Bega Cheese has predicted a weak financial year ahead with the diversified food company's shares dropping 17 per cent to a 52-week low of $3.76 on Tuesday.
The continuing drought has led to a reduction in total Australian milk production, and increased competition for milk and increasing ongoing cost of milk across the industry, the company, with a workforce of over 2000, said.
"We have previously advised that conditions impacting FY2019 would continue into FY2020. This has proven to be the case, but at a faster and deeper rate," chairman Max Roberts said.
"To remain competitive Bega Cheese today [October 29] announced an increase in its Southern Region milk price and other initiatives to sustain and grow milk supply.
"This higher milk price will directly impact Bega Cheese's earnings in FY2020," he said.
Unprecedented competitive milk supply conditions and easing demand from third party branded businesses are also being blamed for the weaker predictions.
As a result, company management expects its normalised EBITDA, or earnings before interest, tax, depreciation and amortization, to be somewhere between $95 million and $105 million over the next financial year, compared to $115 million in the 2019 financial year.
"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," CEO Paul van Heerwaarden 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.
"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 FY 2020."
The company held its annual general meeting on Tuesday, electing former KPMG partner and Institute of Company Directors fellow Patria Mann as a company director.
Mr Roberts, a longstanding director did not seek to be reelected, but will remain on the board in place of executive chairman Barry Irvin who is currently undergoing chemotherapy and is expected to return next year.