Financial Analysis of Bega Cheese, Australia

Prepare for the task by completing the following steps to forecast the future financial

resource needs:

Establish the capacity of existing financial systems, and document this in a report

The existing financial systems of Bega Cheese Ltd, Australia are its investment for expansion

of its business. These are mostly in the form of capital investments in various facilities for the

production and purchase of quality milk which is required for manufacturing delicious and

tasty cheese. The total investment made by Bega Cheese towards it intangible assets; plant

and equipments amounted to $42.7 million as on 2019. In the year 2018, the amount of

investment was $28.5 million. The major investments were in the following areas:

1. Investment in the Tatura plant for enhancement of the lactoferrin capacity and

implementation of minute and advanced technology.

2. Building a new plant in Koroit facility for manufacturing lactoferrin.

3. At the Tatura plant automation of the cream cheese filing line in order to increase the

production efficiency.

4. Investment for installation of a new tubs line in order to produce cream cheese based

dips.

5. Upgradation of the peanut butter facility already in existence in Port Melbourne for

new natural farm to plate the nut spreads under the Bega brands “Simply Nuts”.

6. For the employees who aspires for leadership roles there has been an 18 months

Aspire Program started by the company.

 7. The company also stresses on reduction of injury by adhering to and investing in the

safety practices for the employees while operating the machineries and working in the

plants.

Forecast and document the data and business system requirements

The investment in various facilities by Bega Cheese Ltd is expected to enhance the sales and

profitability of the company in the future. Following will be the forecasted benefits of

investments in these plants and facilities by Bega Cheese Ltd:

1. There will be increase in the long term supply of lactoferrin as a result of upgradation

of the Tatura plant and erection of the new plant in Koroit. The new lactoferrin

facility is expected to produce 35 tonnes of lactoferrin annually. The lactoferrin will

be supplied and used in the production of pharmaceutical products and as an infant

formula.

2. The new leadership program for the employees will enable the new leaders to

undertake and initiate new roles and take up new projects. This will also enable the

company to create new leaders who can bring profitability for the company through

more sales and purchases of new and improved milk products. This will enable them

to adhere to various policies related to excise duty, various governmental charges,

procedures related to international and domestic trade contracts, consumer laws,

subsidies and Australian taxation policies.

3. With the launch of the new safety mechanism and investment policy the company has

projected to reduce the injury level by 15% annually. Further the company expects to

reduce the unacceptable incidents in their company and also emphasizes on the

behavioural safety program which needs to be initiated in the workplace to make a

zero-harm workplace. For this the company is making investment in purchasing new
 and improved machineries with advanced technologies for production of cheese. This

will help in establishing internal control of the company.

Analyse the forecasted requirements. Provide the analysis

The forecasted requirement that will enable Bega Cheese Ltd, Australia to enhance their

profitability is the increase in the production and sales of the cheese and peanut butter. Also,

an increase in the manufacturing lactoferrin which is used for creation of baby products and

various medicines will help the company to meet the forecasted requirements. But, these can

only be achieved by technological enhancement of the machineries and plants facilities and

building new and better work environment both physically and socially. For these the

company wants funds which can be obtained only through debt or equity. Also, there has

been a net present valuation (NPV) in order to estimate the future cash inflow that Bega

Cheese Ltd can earn from its newly erected Koroit business facility for a period of 2020 till

2024. For this facility there has been a long term growth forecasted at 1.5% annually and

after tax discount rate of 6.5%. To this the facility is expected to generate a positive cash flow

and a positive NPV. Also, net present value (NPV) estimation was conducted for the entire

company which was based on the cash flow projections. It was assumed that Bega Cheese

Ltd is expected to grow at 2% per annum and considered the after tax discount rate at 6.5%.

To this was found that the intrinsic value will be more than the carrying cost or market value.

This will provide tremendous benefit for the investor where they will look for an opportunity

to purchase the stock of Bega Cheese.

