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Bega anticipates flat year

It looks like another year of forbearance for shareholders in Australia’s wannabe food giant, Bega Cheese (ASX:BGA). Shareholders were informed at Tuesday’s annual meeting that they shouldn’t expect significant earnings gains in the 2023-34 financial year. In fact, the company is anticipating a “relatively flat” result compared to the 2022-23 fiscal year when ‘normalised EBITDA’ was reported at $160 million.

In other words, shareholders shouldn’t anticipate a profit surge, especially in the December half of the year, as the meeting hinted at a slow and low six months. However, CEO Peter Findlay expressed confidence that the company’s brand-driven strategy would lead to substantial improvements in the following years.

“The bulk commodity business challenges (in milk) will persist for the remainder of the year, particularly impacting 1H FY2024 performance, and we expect our normalised FY2024 EBITDA to be relatively flat, ranging from $160 to $170 million,” said CEO Peter Findlay during the meeting.

“We believe that the contribution from the branded business in FY2024, which we observed in 2H FY2023 and the first quarter of FY2024, can be maintained. It will be this contribution that counters the commodity headwinds we have already explained and propels the business forward through FY2025, FY2026, and beyond.”

Findlay assured shareholders, saying, “I am confident that within the timeframe of our current five-year strategic plan (FY2023 – FY2028), we can expect to increase our EBITDA to $250 million-plus, with a return on funds employed growing to 10%. This will primarily be driven by our branded business.”

He continued, “Our branded business will be the source of all our momentum over the next five years. We possess market-leading iconic brands that resonate with our customers. Our products are competitively priced to align with the evolving customer proposition and remain relevant in the future. We are confident in our ability to grow our branded business within its current context and explore adjacent opportunities that excite us.”

Findlay also shared positive news about recent acquisitions, stating, “Both of our branded acquisitions are exceeding our expectations. The Mondelz Grocery business has been an outstanding acquisition, and the Bega Dairy and Drinks business, acquired from Kirin of Japan in 2H FY2023, continues to perform well into FY2024.”

Speaking about the company’s infrastructure, he highlighted their network of integrated manufacturing and milk processing sites, capable of managing seasonal milk and optimising milk solids value. Despite current challenges in global commodity markets, Bega Cheese sees an opportunity to reshape its commodity assets to support its brands in the long term and take advantage of any positive changes in commodity markets.

Findlay concluded, “We see numerous opportunities for further brand pricing, innovations, and efficiency programs to enhance margins. Our fresh white milk segment, a significant part of our volume, is moving in the right direction in terms of growth and profitability. Yoghurt, milk-based beverages, and spreads are still growing, and we have tangible opportunities in almost all the channels and categories we operate in. With the changes we’ll be making to our bulk commodity infrastructure over the next 12 months, we believe the business will be less exposed to farm gate milk price volume and volatility.”

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