Skyhigh farmgate milk prices have hit the bottom line of one of Australia's biggest locally owned dairy groups.
Releasing its half-year results today, Bega Cheese said despite a price lift of around 10 per cent for its branded products, its profits had fallen substantially.
In the first half of the financial year, the group reported generated statutory earnings before interest, tax and other costs of $71.6 million, a 26pc drop on the previous comparative period by $25.6 million.
Normalised profits of $74.6 million fell by $31.8 million or 30pc.
The company announced a reduced interim dividend of 4.5 cents per share.
While the company expects domestic farmgate prices will stay high and the "milk pool" will continue to reduce, Bega's executive chairman Barry Irvin said the company expected some of these milk production headwinds to moderate this year and into next year as well.
One decision announced by the company was the closure of its fresh milk manufacturing plant in Canberra (previously known as Capitol Chilled Foods).
Processing would be relocated to the group's Penrith site. Nineteen staff members are impacted by the decision.
Bega announced it had been hard hit by "significant inflationary cost pressure" including elevated prices for farm gate milk reflecting strong global dairy commodity prices in 2022.
Prices in the Australian market now reflect the significant change in farm gate milk pricing that occurred on July 1, 2022, the company said.
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Despite high milk prices, milk supply across Australia fell in the past six months by 7pc.
"The industry has been impacted by low labour availability, extensive flooding in some regions, high land prices and the attraction of high prices in other agricultural commodities such as beef."
There was discussion today about the move of major supermarket Coles to offer dairy farmers big price rises under longer-term contracts in an effort to maintain supply for its private label milk and keep consumer prices steady until 2025.
Coles has written to farmers offering to pay up to 22c more per kg of milksolids (kgMS) under tenure payments to move suppliers onto three-year contracts.
Bega's overall revenue exceeded $1.6 billion, an increase of 11pc on the previous year.
A 13pc lift in its branded products reflected price rises and sales growth.
The dairy group said key priorities for the rest of this financial year included further pricing and margin mix initiatives, continued optimisation of manufacturing and logistics capability, further investment in brands, markets and new product capabilities.
The group said its spreads and bulk dairy ingredients continued to perform well.
Bega Cheese has agreed to offload its 49 per cent stake in the Wodonga-based Vitasoy Australia business for $51 million after the Hong Kong-based parent last year decided it wanted to take full control.
"The group recognises the market importance of plant-based beverages and products and has made good progress on opportunities in the sector following the exit from the joint venture," today's half-year results meeting was told.
The group's net debt is $321.4 million compared with $328.6 million the year before.
The company's share price has fallen marginally since today's announcement, trading at around $3.40.