Prepare and plan a comprehensive financial plan of the budget forecasts over the full

planning-cycle according to organisational and statutory requirements

Jun Jun Jun Jun Jun Jun Jun Jun

Bega Cheese Ltd,
30, 30, 30, 30, 30, 30, 30, 30,
Koroit
2024 2023 2022 2021 2020 2019 2018 2017
In
million
  $                
Cost of
Investment in 34                
Koroit
200.4
Cash Flows   132.20 87.18 57.50 37.92 11.99 31.04 0
5
Growth Rate
        52% 216% -61% 0%  
in Cash Flow
Discount 188.2
  124.13 81.86 53.99 35.61 11.26 29.15 0.00
Rate @ 6.5% 2
Present Value 524.21                
NPV 490.21                

Prepare, document and present your recommendations for budget expenditure or for

modification of the existing projections

The total cost incurred in acquisition of the Koroit facility by Bega Cheese Ltd was at $34

million. It has been purchased in order to enhance the lactoferrin extraction in the dairy plant

in Victoria’s south west. This will enable Bega Cheese one of the world’s largest producer of

specialty protein in infant foods and for pharmaceutical usage and in health foods. This will

enable Bega Cheese to produce around 35 tonnes of lactoferrin extract annually in Koroit.

We will conduct a net present value (NPV) analysis to decide the ability of the facility to

generate positive cash inflow or not. For this the discounting rate after tax is assumed at

6.5%. On the other hand the cash flow of Bega Cheese growth rate was estimated by

averaging the past growth rates in cash flows. To this it was observed that that net present

value of the company has been amounted to $490.21 million based on estimation from 2021
till 2024. This estimation also helps Bega Cheese that the acquisition of Koroit plant will help

in the expansion of cash flow and the production of lactoferrin in this facility.

Analyse the current asset performance and capacity by performing the following steps:

Using standard accounting techniques, conduct a balance sheet analysis analyse the

costs of assets and liabilities, and the returns from them, to identify the extent of debt

and equity financing

Cost of Equity 5.02%

Beta 0.71
Rf 0.76%
Risk Premium 6%
   
Cost of Debt 5.88%
   
Equity 814.04
Debt 258.53
Total 1072.57
   
WACC 4.78%
Equity and Debt
Financing
76%
24%

The above calculation is based on the estimation of Weighted Average Cost of Capital

(WACC) of Bega Cheese Ltd based on the financials of 2020. The Beta is taken from, Yahoo

finance, the Rf is the risk free rate of 10 year Australian government bond and the risk

premium is the average premium in Australia for taking the risk of investing in a risky asset.

Based on this the cost of equity is estimated at 5.02%. The cost of debt is calculated by

multiply the interest rate with the tax rate of FY 2020 at 31%. To this the cost of debt has

been estimated at 5.88%. On the other hand the equity and debt financing of the company is
taken from the balance sheet of FY 2020 and is at $814.04 million and $258.53 million.

Hence, it can be stated from this that Bega Cheese Ltd was able to finance 76% of its funding

through equity while the rest 24% by borrowing debts from the market. The WACC is 4.78%

for Bega Cheese. This means the cost that Bega Cheese needs to pay to all its security holders

in order to finance the assets is $0.0478 in return for every $1 in extra funding.

 Ratio Jun 30, Jun 30, Jun 30, Jun 30, Jun 30,
Analysis 2020 2019 2018 2017 2016
Return on
1.49% 0.30% 2.37% 13.14% 4.91%
Assets

The return on asset is the ability of Bega Cheese to generate earnings by deploying the assets

of the company. It can be observed that the return on assets have increased in 2020 compared

to the FY 2019. This was basically due to company’s investment in Koroit business facility.

In consultation with relevant organisational staff, establish and document the

management responsibilities and legal requirements for reporting

In consultation with the organizational employees of the organization the relevant

responsibilities of the management and legal requirements are as follows:

1. An amount of $2 million which was considered as other costs to Bega Cheese with

respect to inclusion of tax was charged by ACCC in the Australia dairy industry and

was considered as a legal cost later withdrawn as per the Australian Courts direction.

2. There must be provisions made by Bega Cheese with respect to contingent liabilities

which may arise in the future due to obligations and sue by external parties to the

organization. These contingent liabilities are with respect to the Fonterra which have

sued Bega Cheese in the Supreme Court of Victoria for using their trademark in
 Australia on the non-licensed products used by Bega Cheese outside the consent of

Fonterra.

