Updated
Bega Cheese bosses are staying tight-lipped for the time being about plans to cut the company’s debt and re-balance the books before wrapping up the $460 million Kraft brands takeover by June.
After announcing an increase in first half profit after tax of 8.2 per cent to $15.7m, executive chairman, Barry Irvin, said the company still intended to “execute a near term corporate opportunity” to strengthen its balance sheet.
Bega, which reported a net debt of $70.6m – up from $53m six months ago – was continuing to work on the project to help the balance sheet and provide other future options, Mr Irvine said.
Bega became the best performing company listed on the Australian Securities Exchange’s top 200 Index in January after the sharemarket responded with strong support for its move to buy the Mondelez Australia and New Zealand spreads, cheese and salad dressing brands, including Vegamite.
Transition towards the takeover is expected to be finalised by June 30, giving Bega an anticipated 2017-18 earnings before interest, tax depreciation and amortisation of up to $45m.
“As everybody associated with this company knows we like to have a strong and carefully managed balance sheet,” Mr Irvin said while outlining current priorities associated with the Mondelez acquisition.
He noted the “near-term opportunity” could also give Bega other business options into the future, however, he was not able to expand on what plans were in train.
In keeping with its budget management strategy Bega has put the brakes on any additional spending to expand mozzarella cheese production capacity at its Coburg plant in Melbourne, despite the success of its moves in that category in the past year.
“We are delighted with how much mozzarella we’ve been able to produce and the base we’ve established from which this business can expand – 7000 tonnes in the past year,” Mr Irvin said.
“However, we will postpone any capital structure expansion while we pursue the Mondelez acquisition.”
Mozzarella and cream cheese were shaping up as potential growth opportunities on the company’s international market agenda.
The cream cheese plant at Tatura in northern Victoria had also been upgraded in the past year to cope with increased domestic demand for value-added packaged product.
Bega’s half-year profit result was described by Mr Irvin as a delightfully strong performance in a challenging market, particularly in the competitive cheddar cheese cut and pack and processed cheese markets.
The company also made a $7.1 million pre-tax inventory impairment for nutrition powder product stock held by the Bemore partnership – Bega’s underperforming joint venture company with vitamin business, Blackmores.
After normalising its results for the inventory impairment, Bega’s profit after tax was $20.7 million, an increase of 39pc.
Revenue for the first half increased by 10.6pc to $621 million.
Although global dairy prices had improved dramatically of late, Mr Irvin warned the financial year’s second half results could be more challenging than the previous six months as recent profit margin pressures, particularly in the volatile infant formula market, flow through.
However the farmer-owned company still expects expected full-year earnings will be in line with last year.
"While the nutritionals segment is experiencing challenges this year, the ingredients market is improving rapidly," said newly appointed chief executive officer Paul van Heerwaarden.
"We always remain alert to changes in the market and supply and demand dynamics, endeavouring to position ourselves to be agile enough to meet challenges and respond to opportunities."
Bega has also taken on extra milk suppliers in northern Victoria after the past year’s wet winter and dramatic farmgate price reductions cut production as much as 20pc on some farms, increasing uncertainty about supplies.
