The ASX-listed dairy giant’s profits jumped by 29 per cent to $28 million in the six months to 26 December 2021, but revealed COVID-related costs had blown out to more than $20 million.
Bega Cheese executive chairman Barry Irvin said higher input costs around grains, fuel and energy – exacerbated by Russia-Ukraine tensions – combined with “really strong” global commodity prices for milk would see these various costs passed onto consumers.
“Across the industry – virtually everybody, whether retail or companies like ours … people are talking about food inflation. It’s the subject on everybody’s lips at the moment,” he told this masthead.
“Once those farmgate milk prices go up, it impacts whatever you can think of that is made with dairy.”
Just about every item under Bega’s portfolio would be affected, with the only potential exception being non-dairy spreads such as honey, he added. “There would be the need for price increases.”
Popular brands under Bega Cheese’s portfolio include Dairy Farmers and Pura milk, Dare iced coffees, Yoplait yoghurts, Vegemite, juices such as Daily Juice Co, Mildura, and The Juice Brothers, alternative milks from Vitasoy, and Zooper Dooper.
Mr Irvin is the latest executive from the food, beverage and retail sector to warn about food inflation, which he described as “permanent” key challenge for businesses. Woolworths chief Brad Banducci yesterday said inflation was a “live and real issue” and that his supermarkets were seeing 2-3 per cent price rises.
Mr Banducci’s comments follow those from Coles boss Steven Cain, who said he was preparing for the worst across-the-board inflation in “quite some time”.
Bega Cheese expects COVID-related costs for the second half to be even worse than the $20 million recorded in the first half, as companies scramble to contain the ongoing fall-out from the Omicron wave that hit over the holiday period.
Global supply chain issues in the first quarter led to higher prices for material such as fuel, packaging, coffee and resin, while suppliers that didn’t meet their delivery times created higher operational costs for the company.
Meanwhile, the Omicron wave upended local supply chains and created “significant absenteeism” across Bega’s workforce. Lockdowns also meant that cafés and restaurants were shut or saw lower levels of foot traffic. Bega also had to shoulder direct costs for items such as rapid antigen tests, personal protective equipment deep cleaning.
“For want of a better way of putting it, there’s no such thing as normal, I don’t think. But having the market [and] operations return to normal – that’s the challenge, in terms of how quickly that occurs,” Mr Irvin said.
Bega Cheese’s statutory earnings before tax, interest, depreciation and amortisation (EBITDA) also climbed by 47.7 per cent to $97.2 million in the first half. Revenue more than doubled, climbing 113 per cent to $1.51 billion.
Growth was driven by its plant-based milk category (consisting of the singular brand of Vitasoy) grew the most, at 12 per cent to $390 million. Meanwhile, demand for water ice products, such as Zooper Doopers and Berri, slid backwards by 10.3 per cent.
Looking ahead, the business is focused on projects across its yoghurt, nutritional and white milk categories and on improving supply chain efficiencies.
The company will pay an interim fully franked dividend of 5.5 cents per share on 24 March.