At Bega Group’s AGM this week, chair Barry Irvin said the results of the company’s six-year strategy to transform from a mainly commodity business to a branded one was clear in 2H FY23. In what was a “volatile and challenging” year, Bega’s branded business accounted for 85 per cent of revenue, up from 73 per cent two years ago.
Meanwhile, its commodity business, saw rapid price increases at the beginning of the financial year, followed by a rapid 30 per cent decline in prices at the end.
“The strength of the brands is the key to our future business success. We continue to invest in our brands, growth categories and higher value products.
“We announced in FY2023 that we are restructuring our overall business to accelerate the alignment of the organisation to the branded strategy. It was important to speed that alignment up given the volatility of FY2023 and ongoing challenges in the bulk segment of the business,” Irvin said.
Bega registered a $276 million impairment on its dairy infrastructure, but still saw opportunity in some areas of the segment, particularly in nutraceutical, dairy nutrients, and support for the branded business.
Irvin said the non-cash impairment was not a reflection of the quality of the infrastructure but because the volume and cost of milk available meant the infrastructure was not delivering financial returns consistent with historical performance. He added the company expected those factors to remain “for some time”.
CEO Pete Findlay said the goal was to transition commodity sites to a more agile cost base that can respond to changed market conditions better than they currently can.
“Our commodity business will continue to struggle in FY2024 as the disconnect has further widened this year. It is important to note that within our commodity business we do have two different businesses. We have a Nutritionals business which produces lactoferrin, infant formula and high value milk powders.
“That part of our business is remaining reasonably stable, other products in particular bulk butter, bulk skim powder, whole milk powder and cream cheese will suffer significantly in FY2024, which is what has largely driven the impairment in our bulk business.”
Ultimately the company delivered a normalised EBITDA of $160 million and a statutory after tax loss of $230 million.
Findlay said as well as significant cost increases to milk the company faced spikes in crude oil prices impacting packaging resin, logistics and most other inputs.
But the branded business grew volume by around five per cent.
The convenience channel experienced 20 per cent volume growth and 30 per cent value growth. The food service channel increased field sales by 25 per cent.
Findlay said, “As part of the restructuring program announced during the year, we have consolidated our branded business from three divisions into one and created specific grocery and non-grocery teams. We have brought together multiple sales teams, marketing teams, R&D teams, logistics and planning teams.
“During that process we have eliminated approximately $20 million of annualised cost, of which $12 million will be realised in this financial year. We now have a structure that aligns with our strategy, enables us to win in all channels and creates a sustainable cost base moving forward.”
Highlights included:
- Completion of Wetherill Park sustainable packing project, which is blowing fully recyclable PET bottles onsite, giving beneficial sustainability and cost benefits. These bottles have increased shelf presence and assisted with our outstanding milk-based beverages result for the year;
- commissioned a new pouch line at Morwell at the end of FY2023. This additional capacity is fully operational and will create significant product innovation and cost savings; and
- commenced work on a digital sales platform to support the approximately 40,000 deliveries a week by our cold chain distribution network. This will replace a 15-year-old portal currently providing a less than satisfactory customer experience. The detailed design of the new digital sales platform will address more than 100 customer pain points.
