Bega Cheese (ASX:BGA) executives used the company’s first-half earnings call to highlight progress on a multi-year transformation program, pointing to a smaller manufacturing footprint, improving returns and a stronger balance sheet as they lift full-year guidance and step up investment behind growth categories such as yogurt and milk-based beverages.
Transformation focus: fewer sites, lower costs, higher output
Executive Chairman Barry Irvin said the result reflected “execution of strategy” and the quality of the team delivering it, noting continued investment behind the business and a focus on operating at the higher-value end of markets where possible.
Findlay also outlined changes at head office and in logistics:
- Corporate restructure that removed 250 head office roles.
- Total workforce reduction from about 4,300 full-time equivalents at the start of the strategy to about 3,400 by year-end, while producing more product.
- Reduction in distribution locations from more than 100 to about 75, which management said helped keep logistics cost per liter flat over the past two years.
Growth investments: yogurt, milk-based beverages and “better-for-you” innovation
Management emphasized that the reshaped footprint is intended to support a shift toward growth-oriented capital allocation. Findlay said the company expects to “flip” capital allocation from roughly 50% maintenance and 50% growth previously to about 70% growth projects and 30% maintenance, supported by reduced site count and improved efficiency.
Findlay cited recent investments including a yogurt pouch line introduced a couple of years ago and another pouch line scheduled to go live in June, as well as a blow molding facility at Westvale Park to produce bottles on-site for milk-based beverages.
He said product development has targeted wellness trends, including lactose-free offerings across milk-based beverages, white milk and yogurt, and a “strong” move into protein across milk-based beverages, yogurt and white milk. Findlay said protein launches exceeded internal expectations “within days rather than months,” shifting focus to supply chain capacity.
Marketing support also increased. Findlay said marketing spend rose by nearly AUD 8 million, with a focus on “power brands” and linking them with wellness and performance, supported by expanded in-house social media capabilities. He highlighted Farmers Union performance in yogurt and said the company amplified brand recognition through ambassador activity during the summer.
Branded and bulk performance: balanced revenue growth, mix management in commodities
In discussing the first-half outcome, Findlay said the branded business progressed “according to plan,” with growth in a constrained environment. He also said the bulk segment performed strongly despite a sharp fall in commodity prices during the second quarter, with mitigation achieved through targeted selling and product mix.
CFO Gunther Burghardt said both branded and bulk segments delivered 5% revenue growth in the first half. He explained that branded growth reflected about 3% price/mix to offset input costs and 2% volume growth. Burghardt maintained the company’s outlook for branded normalized EBITDA of around AUD 220 million for the full year, noting higher marketing investment was funded by earlier-than-expected benefits from structural changes in peanuts.
For the bulk segment, Burghardt said it was first-half weighted, with normalized EBITDA of AUD 41 million in the first half and an expectation of roughly AUD 45 million to AUD 50 million for the full year. Findlay cautioned that commodity pricing could face headwinds over the next 12–18 months, though he said the company’s mix—such as expansion in cream cheese and lactoferrin—has reduced sensitivity compared with several years ago.
During Q&A, management reiterated that bulk earnings are structurally variable and said it still views AUD 30 million to AUD 40 million as a long-term average range, with this year at the high end. Executives also discussed the linkage between the bulk and branded businesses, including the role of higher-value protein ingredients and cream cheese volumes supporting both segments.
Balance sheet, cash flow, and a step-up in second-half investment
Findlay said leverage has improved materially since 2019, moving from above 3x to “just above 1x,” and said return on funds employed improved from 3.7% at the start of the FY2024 strategy period to just over 10% in the first half (10.2% cited on the call). Burghardt added that ROFE is expected to land in the “mid- to high-9% range” for the full year, reflecting major second-half investments.
Burghardt said the company expects to invest between AUD 30 million and AUD 35 million in redundancies in the second half, alongside more than AUD 60 million in capital expenditure, tied to the cheese consolidation from Strathmerton to Bridge Street, the Laverton automation project, and the completion of the PCA peanut processing consolidation and exit. He said leverage would likely tick up at year-end, with net debt expected around AUD 240 million and leverage around 1.3x to 1.4x, before improving next year absent M&A.
On cash flow, Burghardt noted the company typically has negative operating cash flow in the first half due to seasonal milk intake. However, he said that excluding a AUD 45 million reduction in reliance on a trade receivables facility, operating cash flow was positive in the half. He also referenced the sale of the Frenchs Forest asset, which brought nearly AUD 10 million of cash into the business, and said investors could expect more underutilized asset sales in calendar 2026.
Guidance raised and capacity expansion plans
Management lifted FY2026 guidance, increasing its normalized EBITDA range to AUD 222 million to AUD 227 million from the prior range of AUD 215 million to AUD 220 million. Findlay said the company believes it is positioned to achieve or overachieve its FY2028 target of AUD 250 million in normalized earnings, while Burghardt said normalized EPS is expected to be around AUD 0.23 for the full year, compared with AUD 0.166 last year.
Looking ahead, Findlay said the company is planning to increase annual capital spending from about AUD 77 million (FY2022–FY2025) to up to AUD 110 million per year to build capacity in yogurt and milk-based beverages, describing current supply constraints—particularly in yogurt—as a key driver. In response to a question on capital discipline, management said projects are assessed against a three-year payback hurdle.
On M&A, Irvin said the company remains alert to opportunities and reiterated an approach focused on scale or logical adjacencies, while emphasizing the business is “very complete and very capable” and not seeking acquisitions to fill gaps.
About Bega Cheese (ASX:BGA)
Bega Cheese Limited receives, processes, manufactures, and distributes dairy and other food-related products in Australia. The company operates in two segments, Branded and Bulk. The Branded segment manufactures value added consumer products for owned and externally owned brands. The Bulk segment manufactures bulk dairy ingredients, nutritional, and bio nutrient products. It offers natural, processed, and kids snacking cheese; butter and cream cheese products under the Farmer's Table brand name; dips, mayonnaise, and dressings under the ZoOSh brand name; and spreads under the Simply Nuts, B honey, Bega peanut butter, and VEGEMITE brands.
