Bega Cheese’s factory on the NSW south coast. Photo: Orlando ChiodoNSW-based Bega Cheese has hinted the dairy wars are not over, saying the company is well-positioned for further consolidation and the battle for milk supply as it reported an 18 per cent jump in first half profit to $18.7 million.
The cheese company, which listed on the ASX in 2011, recently lost out to Canadian giant Saputo in the dramatic three-way takeover battle for Victorian dairy group Warrnambool Cheese & Butter.
But Bega said it has reaped $98.9 million, before tax and costs, for its 18.8 per cent stake in WCB and expects to report an after-tax profit of $44 million in its full-year accounts.
“The recent battle for control of WCB was a demonstration of both the value of dairy assets in Australia and Bega Cheese’s positioning as a key player in the ongoing rationalisation of the Australian dairy industry,” Bega said.
“Bega Cheese has a very strong balance sheet and is well-positioned to participate in the ongoing opportunities in the Australian dairy industry.”
The comment comes just days after the banker who led Saputo to victory in the $530 million battle for Warrnambool said he expects dairy deals to keep flowing.
“There’s a trend of bringing global companies like Saputo to the Australian market and helping them build out their position,”Rothschild managing director Sam Prentice said.
“Private equity firms are all looking at their portfolios and which of their investee companies are suitable for IPOs.”
Announcing its first-half profit, Bega said there are a number of organic growth opportunities it intends to pursue in further value-adding its whey and dairy nutritionals products.
“The group expects to consider a number of investment and corporate opportunities in the short to medium term.”
Adverse weather and competition for milk supply drove an 8 per cent drop in milk intake to 336 million litres, but group revenue rose 4 per cent to $510.6 million and earnings before interest and tax jumped 15 per cent to $30.2 million.
Near-record dairy commodity prices and the recent decline in the Australian dollar underpinned the growth in earnings.
Bega said the outlook for dairy commodities is positive primarily due to the insatiable demand from China for whole milk powders and whey powders.
The company said a key focus going forward will be on providing incentives to grow its existing milk pool and procure new supply, suggesting it is ready for a battle to win farmers from rivals like new entrant Saputo.
“A number of new entrants in milk supply procurement, strong competition amongst existing players and increased returns from international markets will continue to create a highly competitive market for milk,” Bega said.
Bega declared a full-franked interim dividend of 3.5¢, matching the dividend paid in the prior period.