Bega Cheese will start searching for extra food industry talent for its board following last week’s $460 million move to buy the Vegemite brand and a host of other Kraft spreads and sauces.
Executive chairman, Barry Irvin, has flagged the looming retirement of dairy farmer and Bega director, Richard Platts, will open doors for a food sector specialist to join the board in 2017.
“The search process will be influenced by the acquisition, although nothing is officially happening at the moment,” he said.
Six of the company’s eight current directors have dairy farming backgrounds.
Bega’s soon-to-retire chief executive officer, Aidan Coleman, is also potentially set to retain some valued ties to the expanded business.
Mr Irvin has also confirmed, despite much of Bega’s operations soon to be based in Victoria, including the 6.3-hectare Kraft foods plant site in Melbourne, there were no plans to abandon the former farmer co-operative’s brand heritage and cheesemaking roots with a head office relocation away from NSW’s Far South Coast.
Bega’s bold diversification decision has been warmly welcomed by shareholders, the wider public and particularly its home base community in South East NSW.
Bega Cheese shares jumped in value to $5.38 early this week – up from $3.88 just before Christmas.
The plucky dairy company, which listed on the stock market six years ago, not only picks up ownership of the nation’s 94-year-old iconic yeast-based spread, Vegemite – found in 90 per cent of Australian homes – Bega gains a huge peanut butter business.
Kraft peanut butter has a commanding 66.5pc share of the local market.
The deal with US snack food giant Mondelez International sees Bega buying almost all the Kraft food brands in Australia and New Zealand – a suite of household names from spreads to processed cheese.
The sale includes ZoOsh salad dressings, Bonox, Kraft cheese slices, cheese spread, parmesan cheese, and Kraft Mac and Cheese.
In total, Mondelez’ brands represent 31pc of all sales in the $550m spreads category in Australia, with its grocery range drawing two thirds of its revenue from products enjoying top sales spots in the market.
Bega already makes some Kraft processed cheese products under a supply contract with Mondelez.
While it is a distinct move away from Bega’s 118-year-old dairy roots, the Kraft deal is not such a big change in business direction, according to Mr Irvin.
“Three of our six current processing plants are focused on the consumer packaging segment,” he noted.
“Lots of our skills already fit with the sort of business we’re buying into.
“For the past year we’ve said we’re looking at complementary business opportunities to expand into.
“We looked very carefully at the dairy space, but apart from Warrnambool Cheese and Butter, which would have been a natural fit if we’d been successful at buying in, there haven’t been quality dairy assets available or fitting with our financial security expectations.”
Bega had also looked overseas at growth options in dairy and related sectors, but despite some promising longer-term prospects, notably in developing economies, the choices available did not offer attractive immediate earnings rewards.
Mr Irvin said the production disciplines involved in making peanut butter, vegemite or salad dressing were not unlike making processed cheese, but the “cross pollination gains” available with the new business would also be extremely useful.
“We’re very confident as a manufacturer we will know how to make the most from the Mondelez business, enhancing our skills and opening up a lot of opportunities along the way,” he said.
The acquisition, to be wrapped up by June, was a “truly exciting” move which enabled the popular Bega name to align with “the wonderful values that Vegemite represents and its importance to Australian culture”.
On average every Australian adult buys at least one jar of Vegemite a year.
Revenue from the brands being purchased runs at $310m a year with the gross profit, as measured by earnings before interest, tax, depreciation and amortisation, likely to be $40m to $45m in the first full year.
Bega will borrow the funds needed to complete the purchase, but it has hinted at other initiatives, which may include asset sales, to help fund the deal.
It may also raise more capital from shareholders to partly pay down its debt.
Mr Irvin said Bega’s home base heritage in regional NSW and northern Victoria would remain important to the business and a key reason for keeping the company headquartered on the South Coast.
“I want people who work for us, and our customers, to feel the importance we place in our regional origins,” he said.
“We don’t want to become a faceless food company.”
What’s in Bega’s new business spread...
- About 300,000 jars of Vegemite produced daily
- At least nine out of every 10 Australian homes has at least one jar of Vegemite
- Every Australian adult buys a jar of Vegemite a year
- Kraft brand peanut butter has 66.5pc of all nut spread sales in Australia – its next closest single rival, Sanitarium, has 11.3pc
- The full Mondelez grocery business includes almost a third of Australia’s $550m spread market
- Bega Cheese has produced Kraft processed cheese lines for Mondelez since 2009