Like Caltex and Adelaide Brighton have done, Bega Cheese had already softened up investors to expect a weak 2018-19 result by issuing a weak trading update earlier this month.
So that’s why the shares didn’t fall out of bed yesterday when it revealed a 59% slump in statutory earnings for the year to June.
Of course, the underlying result was much better with all the nasties dropped from the comparisons (that’s always the case).
So it is no surprise that Bega pointed out that its underlying earnings increased to a record $115.4 million for the 12 months to June 30, in line with recent guidance, up 5.0% over the prior year.
Driving much of the downgrade was the impact of the continuing drought and its impact on milk production, which is falling and forecast to fall another 3% in the 2019-20 year.
Bega managed to get its hands on more milk (buying a Western Victoria dairy factory from Saputo) helped, but that came at higher costs because of the drought meaning margins were compressed.
Finance costs were higher because of the extra debt for the factory deal and the purchase of the Kraft brands last year (Vegemite).
Revenue rose 13% to $1.42 billion on a record milk intake of 1.06 billion litres. The higher revenue came from the extra sales from the milk factory and a full year contributions from the Kraft brands.
Bega says the 3.0% dip in statutory earnings before interest tax depreciation and amortisation (EBITDA) full-year earnings decline to $89.5 million reflected one-off acquisition costs related to the Koroit factory in western Victoria and the closure of its Coburg plant in Melbourne.
Shares in the company rose on the results and had climbed by 5.8% to $4.02 (They were $7.66 a year ago).
Dividend is unchanged at 11 cents a share for the year with a final steady payment of 5.5 cents a share.
Looking to 2019-20 Bega has already warned that the re-positioning of the company as more than just a dairy group will again impact results this financial year as it did in 2018-19. The steady dividend tells us the board is not going overboard about its prospects for the next year.
“As stated in the market update in early August 2019 the competition for milk has never been stronger than in the last quarter of FY2019 and in setting the FY2020 milk price,” directors said yesterday.
“Whilst global dairy commodity prices remain strong Bega Cheese will continue to monitor milk supply expectations across Europe, the US and New Zealand which may impact pricing in the second half of FY2020.”
