Bega Cheese factory workers have fallen victim to consumers’ growing appetite for cheddar and mozzarella after the firm shuttered its Coburg facility because it wouldn’t be able to meet future demand.
The dairy and spreads manufacturer said on Wednesday it had closed Coburg with immediate effect because its inner Melbourne location meant it could not be expanded to support expected growth.
Bega said some staff, who learned of the closure on Wednesday morning, would be offered jobs at other sites but that 50 would be made redundant.
‘It’s a very difficult decision for Bega; not one we’re used to making,’ chief executive Paul van Heerwaarden told investors.
The closure is expected to save the company money, but management gave no detail on whether the factory had been a drag on the business or how much it would cost to close down.
Bega expects the facility to be worth less than its book value.
‘The facility is in a difficult location in metropolitan Melbourne, and the capacity to expand or improve efficiencies at the plant was limited given its location and foot print,’ executive director Barry Irvin said.
The news came as Bega reported a 74 per cent drop in first-half profit to $5.3 million, with the company blaming drought-inflated farm gate milk prices and expansion costs for the dive.
A record milk intake following the $250 million acquisition of Koroit in August failed to shield the business from ‘difficult operating circumstances’, with rising costs more than offsetting a 5.8 per cent lift in revenue to $649.2 million.
Packaged cheese, Vegemite and nutritional products sales also fell for the period.
Mr Irvin said the company had revised its outlook to the lower end of the previous normalised earnings guidance of $123 million to $130 million.
”The first half of the 2019 financial year has been very important and successful from a strategic perspective, albeit the business has been impacted by some short-term challenges,’ Mr Irvin said.
The company said the financial impact of closing the Coburg facility has not been factored in to the half-year results, while the company will now source cheese from Bega’s other dairy sites and toll manufacturing arrangements.
The facility, located in Melbourne’s northern suburbs, was acquired by Bega from De Cicco in 2009.
Shares in the company were 0.21 per cent higher at $4.83 at 1315 AEDT.
BEGA HY PROFIT SLIDES
* Net profit down 74pct to $5.3m
* Revenue up 5.8pct to $649.2m
* Fully franked interim dividend of 5.5 cents, unchanged from last year