Bega Cheese FY 2020-21 results reveal boost following Lion acquisition

Bega has thrived during the pandemic, but it is looking at a decline in demand when it comes to the infant formula market.

Bega Cheese executive chairman Barry Irvin on his Bega Valley dairy farm. Picture: Robert Hayson

Sales revenue at Bega Cheese has pushed past the $2 billion mark with the food manufacturer posting its financial year results today.

The dairy giant attributed much of its strong profit lift to the $528m acquisition of Lion Dairy and Drinks in the 2020-21 financial year.

Bega posted a 24 per cent lift in profit after tax to $39.6m. Pre-tax earnings jumped 38 per cent to $141.7m.

Bega executive chairman Barry Irvin noted the Lion acquisition resulted in Bega more than doubling its size in terms of annualised revenue and employees.

The food manufacturer now has one of the largest cold chain distribution networks in Australia — allowing it to significantly increase its proportion of sales from branded products from 59 per cent to more than 80 per cent.

“The importance of consistent strategy and strong values is never more evident than in times of uncertainty,” Mr Irvin said.

“Our capacity to be agile and change, while remaining confident in the core direction and strategy was again tested and on display (last financial year) as we executed the acquisition of Lion Dairy and Drinks.”

However, Bega management has warned of an ongoing softening of demand in the infant formula market, mainly due to the growing Australia-China trade disconnection.

Today’s market overview from Bega reflects a trend within the Australian dairy sector of reportedly softening sales into China in recent months.

However, Dairy Australia market analyst John Droppert said there are stark differences in conventional and unconventional Australia-China dairy trade.

The ‘daigou’ market — a Chinese term for surrogate shopping — helped drive huge demand for infant formula in Australia pre-pandemic, with Chinese students and workers exporting tins back to the economic powerhouse.

However, Mr Droppert said there are far fewer daigous based in Australia since mid last year and the unconventional trade has declined as a result.

“Dairy exports into China, formal exports into China, are still very strong. In general, it’s up on last year,” he said.

“But when it comes to informal supply, the daigou market, that has changed significantly. We have fewer students from China now in Australia, and so that trade has declined as a result.”

Bega’s consolidated debt lifted $94 million to $325 million, primarily due to the Lion takeover — but Bega said this was offset by operating cash inflows of more than $111 million.

Bega Cheese announced a final fully franked dividend of 5 cents per share for financial 2021, taking the total dividend for the year to 10 cents per share.

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