Bega Group is further cutting sales to bulk dairy commodity markets as it concentrates on domestic customers after recording a year of breakthrough growth for its domestic milk and yoghurt lines.
The one-time big cheese specialist is "streamlining" its international sales and milk processing operations to focus on its branded grocery and dairy products which have performed ahead of expectations, shareholders have been told.
However, despite the success of popular brands such as Farmers Union, Dairy Farmers, Dare and Vegemite, this week's annual general meeting was also warned the first half of the current financial year would still be relatively flat.
Bega was still absorbing high production costs, including record farmgate prices caused by milk shortages, and was hastily restructuring in response to the underwhelming and fragile bulk export trade.
In 2022-23 the national milk, fruit juice and spreads processor posted a normalised profit of just $28.5 million, but its official statutory after-tax result was a $230m loss after writing down $230m in non-cash impairments relating to the shrinking value of its bulk commodity dairy manufacturing capacity.
Executive chairman, Barry Irvin, told the AGM the write-down was not a reflection of the quality of the infrastructure Bega owned.
"It's a reflection of the fact that the volumes of milk available, and indeed the cost we have to pay for milk, is not seeing that infrastructure delivering financial returns that's consistent with historical performance," he said.
"These factors are likely to remain with us for some time."
He said during the past decade Bega had moved from being "fundamentally a large commodity business to ... an emerging branded powerhouse".
About 85 per cent of its revenue was now generated by branded products - up from 50pc in 2017.
Importantly, Bega dairy products boasted market-leading spots in the beverage milk and yoghurt categories, number three (after Coles and Woolworths) in the fresh white milk segment, and number one in spreads.
In fact, during the past year Bega's fresh white milk sales grew an impressive 13pc, with similar gains in milk-based beverages, 11pc growth with yoghurt, and 16pc with creams and custards.
It was the first time in years the Dairy Farmers and Pura milk brands had achieved volume growth across all its domestic white milk sales channels.
"We are particularly pleased with the performance of fresh white milk despite significant cost increases and consumer financial pressures," said chief executive officer Pete Findlay.
The company was taking advantage of its significant sales force, national cold chain distribution network and strong distributor relationships to "win the streets" in the convenience store and food service markets.
Bega, which closed its Canberra milk plant during 2022-23, now has 19 dairy, grocery and juice manufacturing sites processing 1.34 billion litres of milk annually, and a workforce of almost 4000.
Although "streamlining" was referred to several times at the AGM, Mr Findlay said the company's bulk infrastructure at sites such as Koroit and Tatura in Victoria continued to be import part of the company's branded strategy push.
Its international branded market, however, had now been streamlined to fit with its new export priorities - cream cheese, processed cheese and yoghurt.
Bega's nutritional business producing lactoferrin, infant formula and high value milk powders was remaining relatively stable, while other commodity categories such as butter, bulk skim and whole milk powder were expected to "suffer significantly in 2023-24".
Our strategy remains on track as we continue to build a strong and more stable branded food business- Barry Irvin, Bega Group
Mr Irvin there was no doubt Bega's brands had demonstrated their strength, particularly in the second half of 2022-23.
"They also demonstrated the opportunity for us to be able to increasingly deal with the volatility in farmgate milk price and volumes and other cost pressures," he said.
"Our strategy remains on track as we continue to build a strong and more stable branded food business.
"The circumstances of this past year have reinforced the importance of this strategy and its acceleration to ensure we create value for shareholders."
Indeed, Mr Findlay said both Bega's big branded business acquisitions since 2017 - the former Kraft spreads and sauces grocery business, including Vegemite, and the dairy and drinks division bought from Kirin - were "performing ahead of business case".
The grocery investment had proven to be an "outstanding acquisition" and the Bega Dairy and Drinks business continued performing well into this financial year.
He said the brand-driven strategy would be the source of the company's momentum for the next five years.
"We possess market-leading iconic brands that resonate with our customers," he said.
"We believe the contribution from the branded business in 2022-24, which we observed in the second half of 2022-23 and the first quarter of 2023-24, can be maintained.
"It will be this contribution that counters the commodity headwinds and propels the business forward through into 2026 and beyond."
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