Earnings for Tatura Milk have been hit by reduced milk supply and a weakening in Chinese infant formula demand, the factory's owner, Bega Cheese, has reported.
“Severe drought across many dairy production regions has resulted in an increased cost of farm inputs and national milk production has continued to decline, putting sustained pressure on farm gate prices and availability of milk for processing,” the company reported.
“This has particularly impacted our Tatura operations in northern Victoria. Total milk processed from direct supply and through toll manufacturing arrangements was 4.6 per cent below the prior year.”
Bega Cheese reported earnings of $39 million in the first half of 2020, impacted by falling milk supply and reduced margins in the dairy industry.
The company also pointed to reduced Chinese demand for infant formula as having an effect on its dairy processing results.
On the positive side, the company's Vegemite brand grew slightly and Bega peanut butter increased market share.
Bega Cheese pointed to its purchase of the Koroit factory and the construction of a new lactoferrin plant, due for commissioning in April, and the signing of a three-year supply agreement.
Overall, revenue is up by about 14 per cent compared to the same period in 2019 and earnings before income tax is down 12 per cent, to $17 million.
“Bega Cheese remains in constant discussions with domestic and international suppliers and customers regarding the potential impact of COVID-19 on ours and their businesses,” Bega Cheese said in a statement.
“At this stage, our supply chain and customer shipments have not been materially impacted by the virus; we continue to monitor any potential direct or indirect impacts.”
In an overview of the business, the company pointed to its moves towards diversity in the business, including its divestment of a spray dryer at Tatura and a facility in Melbourne in 2017 and the acquisition of the Koroit dairy factory in western Victoria.
The company also purchased the Mondelez Grocery business in 2018.
The Bega share price slipped to about $4 when the results were announced on March 2, but recovered to about $4.40 last week.
The company announced a 5¢ dividend.