Bega reports record revenue but lower profit

Dairy giant hopes further product and brand innovation will assist growth

Facility consolidation and new brand product launches have seen Bega post a 13 per cent increase in revenue in the 2019 financial year, in what has been a challenging operating environment for the dairy giant. 

The news follows Bega Cheese being given the right in May to continue to use the trade dress associated with the peanut butter products it acquired as part of its purchase of the Mondelez Grocery Business in 2017. The Australian Federal Court ruling gives Bega the right to continue using its current packaging of its smooth and crunchy peanut butter products, namely the yellow lid and iconic labels, after Kraft Heinz launched a legal bid to get Bega to stop using the trade dress in 2018 through the US Federal Court. 

Bega Cheese acquired the majority of Mondelez International’s local grocery and cheese business in 2017, a portfolio which includes Vegemite, Bonox, ZoOSh and a transitional royalty-free licence for several Kraft products such as peanut butter and cheese as well as nut spreads, for $460 million. The aim is to become a leading Australian-branded consumer goods business. However, Heinz had previously acquired Kraft, and sought to stop Bega Cheese from using the well-known trade dress on its peanut butter products. 

In FY19, Bega Cheese generated a record normalised earnings before interest, depreciation and tax (EBITDA) of $115.4 million, an increase of 5 per cent year-on-year. On a statutory basis, Bega Cheese generated EBITDA of $89.5 million, 3 per cent below the prior year. 

Profit was down 59 per cent over the same period to $11.8 million, a fact attributed to acquisition, taxes, the drought and pressure on milk margins. However, Bega also generated record revenue of $1.42 billion, up 13 per cent. During the year, Bega acquired a new facility at Koroit, and closed a facility in Coburg. 

Bega CEO, Paul van Heerwaarden, said key growth initiatives during the year included a further diversification of its customer base in nutritionals and innovation in its branded consumer goods business.

During the year, it launched 41 new branded products or product variations, and three new brands, Simply Nuts, Farmer’s Table, and Modern Chef, which is an exclusive brand developed for Woolworths. It expanded retail offerings to cream cheese and butter in the domestic market, and launched gluten free Vegemite and Arnott’s Vegemite Shapes. Bega Simply Nuts was launched into the high-growth all-natural peanut butter segment.

“The Mondelez Grocery business had a limited innovation pipeline when we acquired it two years ago,” van Heerwaarden said. “We are now starting to see the benefit of our investments in new product development. The Picky Picky nut snacking product range is now available in Coles and the Dairymont food service brand was also relaunched during the year in the domestic market."

Since listing on the ASX in 2011, Bega has been committed to becoming ‘The Great Australian Food Company’. The move from a supply driven co-op to a market and customer-focused organisation has seen it consolidate its facilities and workforce and diversify its range of products to increase market share.

“In FY2020 we will continue to invest in our brands, develop new products and extend our reach as we grow our consumer and food service markets in Australia and overseas,” van Heerwaarden added.

Follow CMO on Twitter: @CMOAustralia, take part in the CMO conversation on LinkedIn: CMO ANZ, follow our regular updates via CMO Australia's Linkedin company page, or join us on Facebook: https://www.facebook.com/CMOAustralia.    

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