roberts conceded profit for the year was below expectations despite the impressive milk intake, production, and underlying performance.
“(This year) will go down in history as one of the most difficult dairy farming years ever experienced,” Mr Roberts said on Wednesday.
“The one in one hundred-year drought, extremely high grain, hay and water prices and continually suppressed retail selling prices for our quality dairy products has really tested the strength and resilience of our dairy suppliers, their families and the communities in which they operate.”
Mr Roberts said FY19 had also created intense competition for the diminishing available milk pool, though he said the company’s $38 million advance to suppliers via the Bega Supplier Premium and related supply agreements should ease some of the pressure into FY20.
Bega’s cost of sales for the year increased by 15 per cent to $1.13 billion, while financing costs nearly doubled to $20.4 million and the closure of the Coburg plant in February resulted in a further $4.9 million hit.
Administration costs and distribution expenses were also higher.
Bega chief executive Paul van Heerwaarden said milk supply expectations across Europe, the US and New Zealand may result in pricing changes during the second half of FY20, though the company would monitor the market carefully.
“Whilst we deal with the challenging trading conditions in dairy, we remain committed to our strategy and transformation to become The Great Australian Food Company,” Mr van Heerwaarden said.
The company has held its final dividend at a fully franked 5.5 cents per share, for a full-year payout of 11.0 cents.