Bega Group is looking at offloading more of its property assets after finally locking in the $114.6 million sale of its century-old Vegemite factory site in Port Melbourne.
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The Australian breakfast staple and Bega's peanut butter lines and other spreads and sauces will continue being made at 1 Vegemite Way as part of a 10-year leaseback deal with the new owner, the property funds management group, Charter Hall.
The sale price for the 36,915sqm factory is, however, well below Bega's initial hopes touted last year around the $150m mark, although the deal will be wrapped up before June 30, as the company had hoped.
Options to extend the lease contract to 20 years have also been agreed.
The arrangement gives the national dairy processing and food brand group the chance to pay down debt while it continues struggling with high farmgate milk costs and a shrinking raw milk pool, and is streamlining its business operations.
Australia's total milk pool has contracted about nine per cent (700m litres) in the past two years to less than 6 billion litres a year.
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Bega Group's executive chairman, Barry Irvin, and chief executive officer, Pete Findlay, warned the "disconnect" between high farmgate prices and falling export dairy commodity prices was expected to continue in the new financial year.
Their forecast of the company's full year profit for 2022-23 taking a hit sent Bega's share price tumbling from $3.48 to below $3 - its lowest point in a decade.
In fact, Bega Cheese was the worst performer on the Australian Securities Exchange on Wednesday, after sinking 8.5 per cent in the day.
Bega, which initially flagged plans to sell the historic Vegemite site more than a year ago, confirmed it was now examining more sale opportunities within its extensive property portfolio to help bolster its balance sheet as part of an ongoing organisational restructure and simplification plan.
No specific factory or distribution assets have been identified.
However the company is understood to be reviewing some operations at its Tatura nutritional powder and cream cheese plant in northern Victoria and south western Victoria's Koroit powder and lactoferrin site to help it manage declining farm milk production and weakening global dairy markets.
The former NSW South Coast cheese co-operative has grown rapidly since buying the Vegemite and other former Kraft brands in 2017, followed by the big Koroit factory a year later, and Lion Dairy and Drinks' dairy and juice business in 2021.
Business restructure
Mr Findlay, said while the restructure would cost about $21m, it would enhance the efficiency and effectiveness of the branded business and cut costs.
A key focus was the bulk dairy commodity business, where revenue has been hurt hard by current international prices for some products, and pricey farmgate milk costs.
Most of the restructure would conclude in the next six months, generating about $12m in savings in 2023-24, with ongoing annual savings of about $20m expected in following years.
However, while Bega continued to expect earnings before interest, tax, depreciation and amortisation of between $160m and $190m for 2022-23, Mr Findlay suggested the result would be at the lower end of that range.
After reviewing the value of its bulk ingredient stocks, the company would also write down the non-cash value of its dairy assets by as much as $280m in response to the declining performance of its bulk segment.
"The non-cash impairment will not impact Bega Group's financial strength or create any adverse issues with our banking arrangements," he said.
Brand names perform
On the other hand, despite "extremely robust" domestic processor competition for farmgate milk and the disconnect with the true values of some bulk commodities bound for export, the group was "very pleased with the performance of its branded business".
Significant raw milk, energy, packaging and logistics price increases had been absorbed as Bega invested in new technology to lift efficiency and pushed through retail price increases.
Retail sales volume and earnings had also grown.
"Customers continue to demonstrate strong loyalty to our brands," Mr Findlay said.
The Bega Group's brand portfolio, which includes big dairy names such as Farmers Union, Big M, Dare, Yoplait, and Daily Juice, continued to hold market leading positions, while its Dairy Farmers Pura and Masters Dairy lines were growing in the convenience and food service channels.
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
