News

Nespresso’s famous pods, first developed in 1988, are manufactured in Switzerland and then shipped to 81 countries around the world. But when it comes to brewing fresh ideas and new technology, the maestros of capsule coffee often take their cues from Down Under.

“We bring innovation from the market to the head office because they realise and recognise that a lot of trends start here in Australia,” says Nespresso Oceania managing director Stefan Vermeulen.

He points to a framed visual of the Creatista machine, which along with the Vertuo machine was conceived in Australia, a top 10 revenue-driving market for Nespresso. “This is one of our best-selling machines across the world.”

Vermeulen has recently relocated to Sydney to step into his new role as head of the company’s Australia and New Zealand markets. A Belgian national, the managing director started with Nestle-owned brand in 2011 as an account manager and then climbed the ranks to do a 4.5 year stint as the head of Nespresso Professional Australia, the corporate office, food service and hospitality arm of the business, before leading NZ operations for 3.5 years.

As regional managing director, Vermeulen will focus on defending Nespresso’s position as the market incumbent and protecting its brand as a high-quality premium coffee capsule, particularly as economic pressures, such as mounting interest rates and higher grocery prices, bite into household budgets.

“I think, moving forward, portioned coffee is really the system that’s going to prevail,” he says.

“In an environment of cost of living [pressures], to provide a solution that brings a … no-barista-required experience in your home, this is not only in terms of quality the best way to do it but also a sustainable way to do it because of its precision consumption design.”

But competition in the coffee space is fierce: Vermeulen is conscious there is no shortage of ways to consume coffee at home, something that 67 per cent of Australians do. Instant, ground, roasted whole beans, filter coffee, cold brew, and ready-to-drink coffees such as Dare all vie for consumer dollars that are increasingly being carefully counted and driving customers towards more affordable private-label brands.

Bega Cheese says it has gained market share and margin momentum in the second half of the year following significant cost increases in the first quarter.

For FY23, the dairy company achieved a revenue of $3.4 billion, marking a 12 per cent rise from the previous year. It closed the fiscal year with a net debt of $203.6 million and a reduced leverage ratio of 1.6 times.

Statutory EBITDA (earnings before interest, tax, depreciation, and amortisation) was $144.1 million, with a post-tax loss of $229.9 million significantly impacted by non-cash asset impairment of $230 million.

Meanwhile, normalised EBITDA was $160.2 million, with a profit after tax of $28.5 million. 

According to Bega, its strategic decisions in the past five years played a pivotal role this year as it navigated “difficult and rapidly changing” conditions.

The implementation of price adjustments, cost reduction initiatives, and a stream of new products significantly improved the financial performance of the Branded segment, particularly in the latter part of the year.

However, the continued decline of milk production and excess milk manufacturing capacity have created a highly competitive environment and a disconnect between returns from globally treated commodity markets and Australian farm gate milk prices.

Bega said this scenario will continue for some time, resulting in a non-cash impairment and a strategic decision to right-size some of its commodity assets.

Reflecting on the results, executive chairman Barry Irvin emphasised the company’s strategy to shift to a predominantly branded business model.

“The non-cash impairment of our bulk commodity assets reflects industry circumstances and reinforces the importance of our strategy to transform to a predominantly branded business,” said Irvin.

“The right-sizing of our commodity assets and their further integration with our branded business creates a great platform for the support and growth of our brands while maintaining the capability to respond to changing market circumstances.”  

Looking ahead, Bega has outlined a restructuring and simplification program to accelerate its transition to an integrated, predominantly branded business.

Listed Australian olive oil grower and processor Cobram Estate Olives, has recorded a 21 per cent year-on-year boost in sales, to $169 million for the last financial year as its foray into the US pays off. 

The majority of the sales – $117 million – were from its Cobram Estate brand – the top-selling olive oil in Australian supermarkets – and its newer Red Island brand, which collectively rose by 17 per cent. 

