Bega Cheese half-year profits jumped 48 per cent despite challenges related to COVID-19.
The company's interim report for the half year to December 26 released on Thursday revealed a jump of 48pc in earnings before interest, tax, depreciation and amortisation (EBITDA) compared with the previous year to $97.2 million.
The normalised EBITDA - excluding costs associated with the Lion Dairy and Drinks acquisition and termination fees with Reckitt - was $106.4 million, an increase on the previous year of $33.4 million or 46%.
Revenue jumped 113pc to $1507.2 million with the former Lion business contributing $787 million.
COVID delivers cost hit
The company revealed that COVID-19 disruptions delivered a $20 million hit to the bottom line in the first half of the financial year.
Prices for direct and indirect internationally sourced materials, including fuel, packaging, resin and coffee, were hit by global supply chain pressures.
"Many suppliers of these products were unable to meet delivery windows creating interruptions to manufacturing schedules resulting in increased operational costs," the company said.
The spread of the Omicron variant in Australia created significant disruption to the local supply chain.
"The business suffered from significant absenteeism across Bega manufacturing sites and those of our suppliers, which placed pressure on production volumes and service levels and resulted in large cost increases," it said.
"Additionally many of our customers in the non-grocery channels were not able to open or suffered from reduced foot traffic."
Significant direct costs including buying personal protective equipment and rapid antigen tests, as well as undertaking deep cleaning.
The company said the strong financial result demonstrated the resilience of the expanded Bega Cheese business and the importance of the diversity of the markets the company services.
Lion acquisition delivers synergies
Bega said the synergy benefits planned from consolidation of the Lion Dairy Drinks business were progressing well.
"Headcount savings have been realised and the procurement and milk optimisation initiatives are on target," it said.
The company also pointed to strong international commodity prices supporting improved milk pricing to farmers and offsetting some of the impact of changes in the infant nutritionals market.
It said milk supply in Australia was stable to slightly negative resulting in robust competition for milk.
Capital projects underway
The company said it had a number of large capital projects underway across yoghurt, nutritionals and white milk.
These were on target to derive material benefit for the business in FY2023.
"Significant investments in the cold chain network are being assessed with the purpose of enhancing customer experience and improving cost to serve," it said.
READ MORE: Bega Cheese revenue up with purchase of Lion
Bega also completed the termination of the service and access agreements with Reckitt for Derrimut, Vic, and MSD2 at Tatura, Vic.
"The Derrimut canning site has been successfully exited and a contract canning arrangement has been entered into with a successful transition of customers," it said.
"The right sizing of the nutritional operations at Tatura has commenced and is tracking successfully."
Bega said it continued to see significant growth opportunities emerging over the medium term.
These included from optimising milk usage, leveraging cold chain scale and reach, and ensuring a strong pipeline of product development in categories such as yoghurt, milk-based beverages, spreads and white milk.
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