3. There should be legal provisions and amendments made with respect to the employees

and labourers salaries and wages which will also include the non-monetary benefits

like general leaves and sick leaves.

4. The effective tax rate of Bega Cheese which is currently at 37.5% and is abnormally

high due to significant amount of non-deductable expenses and also includes legal

costs which is related to the acquisition of Koroit facility.

Thus reporting on the progress and judgement of all the above cases must be conducted

by the management on a regular basis in the financial statement. This will help the

investors and the shareholders as well as the various stakeholders so Bega Cheese to get

an idea of the ethical measurements of the company.

Documents Sections
Statement of the financial position as at the year end 295(2) & 296(1)
Statement of comprehensive income for the year 295(2) & 296(1)
Statement of cash flow for the year 295(2) & 296(1)
Statement of changes in equity 295(2) & 296(1)
Consolidated financial statement of parent entity 295(2) & 296(1)
Notes to the financial statements 295(3)
Director’s declaration by the CEO & CFO that the

financial statement comply with the accounting 295(A)

standards and gives a true and fair view

Auditor’s independent declaration 307C
Auditor’s report 300A

Analyse and interpret the financial reports and key information. Document this analysis
 Budgete Budgete Budgete Budgete
Actual Actual Actual Actual Actual
d d d d
Income statement of
Bega Cheese Ltd
Jun 30, Jun 30, Jun 30, Jun 30, Jun 30, Jun 30, Jun 30, Jun 30, Jun 30,
2024 2023 2022 2021 2020 2019 2018 2017 2016

1,493.2 1,419.9 1,252.0 1,226.6 1,195.9

Total Revenue 1871.08 1768.48 1671.5 1579.85
2 5 4 6 7

1,493.2 1,419.9 1,252.0 1,226.6 1,195.9

Revenue        
2 5 4 6 7

Other Revenue, Total           - - - -

Growth Rate       6% 5% 13% 2% 3%  

Cost of Revenue, 1,204.1 1,140.2 1,072.4 1,042.6

1527.96 1444.18 1364.99 1290.14 980.09
Total 7 1 4 0

Growth Rate as a
percentage of       82% 81% 80% 78% 87% 87%
Revenue

Gross Profit 343.11 324.3 306.52 289.71 289.05 279.75 271.95 154.23 153.37

Total Operating 1,462.1 1,411.5 1,201.1 1,028.6 1,156.0

1764.06 1667.33 1575.9 1489.49
Expenses 7 7 6 2 7

Growth Rate as a
percentage of       94% 98% 99% 96% 84% 97%
Revenue

Selling/General/Admi
        259.68 237.57 205.94 124.3 117.86
n. Expenses, Total

Research &
          - - - -
Development
Depreciation /
          - - - -
Amortization

Interest Expense
(Income) - Net         8.59 16.29 7.48 1.24 2.69
Operating

Unusual Expense
        1.05 26.19 15.32 -162.97 0
(Income)

Other Operating
        -11.32 -8.69 -7.67 -6.38 -7.07
Expenses, Total

Total Expenses 236.1 223.15 210.92 199.35 258 271.36 221.07 -43.81 113.48

Operating Income 107.02 101.15 95.6 90.36 31.05 8.38 50.88 198.04 39.9

Interest Income
(Expense), Net Non-           - - - -
Operating

Gain (Loss) on Sale

          - - - -
of Assets

Other, Net           - - - -

Net Income Before

107.02 101.15 95.6 90.36 31.05 8.38 50.88 198.04 39.9
Taxes
Provision for Income
38.46 36.35 34.36 32.47 9.78 3.93 22.12 59.29 11.12
Taxes

Tax Rate       36% 31% 47% 43% 30% 28%

Net Income After

68.56 64.8 61.25 57.89 21.27 4.45 28.77 138.75 28.78
Taxes

Minority Interest           - - - -

Equity In Affiliates           - - - -

U.S GAAP
          - - - -
Adjustment

Net Income Before

        21.27 4.45 28.77 138.75 28.78
Extraordinary Items

Total Extraordinary
          - - - -
Items

Net Income         21.27 4.45 28.77 138.75 28.78

Total Adjustments to
          - - - -
Net Income

Income Available to
Common Excluding         21.27 4.45 28.77 138.75 28.78
Extraordinary Items
 Dilution Adjustment           - - - -

