Bega Group to shut Strathmerton facility, invest $50m in Ridge Street upgrade

Bega Cheese Limited, trading as Bega Group (ASX: BGA), has announced a major overhaul of its operations in Australia, confirming a phased shutdown of its Strathmerton cheese manufacturing site by mid-2026. The move will see production and packaging consolidated at the Ridge Street site in Bega, New South Wales, supported by a capital investment of approximately AUD 50 million. The transition is projected to yield AUD 30 million in annual cost savings while bolstering future earnings per share.

Why Is Bega Group Closing Its Strathmerton Facility?

The decision stems from Bega Group’s broader site optimisation strategy aimed at reducing duplication, lowering fixed costs, and modernising its operational footprint. CEO Pete Findlay described the closure as a critical step toward maintaining globally competitive infrastructure and unlocking future productivity gains. The Strathmerton site employs approximately 300 staff, all of whom will be affected by the move. However, the closure will proceed in phases, allowing time for ongoing employment and redeployment support over the next 12–14 months.

What Will the AUD 50 Million Investment Achieve at Ridge Street?

The Ridge Street facility will become the consolidated hub for Bega’s cheese processing and packaging operations. The AUD 50 million capital expenditure will expand capacity, improve automation, and enable the site to absorb output from Strathmerton. Funded through Bega’s regular capital expenditure programme, this investment also aims to create approximately 100 new jobs in the Bega Valley.

Despite the upfront costs, including expected non-cash impairments of AUD 30–40 million and similar cash outflows tied to redundancies and transition support, the company forecasts a two-cent uplift in earnings per share once fully implemented. The anticipated annual savings will come from infrastructure consolidation and fixed cost reduction, reinforcing Bega’s financial efficiency.

How Is Bega Supporting Affected Workers?

Bega has emphasised a phased, respectful approach to the transition. The 300 employees at Strathmerton will be supported with redeployment offers where feasible, as well as financial and counselling assistance. The extended closure timeline allows for planned transitions and engagement with local communities and regulatory bodies. The company has also reaffirmed its commitment to retaining a strong manufacturing presence in Victoria through five other facilities across Tatura, Morwell, Chelsea, Koroit, and Port Melbourne, which collectively employ more than 1,700 Victorians.

Will Product Supply Be Affected?

Bega Group has assured customers of uninterrupted supply and consistent product quality during and after the transition. With Ridge Street’s modernisation enhancing throughput and reliability, Bega believes its consolidated manufacturing structure will better serve domestic and export markets while reducing logistical complexities.

What Broader Trends Are Driving This Move?

The Australian dairy processing industry continues to face headwinds, including rising energy prices, raw material volatility, and global competition. Consolidation and automation have emerged as strategic imperatives for long-term viability. Bega’s decision is aligned with broader industry trends favouring leaner, higher-efficiency operations. The company’s historical expansion—through acquisitions like Lion Dairy & Drinks and the Vegemite brand—highlights its ongoing transformation from a regional dairy producer into a diversified food and beverage powerhouse.

What Does the Market Say About Bega’s Strategic Shift?

Stock Performance and Market Valuation

As of 6 May 2025, Bega Cheese Limited shares (ASX: BGA) closed at AUD 5.88, reflecting a 1.73% gain from the previous session. The company’s market capitalisation stands at approximately AUD 1.76 billion—up nearly 43% year-on-year. This performance reflects moderate investor confidence in Bega’s long-term strategy, especially amid cost optimisation efforts and strategic asset consolidation.

Analyst and Institutional Sentiment

Investor sentiment is cautiously optimistic. The market has absorbed the news of non-cash impairments and cash outflows tied to redundancies, but attention has shifted to the long-term impact of AUD 30 million in annual savings and the projected two-cent EPS gain. Analysts have maintained mixed ratings on the stock, with several adopting a neutral or “Hold” stance, awaiting confirmation of successful execution.

Notably, Australian billionaire Andrew Forrest’s investment firm, Tattarang, has backed Bega’s strategic ambitions, including its interest in acquiring Fonterra’s Oceania business. The support of high-profile institutional investors indicates confidence in Bega’s long-term potential. Though Bega’s stock has not seen sharp institutional inflows in recent weeks, fund managers with a focus on defensives and dividend sustainability are watching closely.

Buy, Sell, or Hold?

Buy: Investors with long-term growth horizons may find value in the stock’s defensive food sector positioning and cost-saving tailwinds.

Hold: Current shareholders are advised to monitor project execution, particularly as the Ridge Street integration unfolds and EPS benefits begin to materialise.

Sell: Short-term investors wary of restructuring charges or headline-driven volatility may consider trimming positions if near-term targets are met.

Institutional Flow and Ownership Breakdown

Bega maintains strong institutional backing, with considerable holdings spread across both foreign and domestic funds. Foreign Institutional Investor (FII) data remains limited, but domestic activity—especially from entities like Tattarang—has reinforced faith in the company’s operational direction. Given the company’s ASX 200 exposure and relevance in food supply chains, Bega remains a key defensive play for institutions during periods of economic uncertainty.

What Lies Ahead for Bega Group?

Bega’s operational transformation will be closely scrutinised over the next 12–18 months. Key milestones include the Ridge Street capacity ramp-up, retention of product quality during transition, and management of workforce and community expectations. Should the consolidation achieve its cost-saving and EPS targets without disrupting operations, Bega may consider replicating this model across other parts of its supply chain.

With the potential Fonterra Oceania acquisition still in early consideration, Bega may also seek inorganic growth avenues in parallel with its infrastructure consolidation. For now, Ridge Street is set to become a centrepiece of the company’s push toward leaner, more competitive manufacturing operations in Australia.