Sales of Cobram Estate in the US surged 69 per cent and turnover in the market reached $43 million, up by 46 per cent. 

In a results presentation, the company reported a higher-yielding crop last year to 12.5 million litres, offset by a lower margin as the price of producing packaged goods rose. 

However, looking forward, the company says the Australian olive oil crop is down this year, however, it still expects to have sufficient oil for its packaged goods targets. 

“The sales outlook remains positive, benefiting from a global shortage of olive oil and record high global prices of European olive oil flowing through to both Australia and the US,” the company said.

Established in 1988, Cobram Estate Olives is Australia’s largest producer and marketer of premium quality extra virgin olive oil and owns more than 2.6 million olive trees across 7000ha of farmland in Victoria, and a further 334,000 trees on 558ha in California.

Maggie Beer Holdings’ new chief executive says the gourmet food producer will be able to withstand lower consumer spending after posting a drop in sales and cutting the value of its gifts and hampers business.

Kinda Grange, who took the helm in March, said the strength of the Maggie Beer brand in sauces, cooking stock and bone broth would help offset a trend where shoppers are trading down to cheaper products in other categories as higher interest rates and energy bills hit household budgets. But she acknowledged there were uncertainties in the economy and fluctuations in different product segments.

“It’s up and down across the business,” she said. Ms Grange said the lead-up to Christmas would be crucial for the company’s fortunes because of its natural skew toward gift-giving.

Maggie Beer Holdings suffered a 1.4 per cent drop in revenues to $88.7 million for the year to June 30. The online hampers business, Hampers & Gifts Australia, acquired for $40 million in 2021, recorded a 7.5 per cent fall in sales.

The company reported a net profit of $462,000 compared with a loss of $12.3 million a year earlier when its finances were affected by one-off expenses.

The online Hampers & Gifts business provided a one-off $14 million injection to bottom-line profits this year because it did not meet financial hurdles agreed upon with the vendors, resulting in a reversal of a provision the company had previously made for an expected earn-out payment.

But Maggie Beer Holdings wrote down the value of the Hampers & Gifts by $12.5 million.

Maggie Beer Holdings shares slipped 10 per cent to 13.5¢ by mid-afternoon on Monday.

The shares have halved in the past year from 33¢ at the end of August last year and were as high as 60¢ in February 2022.

Ms Grange said she kept an eye on the share price but that, ultimately, a disciplined implementation of growth plans would turn things around.

The strategy was set, and strong disciplines on cost would help mitigate inflation, she said. “The share price will hopefully follow.”

Ms Grange also wants to find a way to further harness the star power of celebrity chef Maggie Beer, who is a director of the ASX-listed company.

Ms Grange said Maggie Beer Holdings hadn’t lost faith in Hampers & Gifts, which she described as a good growth business for the long term that would be an important platform in the future. Users weren’t cutting back on the size of orders despite the more difficult economic conditions, she added.

The company is banking on an expansion of Maggie Beer-branded ice creams into larger supermarkets, scheduled for October, to contribute to higher sales this year.

Ms Grange, a former Goodman Fielder executive, wants to more than triple annual sales in five years to $300 million and expand into lifestyle, entertaining and gardening products.

The company is already expanding its range of baking and cooking products under the Maggie Living banner, through which it is selling wooden spoons and rolling pins.

Maggie Beer Holdings has retained its troublesome Paris Creek Farms premium milk and dairy products business after being unable to find a buyer at the right price. It generated a 10.5 per cent increase in sales in 2022-23 to $16.3 million, but margins shrunk.

The Maggie Beer business was established by the chef in the 1970s, selling through a small shop beside her Pheasant Farm restaurant in the Barossa Valley in South Australia.

They sold the gourmet foods business to the ASX-listed Longtable group in a two-tranche deal in 2016 and 2019, and it later changed its name to Maggie Beer Holdings.

Marley Spoon boss Rolf Weber says Australians are hanging onto their meal kit subscriptions, but they are also switching to budget pre-made food brands in another sign of penny-pinching among cost-conscious shoppers.