Diluted Net Income         21.27 4.45 28.77 138.75 28.78

Diluted Weighted
        214.16 207.22 184.26 152.73 152.6
Average Shares

Diluted EPS
Excluding         0.1 0.02 0.16 0.91 0.19
Extraordinary Items

DPS - Common
        0.1 0.11 0.11 0.1 0.1
Stock Primary Issue

Diluted Normalized
        0.1 0.09 0.2 0.16 0.19
EPS

Analyse and evaluate the effects of the financial decisions on the organisational ability

to meet planned outcomes. Document this analysis

Based on the above budgeted income statement of Bega Cheese which is based on certain

assumptions it can be stated that the company has the capacity to earn high profits in the

future years if they are consistent with regards to the investment policies in various financial

and resource utilization and enhancement segments. We will discuss the various estimations

we have considered while preparation of the above budget for Bega Cheese Ltd.
The total revenue of the company is expected to grow at 6% from year 2021 which is

estimated by averaging the growth rate of the previous years.

The cost of revenue or sales is estimated as a percentage of revenue and has been estimated to

grow at 82% by averaging the growth rates of cost of revenue.

There has been a remarkable growth in the gross profits of the company in the year 2024 at

$343.11 million. Hence, compared to the year 2020 it is a growth of 18.70% in the year 2024.

While estimating the total operating expenses, the growth rate has been estimated as a

percentage of revenue and is expected to grow by 94% on a year on year basis.

There has been significant increase in the operating income of the company in 2024 at

$107.02 million compared to the operating income of 2020 at only $31.05 million. Thus there

is an estimated increase of 244% in the operating income or Earnings before interest and tax

for Bega Cheese in the year 2024.

The tax rate has been estimated at 36% which was calculated by averaging the tax of the

previous years. The tax rate is very high for Bega Cheese and hence company should make

some provisions in order to get tax exemptions.

Finally, the net profits after tax of the company have increased to $68.56 million compared to

$21.27 million in 2020. This was an estimated increase of 222% in the net profit of Bega

Cheese Ltd in 2024 compared to 2020.

Perform the following steps to set the business targets and compliance mechanisms:

Collect comparative and trend information, and use this to confirm and document

needs for future budget and associated resources

There has been situation of drought in the New South Wales and in several parts of Australia

in the recent years. This has not only affected the farming and agricultural industry but also

impacted the grazing of grass by the cattle. As a result the production of milk and milk

products got impacted critically. This trend if continues will result in much bigger and

comprehensive trouble for supply of milk and milk products in Australia. The drought

situation has also resulted in the increase in the price of cost of raw materials and other costs

due to which the cost of sales of Bega Cheese have increased considerably in the year 2020.

Many small milk and milk based product manufacturing companies due to huge cost of sales

have already left the industry as the intense weather pressure has again gained the

momentum. Not only drought but also high water, feed and power costs have impacted the

profitability of Bega Cheese. Yet, Bega Cheese tried to maintain the competition in the milk

products market although there was a huge reduction in the milk production due to drought in

the Australian Market. In comparison to the milk shortage it was due to the acquisition of

Koroit facility by Bega Cheese that resulted in huge production and availability of milk to the

amount of 308 million litres of milk. This was a remarkable achievement by Bega Cheese

even during this crisis situation. Hence, this states that how efficient, prosperous and fruitful

the acquisition of Koroit facility has been for the company.

