Bega Group has booked a hefty impairment charge related to “commodity assets” in a challenging Australian milk market.
The Bega Cheese brand owner posted a loss after tax of A$229.9m ($147.8m) in fiscal 2023, swinging from an A$24.2m profit a year earlier.
The publicly-listed company said the loss was “significantly impacted by non-cash after-tax asset impairment” of A$230m.
Bega said in a statement “the strategic decisions over the past five years to transform into a predominantly branded business played a pivotal role” in the year under review.
The group “claimed it had navigated difficult and rapidly changing conditions, while continuing to position the business for future growth”.
Bega impairment amid “disconnect” in milk markets
In the stock-exchange filing, Bega added its decision to “right size” some of its commodity assets was based around the milk price and over supply.
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Bega said: “The continued decline of milk production in Australia and excess milk manufacturing capacity has created a highly competitive milk procurement environment and a disconnection between returns received from internationally traded commodity markets and [the] Australian farmgate milk price.”
Executive chairman Barry Irvin explained: “The non-cash impairment of our bulk commodity assets is reflective of industry circumstances and reinforces the importance of our strategy to transform to a predominantly branded business.
“The right-sizing of our commodity assets and their further integration with our branded business creates a great platform for the support and growth of our brands, while maintaining the capability to respond to changing market circumstances.”
Bega’s normalised EBITDA dropped 11% for the year to A$160.2m, based on revenue of A$3.4bn, an increase of 12%. However, the profit metric is expected to be relatively flat in the new fiscal year at A$160-170m, it said.
CEO Peter Findlay was, nevertheless, more positive further out. “Over the next five years, our strategy will deliver great opportunities for business growth, improved financial performance and value creation for our shareholders with the ambition of a A$250+ million normalised EBITDA outcome and a ROFE of 10%+ within that timeframe,” he said.
Bega’s normalised profit after tax remained in the black but fell 38% to A$28.5m.
Describing fiscal 2023, the company said it built market share in the second half and gathered “margin momentum” on the back of “significant farmgate milk price rises and other cost increases in the first quarter”.
Bega added: “The execution of price increases, cost-out programmes and a pipeline of new product development strongly contributed to the branded segment’s financial performance.”