Weber said better customer retention rates and larger-value orders at Marley Spoon are a sign of strengthening consumer confidence, although he says the meal provider’s most affordable brand, Dinnerly, is becoming more appealing as the economy slows.

“Marley Spoon customers who see value in meal kits but may have to tighten the belt a notch, we see them moving to Dinnerly,” Weber said.

“They still get great value food, high-quality ingredients, but it’s a little bit simpler where we can offer [a] different value price point.”

Weber will look to expand Dinnerly’s ‘saver’ meal range that he said was seeing higher customer adoption. In April, Marley Spoon implemented a price freeze on Dinnerly’s subscription rates until the end of September, though the chief executive hinted at an extension.

“[The price freeze] certainly has been very well accepted, and while we may not put an official number to it, we will continue to hold our prices which we’ve been holding now for over a year,” he said.

“We are very confident that we won’t be increasing prices. If anything, we probably give something back to the customer, be it more on the plate, or lower cost.”

Climbing interest rates and inflation over the past 18 months have seen Australians shut their wallets to major retailers like Myer and flock to Kmart and Target instead, making retail bosses like JB Hi-Fi chief Terry Smart wary about further challenges in the trading environment ahead.

The trend of ‘trading down’ has seen people opt for private label brands at the supermarket and move from dining out to eating at home.

“[Customers] are telling us they are reducing spend on things like visits to the hairdresser and beauty services, entertainment, and gifts. Eating out, takeaway and coffees from the cafe are increasingly being seen as treats for a special occasion,” Coles chief executive Leah Weckert said last Monday.

“Unsurprisingly, they are looking for more specials, more affordable brands, and more affordable cuts of meat. Many of them are meal planning, stretching out the time between purchases of less urgent items such as cleaning and household items. And they are looking to catalogues, loyalty programs, and in-store markdowns to make their budgets go further,” she added.

At the same time, supermarket giants Coles and Woolworths have flagged double-digit spikes in shoplifting, a trend happening around the globe.

NAB chief executive Ross McEwan said the bank was seeing many people budgeting for the first time and saving $300 on average a month.

“A story close to home at NAB – in our offices we’re seeing long queues at the complimentary coffee machines as our colleagues swap a $5 takeaway for a free office brew. Nobody was using these machines a year ago! But I am delighted they want to be back in the office, so no complaints,” McEwan said in a speech last Thursday.

Shoppers will be forking out more for grocery basket staples owned by Bega Group, including its Dairy Farmers and Pura Milk products, Vegemite and its flagship cheese brand, in the months ahead as the food group faces higher operational costs.

Bega Group’s executive chairman Barry Irvin said impending price rises would be “nothing as dramatic as we’ve seen in previous years”, but that operating costs like energy, logistics and fuel were still putting pressure on the company, which was unprofitable for the 2023 financial year.

“There are some rises in our business. Obviously, we look to try on each of them, but inevitably, some of them do have to be passed through,” Irvin said.

Irvin declined to comment on the size or percentage of the expected price rises, but said the increases would be spread across its portfolio of brands.

“I wouldn’t say that any of them are actually more protected than any other. They all absorb a share of costs,” he said. “We obviously consider carefully how we can mitigate the cost to the consumer and indeed, even how we can effectively take opportunity of promotions of products.”

Spikes in global dairy prices, dwindling milk supply, and escalated costs in fuel and energy saw Bega Group’s earnings and profits nosedive over the past year.

While revenue rose 12 per cent to $3.4 billion, higher interest rates and a 30 per cent increase in the farmgate milk price were responsible for driving Bega’s normalised profits down 38 per cent to $28.5 million and earnings down 11 per cent to $160.2 million for the 2023 financial year. Two of its bulk commodity plants were revalued, leading to a $230 million write-down that resulted in a statutory loss of $229.9 million.