Complete negotiations to secure resources in accordance with relevant short-term and

long-term needs. Document the outcomes of these negotiations

The short term needs of the company are to fund the milk and milk product industry during

this drought like situation with insurance and monetary assistance from the Australian

government. The loans and the credit cards repayments should be waived by the government
which will relief the farmers from paying and servicing the interests on loans. Also various

other charges must be waived off and make the adjustment to lending limits. Thus, these

techniques if opted by the federal government can help the milk and milk products

manufacturers and suppliers in short run to recover themselves. For Bega Cheese, they can

acquire more facilities where the production and the supply of milk and the quality of the

cattle are excellent. This will help in turn help the small firm to sustain as well as get Bega

Cheese sufficient quantity of milk for the production of milk and milk products. On the other

hand the long term needs of the dairy farm and that of Bega Cheese is positive as the

fundamental looks sound and demanding. There is high demand of lactoferrin from Bega

Cheese which is used to make infant foods and various adult health products used in

medicines. Also, the growth of dairy industry in Australia is positive and is a long term game

and will definitely change as the drought situation is over. Along with this Bega Cheese

needs to replace its old machines and equipments required for manufacture of milk products

with new and sophisticated ones. This will be a boost for Bega Cheese in the long term.

Maximise the organisation’s performance by allocating the required resources against

the budget. Document this resource allocation, and maintain accurate and up-to-date

records of the resource allocation and usage throughout the cycle according to

organisational and legislative requirements

The various resources which are required to by Bega Cheese to enhance the performance are

as follows:

1. A well integrated and secured Enterprise Resource Planning System (ERP). This will

help to support the newly developed systems and processes of the business that was

acquired by Bega Cheese. The new ERP system will help to enhance the efficiency of
 the supply chain management process, enhance the network efficiencies and deliver

the organizations and every department with the relevant information and data for

evaluating and reporting on the loopholes and taking appropriate steps in advance to

mitigate the same. The company should emphasize on implementation of a cloud

based secured ERP system which will help not only help to keep the records and

various other documents in safe custody but also protect the documents and records

from getting hacked by competitors. Therefore, there is a requirement for Bega

Cheese to go fully digital with respect to transaction of the products and services.

2. For its new facility in Koroit, the company needs huge amount of employees to

increase the efficiency of the production facility. Already more than 100 employees

have been hired and deployed to work in this facility and the company will require

more skilled and efficient employees to enhance the supply of lactoferrin. Till 2019,

there has been increase in the production facility by 8% in the Koroit facility

compared to the previous year.

3. Bega Cheese also should emphasise on online marketing where customers can order

milk products online. They also need to deliver these products to the customers at free

transportation costs. This will help to target the corporate, the big retailers, the

households and various other organizations where there is a demand of milk and milk

products.

Develop, review and document the management systems which enable timely collection,

management and processing of information

The management system of Bega Cheese was upgraded in the year 2016 by standardizing the

Enterprise Resources Planning (ERP) system. This system will be used by all the employees
and the management team throughout the organization for exchange of ideas and information.

By end of 2020, the transformation and upgradation of the ERP system of Bega Cheese will

be completed. This has helped Bega Cheese in various acquisition and investment in diverse

projects and facilities by smoothly sharing the ideas and quickly taking decisions through this

process. The transformation required updating and resetting on a regular interval of the

enterprise resource planning implementation project plan by redeploying the resources which

were required to urgently support the new systems and the processes of the newly acquired

businesses. The project is almost complete and is in its last phase. The implementation

process is completed and the employees who are working in the project team are transitioning

back to operational and commercial roles and responsibilities. The new ERP system replaced

the four separate processes which required great effort and commitment from the group to

keep the records intact and from getting lost. Thus the new ERP model helps the company to

deliver a platform for the supply and enhancement of the network efficiencies and the

information systems which will support the team in the future.

Accurately complete the records of the budget performance and expenditure, ensuring

to report these in accordance with organisational procedures and statutory

requirements

The achievement of budget performance and expenditure to be recorded in accordance with

the organizational procedures and statutory requirements are with respect to the following:

1. Budgeted profit of Bega Cheese: The ultimate aim of Bega Cheese is to become the

market leader of milk products like lactoferrin by supply the product globally to be

used and is in high demand for preparation of baby food products and pharmaceutical

industries. With the drought situation in Australia, the milk productions have lowered.

But, since Bega Cheese made investment in acquisition of various facilities of which
 Koroit plant was note worthy and have enabled them to generate profitability by

enhancing the supply of milk deficit by supplying 308 million litres of milk annually.

