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Following a sales process that has taken 13 months to ferment, the Bega Group (ASX: BGA) is bolstering its balance sheet through a deal with Charter Hall (ASX: CHC) to divest its property at 1 Vegemite Way in Port Melbourne for $114.6 million.
Bega will lease back the property, which produces such branded products as Vegemite and Bega Peanut Butter, for an initial term of 15 years with two additional five-year options.
What Charter Hall is shelling out for the site will deliver a modest pre-tax statutory profit for Bega, and will also help to pay down part of the food manufacturer's net debt which stood at $321.4 million at the end of 2022.
"The funds from the sale will reduce debt and further support the Bega Group’s strategy and transition to a company focused on market leading brands," the company said.
The buyer recently pulled out of a planned $248 million acquisition of Brisbane's Treasury casino building.
As Bega gears up to report EBITDA at the lower range of its $160-190 million guidance in FY23 amidst "extremely robust competition" for farm gate milk supply going into FY24, the group has outlined the potential for a non-cash impairment of its bulk dairy ingredients assets.
"Given the continued decline in Australian milk production including a reduction of over 700 million litres in the last two years or 9 per cent and relatively minor industry rationalisation, the Bega Group now expects the intense competition for raw milk to continue beyond this year," the company said.
In contrast, the Bega Group is "pleased" with the performance of its brands segment over the past nine months despite the challenges of input cost increases - not just for raw milk, but also for packaging, logistics and energy.
"These cost increases have seen the Bega Group further invest in continuous improvement programs and technology in our facilities and successfully realise price increases in the market," the company said.
"The Bega Group has experienced both volume and value growth in our branded products with customers continuing to demonstrate a strong loyalty to the brands.
"The Bega Group’s portfolio of brands including Vegemite, Bega Peanut Buter, Dare, Farmers Union, Yoplait and Daily Juice, continue to hold leading market positions, while we have also seen growth in our white milk brands and success in the convenience and food service channels."
In addition to a business simplification plan that is expected to cost $21 million but generate equivalent annual savings on an ongoing basis, the company will also "continue to review opportunities" across its extensive property portfolio.
The business simplification program will include tax consolidation incurring a one-off after tax cost of $10-$15 million, back office streamlining, refined customer engagement systems and product range review.
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