Bega buys Kraft brands

20 Jan, 2017 05:00 PM
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Bega executive chairman Barry Irvin says the dairy company is buying an iconic brand and growth opportunities into the future.
Bega executive chairman Barry Irvin says the dairy company is buying an iconic brand and growth opportunities into the future.

Bega Cheese has bought back the farm by broadening its reach in the food industry, snapping up Australia’s iconic yeast spread, Vegemite, and other Kraft brands, in a $460 million deal.

Bega currently manufactures some Kraft processed cheese products under a supply contract with the US parent food giant Mondelez International.

The NSW South Coast-based farmer-controlled company is to buy the Kraft-branded food products businesses in Australia, gaining control of a suite of household names spanning Vegemite to peanut butter, mayonnaise and Kraft processed cheese.

The sale includes ZoOsh and Bonox, and products sold under the Kraft brand licence such as cheese slices, cheese spread, parmesan cheese, Kraft Easy Mac and Kraft Mac and Cheese.

The 6.3 hectare Kraft Port Melbourne manufacturing site, and a licence to the Dairylea brand for use in Australia and New Zealand are also part of the deal, which is expected to be wrapped up by June.

Bega says the acquisition of most of Mondelez’s Australian and NZ grocery business will give it a strong presence in the Australian spreads business, diversifying its revenue base well beyond its roots as a cheese maker.

In total Mondelez’s brands represented 31 per cent of sales in the $550 million spreads category in Australia, with the Mondelez grocery business drawing two thirds of its revenue from products holding the number one positions in the market.

“The wonderful values that Vegemite represents and its importance to Australian culture makes its combination with Bega Cheese truly exciting,” Bega executive chairman, Barry Irvin, said.

More than 1.1 billion jars of Vegemite have been produced since the spread first went on sale in 1923.

The Bega dairy company’s ties with Kraft began in 2009, when it began producing some of the US company's processed cheese products at one of its two factories in Bega.

Revenue from the businesses being purchased runs at $310 million a year with the gross profit, as measured by earnings before interest, tax, depreciation and amortisation running at $40 million to $45 million in the first full year.

The deal is a good one for Bega shareholders, it said, as it would boost earnings a share from the first full year of operation.

The former farmer co-operative will borrow the funds needed to complete the acquisition, but it has signalled other initiatives, which may include asset sales to fund the deal.

"Today is a historic day for Bega Cheese. This is an exciting evolution for the company,” Mr Irvin told analysts.

"This acquisition will be value accretive in its own right, strategically important and company making."

Mr Irvin said the dairy company was buying an iconic brand and growth opportunities into the future.

“These iconic brands alongside the Bega brand are strong building blocks to enable Bega Cheese to become a great consumer goods business," he said.

"We are buying an iconic brand in Vegemite and some growth opportunities into the future."

The deal does not include Kraft's Philadelphia cheese business.

Ownership of the Kraft brands transfers back to the US-controlled group at the end of the year, with transitional arrangements to be undertaken, Bega said.

Bega bosses have not ruled out going to shareholders to raise funds to partially finance the acquisition although they said was currently negotiating other transactions which may limit the need for additional funding.

Data from Euromonitor shows that sales of yeast-based spreads in 2016 declined to $135.1m from $137.4m the year before.

Bega's Mr Irvin did confirm that changing breakfast trends had affected sales of Vegemite with the group now seeking to broaden the marketing to include using the spread at other times of the day.

Additionally recent marketing campaigns had reinforced the product with younger consumers, he said.

Vegemite’s credentials are still widely envied in the food business.

About 300,000 jars are produced daily to ensure at least nine out of every 10 Australian homes has at least one jar in a kitchen cupboard.

On average every Australian adult buys at least one jar of Vegemite a year.

The Kraft peanut butter brand is also exceptionally strong, taking two thirds of all nut spread sales ahead of its next closest rival Sanitarium which has just 11.3pc.

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READER COMMENTS

Vicki
26/11/2017 6:33:00 PM, on Australian Dairyfarmer

Hi, I am wondering if Bega has anything to do with dressings? Kraft miracle whip has gone from shelves in Australia. I miss it. Thanks

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