This helped them to enhance their profits.

2. Free Cash Flow: The free cash flow of Bega Cheese was low in the year 2016 &

2017 but gradually started to grow from 2018 onwards and is project to grow by 52%

in 2024 to $200.45 million compared to $37.92 million in 2020.

3. Safety and personal business objective targets: The safety of the employees is of

great significance to Bega Cheese. Therefore, to reduce the risks and injuries in the

workplace new machineries and equipment have been acquired and the old

equipments have been replaced. This has reduced the injury rate by 15% annually.

4. Rewarding the shareholders: The shareholders are rewarded in the form of increased

dividend payments. It is observed that the dividend payment have increased to $19.45

million in 2020 compared to $19.13 million in 2019. This also shows the concern of

Bega Cheese towards its investors.

As required, evaluate and the improve budget audit mechanisms and compliance

requirements. Document all evaluations and provide the updated and improved

mechanisms and compliance requirements

To improve the budget audit mechanism the following are the steps which needs to be

followed by Bega Cheese:

1. It should consider the trends of costs on various items and impose strict control for

not letting to overshoot the price.

2. There should be revision in the budgeting wherever necessary after consulting it with

the Board and management of the company.

 3. There should be evaluation of how frequently and adequately the costs were being

analysed during budgeting process.

4. Also the methods used in the identification and classification of costs needs to be

documented for further revision if necessary.

5. The budget should be prepared based on the considering external and internal

economic factors. This will help to evaluate the laxity and the rigidity of the budget.

6. The budget must be well documented, recorded with proper schedules as per the

Australian IFRS accounting standards.

7. Finally, it should be supported with quality data and information and should have

good degree of subjectivity involved in it.

Manage the financial risk over the full planning-cycle by completing the following steps:

Identify and analyse the financial risk factors. Provide the analysis

The financial risks of Bega Cheese are market risk which consists of currency risks, price risk

and interest rate risks. The other two financial risks are credit and liquidity risks.

To hedge or mitigate the impact of the above financial risks the company uses derivative

financial instruments of which foreign exchange contracts are used to hedge certain risk

exposure. The entire financial management is conducted by the treasury department which is

under the finance department which are guided by policies provided by the Board of

Directors and supervised by the Audit & Risk Committee. The price risk is due to the equity

securities price risk which arises from the investments held by the group in the listed entities.

Therefore, the price risk is managed by the group by reviewing the risk across the whole

group operation in the context of various areas the business operates. The interest rate risk is

due to the interest rate sensitivity by +/- 100 basis points from the year end rate. The foreign

exchange risk is with respect to the future commercial transaction and the recognised assets
and liabilities which are denominated in the currency which is not Bega Cheese’s practical

currency. The credit risk of Bega Cheese is due to the cash and cash equivalents, derivative

financial instruments and various deposits held with banks and various financial institutions

and due to the credit exposure to wholesale and retail customers which includes receivables

outstanding and committed transactions. Finally the liquidity risk is with respect to

maintenance of cash and marketable securities in sufficient amount. Therefore, the group

manages this risk by continuosly monitoring the forecasted and the actual cash flows as well

as matching the assets with liabilities.

Manage and document the financial risks as they arise, according to organisational

policies and procedures

Most of the risks are managed by Bega Cheese Ltd by the procedure of hedging through

investment in financial derivatives like foreign exchange contracts. A foreign exchange

contract is a legal contact in which the two parties agrees to transfer certain amount of foreign

exchange between them at a price predetermined during the time of contract and at a

predetermined date. These contracts are used by the companies when they purchase products

from foreign countries and suppliers. To avoid any risk of unfavourable nature they want to

hedge against the risk before the payment due date. But, for Bega Cheese this is done to

minimize the risks but not to earn profits from the suppliers.

For managing the credit risks close monitoring is done by the management before delivery of

any credit facilities to the customers. The customer’s credit quality is assessed, also the

financial position of the customer is analysed as well as the customers past experience for

taking loan is judged by Bega Cheese before providing any loan.