The losses haven’t deterred investors, however, who sent the share price 1.25 per cent higher to close at $3.23.

The dairy and cheese giant will pay a fully franked dividend of 7.5 cents per share for the 2023 financial year, which is down from 11 cents the year before. The final dividend will be paid on September 21.

In a tightening economic environment where shoppers are turning to private-label brands, Bega’s well-know brands managed to hold its own, according to its results.

“We retained our market leading position in the yoghurt, milk-based beverages and spreads categories, with our yoghurt brands now accounting for more than 25 per cent of the high-growth yoghurt market,” executive chairman Barry Irvin and CEO Pete Findlay wrote in a joint address.

The dairy giant is paying attention to the popular trend of plant-based products. Earlier this year, it launched a plant-based cheese range that attracted online criticism from some shoppers.

After being pushed out of the plant-based beverages market, Bega has struck a deal with Milklab maker Noumi, another loss-making ASX-listed company, to distribute the popular plant-based milk to 30,000 customers a week.

The $1 billion business is considering how else it can enter the plant-based space, with Irvin earmarking Dare iced coffee as one of the brands that could release a plant-based milk offering.

However, the ASX-listed company expects more difficulty on the road ahead, warning of “relatively flat” financial performance for the 2024 financial year, normalised earnings to fall between $160-170 million (similar to what it unveiled this year) and expects a more positive outlook in the “medium term”.

UBS director Evan Karatzas said Bega’s 2024 financial year profit guidance was “broadly in line” with pre-reported commentary. “Cash generation improvement in FY24 [will be] a high focus after disappointing this year,” he wrote in a note.

E&P Capital retail analyst Phillip Kimber noted Bega’s share price had recovered 12 per cent since its June trading update and anticipates the share price will remain around current levels.

Mondelez International has partnered with packaging manufacturer Amcor to invest in recycling tech company Licella, in support of a more sustainable supply chain.

The investment will help Licella build an advanced recycling facility in Victoria that uses its Catalytic Hydrothermal Reactor (Cat-HTR) technology.

The Cat-HTR technology uses hot pressurised water to continuously recycle end-of-life plastic into a crude oil substitute that can be used to create food-grade plastic packaging.

Through Amcor, the confectionery giant will gain access to recycled content for its soft packaging, significantly reducing its need for virgin plastic. 

Christine Montenegro McGrath, senior VP and chief global impact and sustainability officer at Mondelez, said there is a gap in sustainable recycling solutions, and the investment will scale the infrastructure and technology needed to create a more sustainable future for plastics.

“Our packaging strategy is focused on using better packaging and helping to build better systems,” said McGrath. 

The new facility is expected to process about 20,000 tonnes of end-of-life plastic per year, with plans to scale up to 120,000 tonnes per year.

Australia’s Treasury Wine Estates said on Tuesday it was well positioned to deliver growth in fiscal 2024 after the winemaker reported a 3.3 per cent fall in annual profit, mainly hurt by lower sales in the United States.

The Melbourne-headquartered company expects demand for luxury wine to grow globally this year, led by its Penfolds label, and with potential upside from improving relations between Australia and China.

However, luxury wine sales growth is expected to be modest in its highest revenue-generating segment, Treasury Americas, before picking up from 2025.

“Outlook commentary appears to support consensus forecasts for Treasury Wine with potential additional upside from improved China relations,” analysts at Jefferies wrote in a note.

Treasury said continued improvement in Australian and Chinese relations after a years-long diplomatic freeze could see a lifting of Chinese tariffs on Australian wine.

The world’s biggest standalone winemaker previously drew a third of its profits from China before anti-dumping and subsidy tariffs of up to 212 per cent were imposed on Australian wine, effectively ending sales, in 2020.

Treasury shares were up as much as 1.8 per cent during early trade, while the broader market was 0.4 per cent higher.

Australia’s largest wine maker reported a net profit after tax of A$254.5 million for the year ended June 30, compared with A$263.2 million a year earlier, with a fall in premium products shipments and low availability of luxury wines pressuring sales at Treasury Americas.

