Oz processor's acquisition strategy paying dividends

Bega's A$528 million buyout of Lions Dairy and Drinks last year has more than doubled its size. Saputo Australia remains Australia's largest milk processor.

For the year ending June 30, 2021, Bega reported total revenues of over A$2 billion, 39% higher than the previous year. Normalised earnings before interest, depreciation and tax (EBITDA) jumped 38% to A$141.7 million.

Bega executive chairman Barry Irvin says the importance of consistent strategy and strong values is never more evident than in times of uncertainty.

"Our capacity to be agile and change while remaining confident in the core direction and strategy was again tested and on display: as we executed the acquisition of Lion Dairy and Drinks.

"We continue to adapt our business to operate in a Covid-19 safe manner and responde to changing customer and supplier requirements."

Bega ended the year with a net debt of A$324m, an increase of A$94m, mainly from A$125 million of net proceeds from borrowings to partially fund the acquisition of Lion Dairy and Drinks, capital and software investment. The increase was offset by operating cash inflows of A$11.4 million.

The purchase of Lion Dairy saw Bega more than double in size in terms of both annualised revenue to approximately A$3 billion, and employees to over 4,000, expand its cold chain distribution network to now be one of the largest in the country, and significantly increase its proportion of sales from branded products from 59% to in excess of 80%.

Irvin says strong farmgate relationships, along with the flexibility of a globally competitive supply chain, helped navigate fluctuations in demand for product and competitve market for milk supply.

"Our people have, over the past year, continued to respond with agility, passion and dedication to the needs of customers, the community and the business, developing innovative solutions to new challenges and ensuring that our much-loved iconic branded products continued to reach both supermarket shelves and the hands of consumers - despite the challenges of the Covid-19 pandemic," he says.

In addition to the acquisition of Lion Dairy, Bega completed and implemented the recommendations of an operational review, successfully concluded two long-running legal disputes (including one with Fonterra), responded to the termination of service and access arrangements at the nutritional powder and canning facility in Derrimut and expanded its branded product offering in growth categories with new product launches.

Its infant formula business was impacted by Covid. Bega reports softening demand for infant formula during th eyear, due to changes in the Chinese market created by shifts in customer preferences and a weakened Diagou channel.

"This drop in demand was recognised by the business and mitigating initiatives have been implemented to reduce the financial impact, whilst still retaining the capability to service customers in the future," the company says.

It is signalling that capital investmen in the year ahead will focus on capacity, product innovation, safety, and further efficiency. Bega chief executive Paul van Heerwaarden says strategic acquisition, product innovation and disciplined capital management have over the past year accelerated progress towards the vision of becoming the 'Great Australian Food Company'. "Investment in our people, products, processes, communities and supplier relationships will bring us even closer to achieving that vision as we continue to develop a business for the future, whilst navigating the challenges of today."