Finally the liquidity risk is managed by the management and the Board of Directors by

closely monitoring and supervising the free cash flows actually earned against the budgeted

cash flows and by trying to match the assets and liabilities of the matured profiles.

Develop and implement procedures to regularly review the financial risk management

activities. Provide the procedures and document and document the regular reviews

conduced

There are five steps that can help Bega Cheese Ltd to develop procedures to regularly review

the financial risk management activities of the company as follows:

1. Identification of the risks: Firstly, it is the responsibility of the management to

identify what is the risk that the company is facing currently. The risks must be shared

to all the internal stakeholders within the organization through the ERP system which

is accessible to all. This will help the organization in reporting the risk information to

all rather than hiding it away.

2. Analyse the risk: The identified risk will then be identified and its scope is to be

determined. The company must analyse on the severity and seriousness of the risk and

how can it impact the business operation of Bega Cheese. Once the risk management

solution of the identified risk has been created the same must be documented and

evaluated of the far reaching impacts.

3. Evaluate and ranking of the risks: The risks may be many but hence ranking needs

to be done in order to prioritize which risks need to be solved based on the seriousness

and the catastrophic losses it can cause.

The various procedures and documents that need regular reviews are the financial statements

like projected balance sheet, income statement and the cash flow statement of the company.
 4. Treat the risk: The risk and the risk management plan needs to be discussed with the

Board, the management, the various stakeholders of the company as well as the

employees and take their decision for any further development or with respect to any

issues that it can have. The management system must be used effectively in order to

update on the risk management process.

5. Monitoring and review of the risk: Not all risks can be eliminated completely. Some

risks will be there and hence close review and monitoring is required to lessen the

impact of the risks on the company’s business operations.

Perform the following steps to monitor compliance with the financial projections:

Identify and document the deviations from budgets that generate an adverse effect on

the budget objectives

The deviation from budget may be with respect to the revenue earned by Bega Cheese. Due

to global slowdown combined with the impact of global pandemic situation of covid-19 and

the drought situation in Australia, the project growth rate in revenue of 6% annually may not

be achieved. Also, we have assumed that the growth rate for the budgeted period to be same

6% from 2021 till 2024. But, it may not be same and the growth rate in revenue may be more

or less than what have been assumed for Bega Cheese. Therefore, if there is a change in the

revenues earned by the company the entire budget is expected to get oscillated. There will be

a change in the cost of sales or revenue due to a fluctuation in the total revenue as we have

considered the cost of revenue to be a percentage of total revenue. Also the gross profit and

the total operating expenses which are also dependent on the total revenue will change in

value. Finally, it will impact the net profit of the company which will fluctuate due to a

change in the total revenue in the budgeted years. Also, there has been a negative opinion by
Bega Cheese on the taxation policy imposed on them. Therefore, if there is a change in the

tax then it will directly impact the net profits of Bega Cheese Ltd.

Promptly develop and document action plans to remedy significant deviations from

budget objectives and projections

The most effective way to reduce the deviations from the budget objectives and projections

which might impact the business operations and show fewer deviations for Bega Cheese are

as follows:

1. Usage of data and reports of the company based on the present or the current market

situation rather than using the historical records of the company as well as the future

industry and economic development. Like target markets, competitors’ strategies,

distributors’ efficiency and customer demand and changes in preferences.

2. Making usage of econometric models like estimated changes in inflation, the changes

in the gross domestic products and the oil prices of the international market and the

country in which the company operates its business. If these are not considered then

there will be trends which cannot be predicted correctly.

3. Collaboration with other departments internally is very essential for exchange and

generation of new ideas and information and constant communication for effective

implementation of the budget. This will lower the deviations in the budgets.

4. Take experts opinion and develop various simulation and models of potential budget

deviations. If any modifications are needed then they must be identified on a timely

basis based on the size and type and also implement the scenario planning during the

deviations occurrences.
Monitor and review the financial documentation against organisational objectives,

revising and renewing the budget priorities as required to meet the operational

contingencies and risk management, and managing the costs to targets set in the budget.

