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  • Bega Cheese has issued its second profit warning in two months due to the rising milk prices and lower demand for its unbranded products
  • The company is expecting earnings between $95 million to $105 million for the 2020 financial year
  • It says it has plans to restructure its manufacturing capacity to meet the changing supply environment
  • Bega is down 12.1 per cent and is trading at $3.98 apiece

Bega Cheese has issued its second profit warning in two months due to rising milk prices and lower demand for its unbranded products.

In August, the company told the stock market that its yearly earnings will be lower than expected.

Bega said ‘unprecedented’ competitive milk supply and low demand from third party branded businesses has changed the profit outlook for this year.

The company is expecting earnings before interest, tax, depreciation and amortisation (EBITDA) between $95 million to $105 million for financial year 2020, compared to $115 million in financial year 2019.

Due to the continuing drought the cost of milk is expected to rise throughout the country. To cope Bega has said it will increase the price of its products.

Chairman Max Roberts says that he expected the conditions impacting FY19, would continue into FY20, but it has unfortunately come at a faster and deeper rate.

“To remain competitive, Bega Cheese today announced an increase in its Southern Region milk price and other initiatives to sustain and grow milk supply,” Max said

“This higher milk price will directly impact Bega Cheese’s earnings in FY2020,” he added.

As well as the competitive milk supply, the last quarter has seen a slowdown in
growth in key categories.

“While our branded consumer food business is continuing to grow we are seeing softening in demand for products destined for certain export markets which will adversely impact earnings in FY20,” CEO Paul van Heerwaarden said.

Bega says it has plans to restructure its manufacturing capacity to meet the changing supply environment.

The company say it plans on developing on toll and third-party manufacture relationships to ensure its efficient use of capital within the dairy industry.

“Bega Cheese is proactively responding to increased milk competition and we will continue to manage our supply chain for domestic and international trade to mitigate further downside risk,” Paul said

“We are also well advanced with internal reviews within our business to ensure our cost structure is correctly aligned to current and medium-term market conditions,” he added.

Bega is down 12.1 per cent and is trading at $3.98 apiece at 12:57 pm AEDT.

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