The wine maker had previously flagged challenging market conditions and a weak consumption outlook for its commercial-grade wine, especially in Australia and Britain, which it reiterated on Tuesday.

Treasury Wine declared a final dividend of 17 Australian cents per share, higher than last year’s dividend of 16 cents.

The company also said it had appointed John Mullen as its chairman. He will succeed Paul Rayner, who will leave the company on October 16.

Rayner had been associated with the company for more than a decade and started as a non-executive director of Treasury Wine since May 2011.

The Australian wine industry could grapple with years of oversupply, even if China’s anti-dumping tariffs are removed early, according to Rabobank’s Wine Quarterly Q3 2023 report.

Despite improving trade relations and the recent removal of China’s tariffs on Australian barley, Rabobank says even in a “best case scenario”, the wine industry may require at least two years to address its surplus. 

The Rabobank report said that Chinese anti-dumping tariffs on Australian wine have disrupted the wine industry, with exports decreasing 33 per cent over the past two years.

With the tariffs coinciding with substantial growth in production and logistics bottlenecks from Covid, the Australian wine industry is now dealing with inventory surplus and low price levels – particularly for commercial red varieties, said RaboResearch associate analyst Pia Piggott.

“So large is the current oversupply has the equivalent of 859 Olympic swimming pools worth of wine in storage,” explains Piggott. 

“That’s over two billion litres of wine or over 2.8 million bottles,” she said.

Crushed circumstances

In the late 2010s, the beginning of China’s piqued interest in red wine contributed to the Australian wine industry’s success, Piggott elaborated.

“Driven by sustained economic growth, rising incomes, as well as the social status of wine drinking and gifting, global wine imports to China grew at an impressive 18 per cent compound annual growth rate (CAGR) in the decade up to 2017 – when they peaked at 750 million litres – elevating China to be a top five wine importing nation globally,” she continued.

Following the China-Australia Free Trade Agreement in 2015, the wine tariff was reduced from 14 per cent to zero, which helped double China’s market share from 12 per cent to 24.

This event resulted in China becoming one of Australia’s strongest value markets for red wine varietals, making up 18 per cent of export volume and 40 per cent of export value at its peak.

However, Piggott explained that several anti-dumping tariffs and “soft bans” affected various products exported by Australia between 2020 and 2021, with the wine sector taking the most hit, losing one-third of export value from its peak in 2019.

“Unluckily, the tariff coincided with an exceptional growing season and Australia’s largest crush on record,” she added.

“Wine production for the ’21 vintage increased 36 per cent year on year, which would have, in any case, caused an oversupply.”

In addition, China’s wine market has been declining in recent years, Piggott continued, with consumption more than halved from its peak in 2017 to just 880 million litres last year.

“Chinese consumers began transitioning away from wine as part of a broader decline in alcohol consumption per capita. However, declines were greater for wine than beer and spirits,” she said.

Balance and profits

According to Rabobank, the Australian wine market will stay at a surplus for a “considerable amount of time”.

It also suggests that winery acreage needs to be reduced to rationalise assets throughout the supply chain over the next five years, which can return the industry’s balance and profitability. 

“For wineries, particularly those selling commercial wine, stocks will remain high for some time as businesses slowly work through selling inventory,” said Piggott. 

“While some brands have increased bulk shipments and been able to discount stock heavily, this will need to continue for some time to rebalance the market.”

For large retailers/investors with diverse income streams, she added that the current market provides ample buying opportunities as distressed vineyard/winery assets come up for sale.

“Through this, we can expect increased consolidation of vineyards and wineries as businesses invest in expanding their distribution,” Piggott concluded.

Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, one of the world’s leading specialists in food and agribusiness banking.

Endeavour Group chief executive Steve Donohue was on Wednesday night looking forward to a good turnout at his company’s hotels for the Matildas’ semi final against England.

