Shareholders,
More on Bega. Note diversification and spread.
Lactoferrins - looks to have approx 50tonnes of Lactoferrins available annually. Both Tatura and Koroit. Note comments on market/s. Bega is in production and out there with positives.
BFC - Mr Sexton how is BFC going to sell its 11-13 tonnes of Lactoferrins. Can BFC forward sell when product quality is unknown, untested and subject to audit/quality control??
Lord, hear my prayers. Bring on change at BFC

Bega Cheese set formore dairy diversification options

Andrew Marshall@BurrenAndrew4 Nov 2020, 6 a.m.

News

Aa

Fresh from beddingdown a $38 million upgrade at its big, newly acquired Koroit milk factory insouthern Victoria, Bega Cheese boss Barry Irvin says the company must keepdiversifying its food business footprint to insulate itself from climate andmarket risks.

Clearly signalling thedairy and spreads business' strategy for more acquisitions, he said Bega had a longterm focus on protecting its existing milk supplies and diversifying so it hadsupply stability regardless of what may be happening in some areas of themarketplace.

With major milkprocessor Lion Dairy and Drinks up for sale again after failing to get ForeignInvestment Review Board consent for a $600m bid by China's Mengniu Dairy, Begais widely viewed as a strong Australian-owned alternative buyer capable of pickingup at least some of Lion's assets between North Queensland and WesternAustralia.

Mr Irvin told lastweek's annual general meeting he believed further consolidation would createextra value for the dairy industry.

The executive chairmansaid Bega management was always endeavoring to be ready to participate inindustry consolidation opportunities when they arose.

Diversifying agenda

The $1.1 billionformer farmer-owned co-operative listed publicly on the Australian SecuritiesExchange nine years ago and hasn't stopped grabbing at consolidationopportunities since.

It has diversifiedfrom its NSW South Coast home base to take full ownership of Tatura MilkIndustries in northern Victoria in 2011; the former Kraft grocery brandsbusiness, including Vegemite, bought in 2017 for $460m; Queensland's PeanutCompany of Australia, bought for about $10m in early 2018, and then the $250mpurchase of Koroit six months later.

Along the way it alsounsuccessfully bid about $500m for Warrnambool Cheese and Butter in 2013, andlost a play for a leading stake in Queensland-based Capilano Honey in 2018.

Mr Irvin said BegaCheese's diversification had proven particularly valuable when droughtconditions savaged milk supplies in many areas last year.

Geographic and productdiversity also helped Bega manage a turbulent 12 months of bushfires,coronavirus pandemic, global market collapse and dramatic changes to consumerdemands and government policy.

"We must be alertto recognise opportunities and challenges across our entire milk supplychain," he told shareholders.

"We haverecognised for some time the challenges facing northern Victoria given theincreased frequency of drought and upheaval associated with government waterpolicy.

"We've thereforerefined our business at Tatura to focus on higher value nutritionals and creamcheese and purchased Koroit in western Victoria to increase our geographicfootprint, reducing our climate risk to supplies, and to expand our customerportfolio."

It's all about strategy

Good strategy wasvital in the food and agriculture game, he said.

"Unfortunately,far too often, we've seen the consequences of inconsistent strategy or a lackof understanding of the risks and opportunities.

"In 2019-20 wehave managed and continue to manage all that has come before us - in fact,we've done better than that."

Bega had deliveredgrowth to $1.5b for the year, strong cash flow of $138m and cut its debt by$52m to $236m.

Statutory profit rose to $21m bolstered by a10.5 per cent growth in the company's retail grocery market, including thelaunch of its B honey and Happi nutraceutical product range, plus many newproducts within its core peanut butter and Vegemite categories.

The new nutraceuticalrange was made possible, in part, by Bega's big expansion in lactoferrinproduction at Koroit which has lifted the company to become one of the world'sbiggest producers of the high grade nutritional ingredient.

Nutritional setbacks

On the downside,nutritional powder demand was undermined by coronavirus disrupting daigouchannel sales and bulk exports to China, while some other longer term customershave also dropped off in recent years.

With Koroit nowchurning out big volumes and providing strong earnings growth potential, Begawas developing new sales footholds in Indonesia and other countries.

It has also spread itsprocessing activities into goat milk formula.

Mr Irvin said whilemilk supplies were still tight in Australia, it was pleasing higher easternstates rainfall trends had returned enabling more farm output and stablisingthe procurement environment.

Last financial yearnational milk production slipped to 20-year lows of 8.8b litres.

He has also welcomednew competition from milk brokers entering the market to negotiate better dealson farmers' behalf.

The third partyplayers offered producers optimistic prospects for better returns from theirindustry, especially while the milk pool was so short on volume.