Bega wants bigger Capilano share

24 Oct, 2018 08:24 AM
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Bega Cheese chief executive officer, Paul van Heerwaarden, and executive chairman Barry Irvin.
drought was hurting the whole industry and global commodity prices had softened in the past 3 months
Bega Cheese chief executive officer, Paul van Heerwaarden, and executive chairman Barry Irvin.

The expanding Bega Cheese food group has confirmed it intends buying more shares in Capilano Honey, but has not decided its longer-term intentions with Australia’s biggest bee products marketer.

The NSW-Victorian dairy company, turned major peanut butter producer and Vegemite brand owner, says it is also receiving multiple invitations to add other grocery brands to its stable.

Bega executive chairman, Barry Irvin, told shareholders at this week’s annual general meeting “we obviously have to increase our capability” in the spreads category and “all the pointers” were about adopting a strong presence in honey.

“However, we have not made a decision about what we may do with our share position,” he said after the company confirmed it this week lifted its stake in Capilano from 14.3 per cent to about 15.6pc.

Also buying Capilano shares at the moment is the honey packer’s biggest shareholder, the Seven Group Holdings subsidiary Wroxby Limited, owned by West Australia’s Kerry Stokes and family, which last week expanded its stake to 23.1pc.

Capilano shares have been fetching between $20.60 and $21 each – up from $15.50 in early August, and way up from their $2.10 listing price on the Australian Securities Exchange six years ago.

Mr Irvin said he was limited in the comments he could make about Bega’s Capilano activities because the honey business was now subject to a scheme of arrangement offer by investment group Bravo bidCo, which has offered $20.06/share to take control of the business.

“We have made no decision about what we may do with our share position or the scheme of arrangement,” he told the AGM.

“If we’d made a decision, we would be talking about it.

“The only decision is to continue purchasing shares as we have been.”

Mr Irvin emphasised Bega’s buying activity on the stock market was “not a spur of the moment investment”.

“We have been thinking about this for a long time,” he said.

“We were buying into Capilano before the scheme of arrangement offer was announced.”

Mr Irvin, Bega Cheese chairman for 18 years, acknowledged the dairy and wider food industry, including milk processors, had faced challenging conditions in the past year or more.

Apart from the sell-off of Murray Goulburn’s massive dairy processing assets, which had enabled Bega to buy western Victoria’s 800 million-litre capacity Koroit factory in August for $250 million, other companies (Lion Dairy and Drinks) were for sale, or their business was under review.

He said drought was hurting the whole industry and global commodity prices had softened in the past three months.

Bega’s business, however, had been resilient and grown significantly in the past 18 months in its drive to create the “great Australian food company”.

During 2017-18 the company integrated the former Mondelez Australia (Kraft) business and Queensland’s Peanut Company of Australia into the Bega Foods stable, established an ambitious milk acquisition program and received positive support from its dairy farmer suppliers.

Despite “significant competition” in the peanut butter market, and two legal challenges menacing the Bega Foods agenda, the company was pleased with progress and consumer support in the spreads category and determined to increase local production of peanuts.

“The underlying (Bega Foods) business continues to grow and we are not distracted from our focus as we look to taking advantage of opportunities across our product range,” Mr Irvin said.

Spreads and other grocery products made up 18pc of Bega’s $1.44 billion 2017-18 revenue, which grew 17pc largely because of the Bega Foods acquisition.

Nutritional powder products, currently representing 9pc of revenue, had big potential to expand following the Koroit plant purchase.

Responding to shareholder expressions of concern about the company’s growth making it a target for takeover, Mr Irvin said it was far better to have a business people were interested in than the alternative.

“Our job is to make sure we have a very strong business,” he said.

“In the end, it’s up to shareholders to decide, and the business to create a strong position for itself in the market.

“I think one of our great strengths is that we hold experience close in our company and we embrace new talent and opportunities.

“A business should always remember its heritage and its customers.”

Mr Irvin, who was also re-elected to the board at the AGM, said Bega Cheese had “great opportunities in front of us” and he felt he still had plenty of value to offer Bega Cheese.

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