Australian dairy manufacturer Bega Cheese has reported record profit, and revenue of $1,069.4 million for the year ended 30 June 2014, up 6.5 per cent on the previous year.

Bega Cheese reported EBITDA of $122.5 million, up 88.1 per cent on the previous year, PBT of $93.6 million, up 164.7 per cent on the previous year, and EPS of 43.44 cps, up 159 per cent on the previous year. The Company reported no debt, and said its balance sheet was “significantly strengthened” by the outcome of the sale of its 18.8 per cent share in dairy company Warrnambool Cheese and Butter (WCB).

Bega Cheese said that although it had initially made a bid to acquire WCB in 2013, it concluded that there was “more value to be created by selling” its shares in WCB. Bega Cheese received $99 million in cash from the sale of its WCB shares, and generated $66 million profit before transaction costs.

After a much-publicised battle between Bega Cheese and other dairy companies Murray Goulburn and Canadian-based Saputo, Australian Food News reported in January 2014, that WCB was acquired by Saputo.

Good revenue growth in all operational areas

Bega Cheese reported good revenue growth in all operational areas, particularly nutritionals (23 per cent) and core dairy ingredients (12 per cent).

The Company said plant efficiencies drove EBITA and profit growth, and that it saw reduced interest costs as borrowings were paid down using the inflow of cash from the sale of Bega Cheese’s WCB shares.

Bega Cheese said its operational cash flow continued to be strong, with increased payments in the 2014 financial year.

Production

Bega Cheese reported total production of 208,120 tonnes in the 2014 financial year, which was in line with the previous year.

The Company said that in the 2014 financial year, its production mix changed, moving more towards nutritionals.

Infrastructure

Bega Cheese reported a capital expenditure of $28 million in the 2014 financial year.

This spending included investment in its infant nutritional blending and canning facility at Derrimut in Victoria, increased lactoferrin production expansion and new whey manufacturing capacity at its facility in Tatura in northern Victoria, and increased cheddar cheese capacity at its facility in Coburg in Victoria.

Bega Cheese said its product range now included natural cheddar cheese, processed cheese, cream cheese, nutritional powders and milk proteins.

Milk sustainability and growth program

Bega Cheese said it was making a “strategic investment” in milk supply, and “responding to customer requirements both now and in the future”. The Company said it would invest $25 million in total in its milk sustainability and growth programs, with $11 million already invested in the 2014 financial year. The growth programs have a goal of growing supply over the next three years, and involve 3-year supply relationships.

Strategic priorities

The Company said its strategic priorities going forward included:

• Focused investment on further development of life stage nutritionals
• Growth of infant formula and child nutritional platforms
• The creation of a new platform in bio-nutrients
  • Development of new science-based innovation platform
  • Dairy and non-dairy micro nutrients
  • Leverage off existing knowledge and capabilities
  • Reviewing global knowledge and capacities
  • Organic growth and acquisition opportunities
• Extracting more value from existing milk components
• Sustainability and growth of milk supply
• Focus on growth and efficiencies in key platforms
• Continued investigation of value creation rationalisation opportunities

Outlook

Bega Cheese said there was uncertainty created by the Russian sanctions on imports of agricultural products, including dairy, and the impact of falling commodity prices. However, it said there was a strong underlying demand for dairy products in Asia, and a good base for Asian expansion using new capacity.

The Company reported that its high value whey protein project was in the final development stages and would cost approximately $30 million, and that its “very strong” balance sheet would support expansion.