Now that the August reporting season is coming to a close, it’s time to take stock and look at what we can learn from the past financial year.
We took a snapshot of the reports from 8 Australian manufacturers:
- Gage Roads Brewing
- Treasury Wine Estates
- Bega Cheese Group
- Bellamy’s Organic
- A2 Milk
- Freedom Foods
- BlueScope Steel
So, what did we find in FY19 reporting?
Here’s the short version…
Revenues are increasing at a much faster pace than profits, which, in some cases, are shrinking. There are lots of reasons for this, but predominantly it’s because manufacturers are being crunched from either side with higher input costs (e.g.due to the drought) and price pressure from supermarkets.
The good news is that many of the manufacturers are already addressing these issues by investing in operational efficiency, automation and brand protection to maintain or grow margins.
For the full story of FY19 reporting, here’s an overview of each company and the key themes…
Gage Roads Brewing
Gage Roads Brewing Co. Ltd (ASX: GRB) is one of Australia’s largest independent breweries. In August, it reported that gross profit was up 26% to $25.5 million. Turnover for 2018-19 rose to $39.7m, with the company hailing another year of “strong growth”.
The big question is, what’s behind the growth?
Gage Roads puts it down to greater consumer awareness and expansion into independent channels. This has seen sales volumes more than double with independent retailers, up from 1 million litres in 2019 to 2.4 million litres this year.
Gage Roads is also investing in plant improvements to drive efficiencies and reduce waste, leading to lower operating costs and improved earnings. It has invested $8m in a packaging line extension program, which will see the installation of a new commercial scale canning line, high-speed bottle filler and other plant improvements.
Still to be completed, the extension program will provide a new can format, which is something Australian drinkers are actively looking for. In fact, the purchase of craft cans has grown from 11% to 17% within one year, according to Beer & Brewer.
Treasury Wine Estates
One of the world’s leading wine companies, Treasury Wine Estates Ltd (ASX: TWE) announced a double-digit increase in net sales revenue of 17% in FY 2019. This represents the strongest organic growth rate in Treasury Wine Estate’s history.
While all its four regions (the Americas, Australia and NZ, Asia and Europe) performed well, unsurprisingly, the strongest performer was its Asia business, boasting 43% EBIT growth to $293.5m. The company reports that this was driven by better availability of the company’s luxury and masstige wines and growing demand for its portfolio of brands in Asia.
Another reason behind its strong results is its Simplify for Growth program, first launched in 2018. The program is all about focusing on operational efficiency, enhanced returns on brand building investment and growth opportunities.
Bega Cheese Group
Despite a challenging operating environment for the dairy giant, Bega (ASX: BGA) reported a 13% increase in revenue in FY19.
Bega reports that the year just passed represents “possibly the most difficult year for the dairy industry since deregulation – with the last quarter the worst”. The drought, combined with high costs for water, feed and power, have all had an impact on the industry, and therefore on Bega.
According to Bega CEO Paul van Heerwaarden, the reason it could post revenue increases (even though they were below expectations) is through diversification and innovation.
Innovation is just one of the strategies SPC Ardmona used to help its business stabilse and then grow.
Asia is a growth market for Bega, thanks to a growing middle class who are increasingly seeking quality and healthy Australian food products. For instance, there’s a growing appetite for westernised bakery items, which means a higher demand for butter and cream cheese. As a result, export branded revenue has grown by over 4%, driven by consumption in SE Asia and North Asia.
Bega recognises that to attract and retain this growing Asian customer base, it needs to invest in consumer-led marketing and innovation programs, together with high quality levels.
Global Food Forum wrap-up: how Australian food manufacturers can become Asia’s deli.
Another highlight of Bega’s report is its focus on Industry 4.0. Working with Swinburne University, the company is piloting Industry 4.0 initiatives to not only ensure its operations continue to be globally competitive, but to make sure they are ready to adopt and adapt to new innovative technologies – including machine learning.
One such initiative is a trial that’s related to early visibility of quality data for inbound milk using on-farm sensors. This will help improve product quality and consistency at the point of collection.
