Bega Cheese, the Australia-listed food business, has warned profits will be as much as 17% lower in its current financial year mainly as a result of “unprecedented competitive milk supply conditions”.
The Sydney-listed company made the announcement to the Australian Securities Exchange and also blamed the poor outlook on “easing demand from third-party branded businesses”.
Bega Cheese expects normalised EBITDA to drop to a range of AUD95-105m (US$65.1m-72m) in the year that started in July, compared to AUD115m in fiscal 2019.
“We have previously said that conditions impacting FY-2019 would continue into FY-2020. This has proven to be the case, but at a faster and deeper rate,” said chairman Max Roberts.
He added that a continuing drought and a decrease in Australian milk production has “escalated competition” in the first quarter of its current financial year.
Chief executive Paul van Heerwaarden said Bega Cheese witnessed a slowdown in growth in key categories last quarter. He added: “While our branded consumer food business is continuing to grow, we are seeing softening in demand for products destined for certain export markets which will adversely impact earnings in FY-2020.”
The CEO said the company is “well advanced” in restructuring its manufacturing capacity to reflect the changing market conditions, including the development of third-party production relationships.
In February, Bega Cheese announced plans to close its cheddar and mozzarella production facility in Coburg, a Melbourne suburb in the state of Victoria, on the basis the site had insufficient capacity to support future growth. The plant made cheese for its private label and foodservice businesses.
And last summer, the company acquired the former Koroit plant previously owned by Murray Goulburn before Canadian dairy firm Saputo snapped up the latter.
In 2019, Bega Cheese reported a 5% increase in EBITDA, while revenues climbed 13% to AUD1.42bn. Exports, predominately South-east Asia, Japan, and China, rose 4% to AUD442m.
However, net profit after tax (NPAT) slid 59% to AUD11.8m mainly as a result of the higher appreciation and amortisation of capital investments, interest from higher borrowing to fund acquisitions and working capital, and a higher effective tax rate related to M&A.