Bega Cheese revenues up

By Jim Cornall contact

- Last updated on GMT

Bega's 1H results showed strong growth in spite of low milk prices and increased global production
Bega's 1H results showed strong growth in spite of low milk prices and increased global production

Related tags: Milk

Bega Cheese has announced a normalized 9.9% increase in profit after tax, a revenue increase to $403.5m (A$561.4m) and an EBITDA of $23.6m (A$32.9m) in its 1H 2016 financial report for the half year ending December 27, 2015.

The company said it represented strong performance in the context of low global dairy commodity prices, significant increase in global dairy production and continuing sanctions in Russia affecting global supply and demand.

Highlights of the financials included revenue from dairy nutritionals up 32%, and an improvement in gross profit margin of 29%.

Importance of Bellamy’s and Blackmores

Another key highlight the company noted was the amendment to the infant formula supply agreement with Bellamy’s, increasing Bega’s total volume to be sold to Bellamy’s.

Bega also noted the importance of the formation of a joint arrangement with Blackmores, in which Bega and Blackmores share equally in the branding, selling, marketing and distribution of branded infant and nutritionals formula in the domestic and export markets.

Executive chairman Barry Irvin said, “The announcement of the Bega Cheese/Blackmores partnership in infant formula and life stage nutritionals was a further important step in the branding and the value adding of our nutritionals production.

“Our nutritionals platform grew its revenue by 32% in the first half. The link between dairy and the health and pharmaceutical market sectors is now a major focus in our business development.”

Bega Cheese

While the Bega brand continued to be the number one Australian cheese brand, with a market share of 14%, the Bega Cheese segment generated normalised PAT of $6.7m (A$9.3m), a decrease of 10%.

Bega said that milk intake from suppliers increased by 10.1% to 169m liters.

Revenue totalled $263.6m (A$366.8m) in 1H FY2016, down 1.5% from 1H 2015, with weak dairy commodity prices for bulk cheddar cheese and whey powder adversely impacting sales revenue.

The company said that the relative weakening of the Australian dollar and higher value-added product mix assisted Bega Cheese’s export consumer-packaged goods business to increase revenue by 2.7% in 1H FY2016, despite weak commodity prices and strong global competition.

Tatura Milk

The Tatura Milk segment generated normalised PAT of $4m (A$5.6m), compared to $2.2m (A$3.1m) in FY2015, an increase of 81%.

Milk intake from suppliers increased by 3.2% to 197m liters, with core dairy production increasing by 5.2% as a result.

Nutritionals production (excluding contract manufacturing) increased as a result of ongoing demand from customers requiring bulk infant powder, Bega said.

Demand for cream cheese

There was ongoing demand for cream cheese products, the company said, with the launch of new products under retailers’ brands in the domestic market quickly securing material market share since ranging.

There was strong interest from international markets as a result of new product formats and a selling program in key South East Asian and Chinese markets, Bega said.

It pointed out that because of higher Skim Milk Powder (SMP) volume Tatura Milk increased production and SMP sales in 1H FY2016, however with depressed selling prices generating negative returns.

Markets for lactoferrin contracted significantly in 1H FY2016, Bega added. This was attributed to additional global production coming on line and a contraction in demand, particularly in China.

This suppressed short term sales volume, it said, resulting in Tatura Milk scaling back short-term production of lactoferrin in the latter part of 1H FY2016.

Derrimut capacity upgrade

With the rapid growth in demand for canned finished infant products the initially installed capacity of the Derrimut site has quickly been consumed, with the site operating 24/7 since August, Bega said.

While this can service current demand for the short term, Bega said additional capital expenditure has been approved to increase can seaming throughput and blending capacity in 2H FY2016.

Future growth

Bega also said it would leverage strong nutritional demand and grow the infant formula and child nutritional platform.

It also intends to grow the international consumer and food service segments, and continue to investigate corporate opportunities, both domestic and international.

Irvin noted, “Bega Cheese’s focus on Australian and international consumer markets, strong branding and distribution alliances such as Blackmores and investment in higher value dairy nutritionals means that we are well positioned to take advantage of unfolding market opportunities.”

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