Bega flags hit as drought lifts milk costs

Bega Cheese has flagged a full-year earnings drop of up to 17.4 per cent because of lower demand for its unbranded products and higher milk prices amid unprecedented competition for drought-affected supply.

The dairy and grocery producer said on Tuesday that competition had forced it to raise the price it pays Southern Region farmers for milk.

“This higher milk price will directly impact Bega Cheese’s earnings in FY2020,” chairman Max Roberts said.

Bega now expects normalised earnings before interest, tax, depreciation and amortisation for the 12 months to June 30 of between $95 million and $105 million, down from $115 million in FY19.

Mr Roberts said the conditions that contributed to last year’s 59 per cent fall in full-year profit had continued into FY20 “but at a faster and deeper rate”.

The company, which also makes products including Vegemite and peanut butter, said its branded food business was still growing but that export demand for other products was softening.

Bega said plans to restructure its manufacturing capacity including through third-parties were well advanced, while supply chain and overhead cost reviews were ongoing.

“Bega Cheese is proactively responding to increased milk competition and we will continue to manage our supply chain for domestic and international trade to mitigate further downside risk,” chief executive Paul van Heerwaarden said.

“We are also well advanced with internal reviews within our business to ensure our cost structure is correctly aligned to current and medium-term market conditions.”

Shares in Bega Cheese were worth $4.53 before the market open, 38 per cent down over drought-hit 2018 and 2019.


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