Bega Cheese mulls non-dairy acquisitions as global milk rout curdles profit

Bega executive chairman Barry Irvin said the company was mulling buying micronutrient companies, which produce ingredients for products such as infant formula, and might include non dairy.

“We use a number of micronutrients that are not dairy based and equally we sell some of our dairy micronutrients to customers which purchase other styles of micronutrients,” Mr Irvin said.

“So we have a very good foundation and knowledge around micronutrients and their usage, so … it’s appropriate for us to look in that particular area because it’s not a step away from our core competencies.”

It comes as a near halving in global dairy prices wiped 26 per cent of Bega Cheese’s full-year underlying net profit.

Mr Irvin said he expected better earnings in the 2016 financial year, as the company focused more on consumer-packaged goods, such as supermarket packed cheeses, and infant formula rather than bulk commercial dairy ingredients.

It’s a strategy that helped lift revenue 4 per cent to $1.1 billion in the 12 months to June 30, after sales of nutritional powder and consumer-packed goods surged $72 million.

“[But] growth in revenue from the group’s value-added platforms was offset by a $29 million decrease in the value of global dairy commodity prices, particularly skim milk powder,” Mr Irvin said.

“The decrease in global commodity prices consequently directly impacted margins and financial outcomes of the group in FY15.”

The global price of skim milk powder has almost halved since March, diving from $US2935 ($4120) to $US1521 a tonne.

Bega is not the only dairy company that is expanding its portfolio of consumer products in an effort to deliver a more stable farmgate price to farmers.

Australia’s biggest dairy processor, Murray Goulburn, which listed its non-voting unit trust in July,  has lessened its dependency on bulk dairy products from 48 to 36 per cent of its product mix.

This is a strategy aimed at cushioning farmers against the volatility on global dairy markets, which has led to Fonterra slashing the payouts to its farmers in New Zealand.

“We are seeing the industry want to utilise its raw material more effectively. If we had New Zealand-style returns it would be a disaster for the Australian dairy industry,” Mr Irvin said.

“We want all our product to be going into higher-value ingredients or consumer goods.

“But our big challenge is to take skim milk and find a way to turn it into greater value. Part of that is using it in infant formula, but it only uses a small portion.

“We believe the answer will be in further fractionation of the proteins in that skim milk.”

Bega’s net profit plunged to $22 million, or 26 per cent compared with the 2014 financial year. This excluded the sale of its shares in Warrnambool Cheese and Butter, which reaped a $62 million pre-tax profit in FY14, and a $25 million investment in establishing a sustainable milk supply.

The company’s shares closed 0.7 per cent higher at $4.50 on Thursday.

It will pay a final dividend of 4.5¢ a share, which is unchanged from 2014’s payout, on September 18.
Source: SMH

 

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