FY19 was a difficult year for Tasmania-based infant formula maker Bellamy’s Organic (ASX: BAL). The company reported a net profit of $21.7m, down nearly 50% from FY18’s $42.8m profit. Revenue was down 19% to $266.2m, and EBITDA was down 46% to $34.9m.
Why such disappointing results?
The company blames it on stiff regulation, a lower birth rate, and increased competition for Chinese demand for infant formula. The regulation it’s referring to is Beijing’s new rule to tighten the sale of overseas infant formula into China, encouraging local companies to buy foreign dairy producers.
Yet for Bellamy’s CEO Andrew Cohen, things are looking up and the company has plans to improve the bottom line. Bellamy’s has doubled investment in both marketing and its China capability to better engage customers.
Here’s how Camperdown Dairy International handled its market entry into China with infant formula.
CMC Markets’ chief market strategist, Michael McCarthy, said the result was slightly below analysts’ forecasts and noted the stock was close to its record high.
Again, this story is about growing market share in China. Revenue from China and other Asian countries increased 74% to $NZ405.7m.
A2 Milk (ASX: A2M) posted a 46.1% rise in profit, with $NZ413.6m ($A391m) in earnings before tax. However, this was substantially less than the $NZ431.3m for which investors had hoped.
A2 has signed a deal with Chinese e-commerce company jd.com, which will provide a welcome boost in the wake of China’s plans to reduce reliance on imports of infant formula. The partnership will support their directive to increase direct marketing to the Chinese consumer and continue to grow market share.
The Freedom Foods Group Ltd (ASX: FNP) was another good news story. The company, whose brands include Australia’s Own, Freedom and So Natural, posted a 40.1% increase in operating net profit to $21.9m with a 34.9% increase in sales to $476.2m.
This was driven by strong sales growth in two segments: dairy & nutritional ingredients with 79% increase in sales to $249.3m, and plant-based beverages with 29% to $104.9 million.
Freedom Foods puts this down to strong demand across Australia, China and SE Asia, especially in dairy, plant-based beverages, and cereal and snacks.
The company isn’t solely relying on strong sales though – it is investing in operational efficiencies with additional filler and packaging capabilities, and automated packaging processes.
The world’s third-largest manufacturer of painted and coated steel products, BlueScope Steel Limited (ASX: BSL), announced a full year profit of just over $1 billion, yet a 35% fall in net profit after tax of $1.016m.
The annual report shows how the company is leading the way with automation initiatives across key manufacturing sites. It is investing in robotics and automation opportunities to unlock the next wave of productivity improvements and cost savings. For example, automation of coil storage and processing for roll-forming is eliminating the need for forklifts, reducing costs and safety risks, and improving line efficiency, accuracy and throughput.
The company is also using advanced analytics to improve the performance of the value-in-use model, which informs the sourcing and usage of raw materials.
Find out how BlueScope protects the integrity of products in its premium Colorbond brand, which has high recognition and desirability among end users.
Australia and New Zealand’s largest integrated poultry producer, Inghams Group Limited (ASX: ING), reported a 10.1% increase in NPAT to $126.2m.
Like A2 Milk and Bellamy’s, the company has been operating in a challenging environment with high chickenfeed costs (due to the drought) and production line “bottlenecks”. Yet, as Inghams outlined in its 2018 annual report, it is focusing on improving efficiencies in its operations with an investment in automation to improve yields, reduce unit costs and improve utilisation of assets.
A big focus in 2019 was consolidation of its further processing network in South Australia, Victoria and New South Wales. The goal was to increase the productivity of the remaining sites, though this isn’t yet complete.
So what have we learnt from the FY19 reporting? You can’t control the environment, regulations or consumer demand. But you can prepare for the future by taking control of your operations and focusing on efficiency.
Look at how you can automate processes for better efficiency and quality control. How can you collect the right data to make better decisions about products and processes? These are steps you can start taking right now to lay the foundations for a stronger future.
Talk to our experts about automating your processes for better efficiency and QC, and how to collect the right data.
Image credits: iStock/ triloks (main); iStock/ pamspix (2nd)