Bega Cheese has increased the pace of cost-cutting as it seeks to digest its various expansionary moves of the past year or so and meet the challenge from the deep drought that has hit the dairy industry much harder than anyone had forecast.
The company yesterday revealed plans (along with a weaker interim result) to close its Coburg cheese factory in Melbourne and sell the land at below book value – a sure sign of the company’s desire to raise cash as quickly as possible to cut a surge in debt.
Bega said yesterday that it will close down its Melbourne cheddar and mozzarella plant this week, with redundancies to follow.
Some employees will be redeployed following the closure of the Coburg site, but 50 would be made redundant.
But to keep shareholders happy an unchanged interim dividend of 5.5 cents a share will be paid, while in another sign of how the company wants to conserve cash, Bega’s Dividend Reinvestment Plan will be activated for this dividend. The plant makes cheese for Bega’s private label and food service supply contracts.
Investors were surprisingly supportive, sending the shares up 1.4% to $4.89.
In a statement to the Australian Stock Exchange, the dairy giant said it would continue in the cheddar and mozzarella business by sourcing cheese from Bega’s other sites and contracted arrangements.
“The decision to close the site was made following a review of our network which concluded that the Coburg site’s capacity and city location cannot viably support Bega’s expected future growth.”
Bega said a decision regarding the full exit from the site is expected to be made soon. “We expect the realisable value to be below book value,” Bega’s statement said. In other words, a loss.
The news came as Bega reported a 76% drop in first-half profit to $5 million, with the company blaming drought-inflated farm gate milk prices and expansion costs for the drop.
Bega reported Earnings Before Interest, Interest, tax, Depreciation and Amortisation (EBITDA) of $39.6 million, down $12.1 million or 23%.
“The Group incurred several one-off transaction costs relating to the acquisition of the Koroit Facility and other corporate activity totalling ($18.6) million before tax, which have been normalised in the result for the period. The Group normalised EBITDA of $57.9 million was down on the Prior Period by ($12.2) million or 17%, and normalised PAT of $18.9 million, was down on the Prior Period by ($17.7) million or 48%,” directors said.
A record milk intake following the $250 million acquisition of Koroit in August wasn’t enough to insulate the business from “difficult operating circumstances”, with rising costs, especially from the drought.
A near 6% rise in revenues to $649.2 million saw sales of packaged cheese, Vegemite and nutritional products fall in the half year.
Mr. Irvin said the company had revised its outlook to the lower end of the previous normalised earnings guidance of $123 million to $130 million.
“The first half of the 2019 financial year has been very important and successful from a strategic perspective, albeit the business has been impacted by some short-term challenges,” Mr. Irvin said.
The company said the financial impact of closing the Coburg facility has not been factored into the half-year results, meaning more one-off items in this half, especially if the sale sees a price below book value as the company warned yesterday.