Mr Donohue’s company owns the Dan Murphy’s and BWS liquor store chains, and has more than 350 hotels around Australia.

He is the latest of a number of executives this reporting season who say consumer spending is holding up better than expected after a year of interest rate rises.

In discussing his company’s results, which showed a rise in net profit for the year to June 30 of 6.9 per cent to $529 million, Mr Donohue used the word “resilience” several times when discussing the outlook for customer spending, assuring analysts that this was holding up into the first weeks of the new financial year.

“We are encouraged by the resilience in our trading performance,” he said.

“Whilst not immune to shifts in consumer sentiment and economic conditions, trading has been resilient across the final quarter of F23 and in the first six weeks of the new financial year,” he said of the company’s retail business.

Analysts were disappointed that the company’s results came in lower than the market’s expectations of around $543m and as a result its shares slid.

With interest rates still rising the market is watching closely for further signs of a slowdown in consumer spending.

The good news for Endeavour shareholders was that Australians are heading back to hotels to socialise, post Covid-19.

The company, which operates the ALH Hotel Group, sold 86,000 meals across its premises on Mother’s Day and reported it had sold 172,000 tickets to events over the year.

But sales from its retail outlets were affected by the big fall off in online alcohol sales which boomed during Covid-19.

The company’s e-commerce sales of alcohol jumped from $500m in the 2021 financial year to $1bn in the 2022 financial year but came down to $850m in the 2023 financial year.

Mr Donohue is not worried about this, and regards it as natural shift back from the Covid-19 period.

The results of the group, which is the largest owner of gaming machines in the country, are also affected by changing regulation of the industry which are being tightened around Australia.

Looking ahead, Mr Donohue said the company could do well in a more cost-conscious world, whereby consumers were opting for the Dan Murphy’s assurances of offering the lowest prices for alcohol and people would head to pubs for meals rather than expensive restaurants.

Signs that inflation and interest rates might be near their peak were helping to keep up confidence, heading off fears last year and earlier this year of the economy falling into a recession.

WAM Capital lead portfolio manager Oscar Oberg told a client briefing on Wednesday that the Australian market was already pricing a recovery in consumer-exposed stocks given that investors generally looked between 12 and 18 months ahead.

“Don’t get me wrong, the economy is going to have a very tough period, but all the feedback we get on the ground is we just need confidence,” Mr Oberg said.

“The consumer just needs confidence that rates are going to stabilise.

“From our perspective we’re not even looking for interest rates to fall, we just need them to stabilise and people can readjust their budgets and then start spending again.”

In the minutes of the latest Reserve Bank board meeting released this week, the central bank noted that the Australian economy was expected to grow “well below its trend pace” for the rest of this year. Growth was expected to trough at 1 per cent by the end of this year before gradually picking up to about 2.25 per cent by the end of 2025.

The RBA has been watching the fall in retail sales in June, but noted that this followed an increase in May – and that the volume of retail sales has been “essentially unchanged since September 2022”.

But it noted that the economic slowdown and higher interest rates was having very different effects on households, depending on their exposure to debt.

The relatively tight labour market had also put a floor on consumer confidence although wages were still growing.

But while a recession is not on the cards, the outlook is far from certain.

There have been quiet lay-offs across sectors such as financial, tech, and the building and construction industry – which have yet to play through into the broader economy.

The net impact for companies is the need for a critical focus on cost control going forward.

At its analyst briefing, Mr Donohue was quizzed about his company’s cost reduction plans.

The company’s profit rise came on the back of only a 2.5 per cent rise in sales to $11.9bn.

Mr Donohue was frank about his strategy. “We like to grow our bottom line faster than our top line,” he said.

This could be a mantra for the broader corporate Australia.

He pointed out that the company had made cost savings of $90m in the two years since its demerger from the Woolworths group and was targeting another $200m over the next three years.

With wages and other costs rising, the ability of companies to hold down costs would be a critical factor in underwriting profits in the year ahead.