Document the monitoring, managing and reviewing activities, and provide all the

revised/reviewed budget priorities

The contingencies in operation and risk management system may arise with respect to review

of the budget priorities. Therefore the following will be a developing plan to address the

risks:

1. Clarification of the company’s goals and objectives.

2. Scheduling the timelines of the budgets.

3. Contingency planning for various risks may be required.

4. Determination of the restrictions of the resources

5. Management and reduction of the risks

6. Recognition of the various operational inefficiencies.

The various ways to meet the contingencies are as follows:

1. Supervision and monitoring of the internal budgets consistently and on a regular

basis.

2. Review and revise of the internal budgets in a controlled and synchronized manner.

3. To manage the deviations between the actual and the budgeted forecasting is

necessary.

4. Monitoring and evaluating the accuracy and timeliness of the budget situation

process.
Therefore, the ERP system must be used by the Bega Cheese in order to monitor the business

operations and the expenses by uploading all the necessary documents and information

digitally. This will help to segregate the specific transactions in order to provide control.

The financial transactions will include cash sales and purchases, purchase of business assets,

petty cash, purchases through cheques and purchase through credit cards.

In order to manage the expected or projected costs needs to be within the estimated periods

and before the commencement of the projects. It is extremely important to record the

information related to any expenses in order to be within the specifications of the cost

management plan. Therefore, after the timeline is completed, the actual and the projected

costs will be compared to find the deviations if any which will help to manage the future cost

predictions and budgets.

In order to ensure that the business closely monitors the budgets and reports it correctly

following are required to be adhered:

1. Developing and implementation of a schedule of the budget.

2. The reports generated on the budgets needs to be uploaded in the ERP system and

circulated regularly.

3. The budget preparers are the ones who are accountable to initiate any actions rather

than the management personnel.

4. The report which will be monitored will include the actual and the estimated

expenditure statement of the financial year.

References

investing.com; Bega Cheese Ltd (BGA)

https://in.investing.com/equities/bega-cheese-ltd-cash-flow?period_type=annually

Bloomberg; Australian Rates & Bonds; https://www.bloomberg.com/markets/rates-

bonds/government-bonds/australia

Dairy Global; Australia’s dairy sector still facing immense pressure;

https://www.dairyglobal.net/Market-trends/Articles/2019/10/Australias-dairy-sector-still-

facing-immense-pressure-492403E/

Bluenotes; The short and long-term outlook for Australian dairy;

https://bluenotes.anz.com/posts/2016/05/strength-ahead-for-australian-dairy-in-hard-times

Accounting Tools; Foreign exchange contract;

https://www.accountingtools.com/articles/2017/5/10/foreign-exchange-contract#:~:text=A

%20foreign%20exchange%20contract%20is,as%20of%20a%20predetermined%20date.

360 degree factors; Christine Thomas; Five Steps of the Risk Management Process; Risk

Management Process; https://www.360factors.com/blog/five-steps-of-risk-management-

process/

PMR; How to effectively reduce budget deviations?

https://www.pmrmarketexperts.com/en/effectively-reduce-budget-deviations/

Yahoo Finance; Bega Cheese Limited (BGA.AX)

https://au.finance.yahoo.com/quote/BGA.AX/key-statistics/?

guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig

=AQAAAIJUKeGUDJtPTg2nBgN7PtXr8egHTlM5wliPKLOX-
R2jgI78SOeWOPrLujAwuI7K42arRCRbPbmqDdZQqedLPT9uvR4BmnGpPqFmXIbFW0I

XZx5eRQJ0_fRRN0taFKvxzyTSzyXAuSsaCt_Yb11JHiWBq5sg0KWF-ErdCI3A9pBg

Bega District News; Andrew Marshall; Bega's new Koroit milk factory expands with $34m

lactoferrin plant planned; https://www.begadistrictnews.com.au/story/5906294/bega-cheese-

to-build-34m-high-value-milk-protein-plant/#:~:text=Bega%20Cheese%20is%20to

%20spend,plant%20in%20Victoria's%20south%20west.

Science Direct; Start-up and operating costs for artisan cheese companies;

https://www.sciencedirect.com/science/article/pii/S0022030214002963

2019 ANNUAL REPORT; BEGA CHEESE LIMITED;

https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BGA_2019.pdf