Bega's rise far from over

08 Jan, 2014 03:00 AM
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It's a matter of believing in what you're doing and sticking to a sensible balance sheet

IT'S a town most Australians probably know little about, but it's a brand almost every Australian household buys or strongly identifies with.

Bega is Australian for cheese. In fact, it's our top selling national cheese brand by volume and value.

It's also the name behind a plucky farmer-run business tucked away on the NSW Far South Coast which has grown almost 10-fold in the past decade and shows every indication of getting a lot bigger.

Of late Bega Cheese has been at the heart of a frantic three-way takeover battle for southern Victoria's Warrnambool Cheese and Butter (WCB) which sparked global dairy sector interest and daily news coverage in Australia.

Bega started the WCB scramble in September with a takeover offer initially valued at $319 million, triggering counter bids which swiftly sent Warrnambool's share price climbing from $4.50 to $9.50.

While it has now conceded its takeover plans can't match the weighty cash offers currently being splashed around by big Canadian dairy company, Saputo, or the Murray Goulburn co-operative, Bega still holds WCB's biggest share stake - almost 19pc.

Bega Cheese - Australia's fourth biggest dairy company - is highly unlikely to let its calculated growth ambitions go on the back burner, regardless of whether it keeps or sells its influential WCB holding, now worth almost $100m.

"It's a matter of believing in what you're doing and sticking to a sensible balance sheet, not over-committing yourself," said executive chairman Barry Irvin.

"Australians keep pointing a critical finger at global companies coming here and taking over our food and agribusiness companies, but remember those globals were once the size of Bega, or smaller.

"They believed in themselves and kept growing."

The big money stakes and internationally-fuelled business deals making news in the Bega Valley today are a far cry from the company's modest, but sturdy, foundations in the State's south-eastern corner where for much of the past century its location had left it largely isolated from mainstream milk markets.

Just 25 years ago Bega Co-operative Society produced only 3000 tonnes of bulk cheese at its Lagoon Street factory on the town's northern fringe.

Today, the company has five factory sites (mostly in Victoria) producing 210,000t of cheddar and processed cheese and related dairy products.

Annual turnover is more than $1 billion (it was less than $100m in 2000) and its capital value has doubled in the past two years to about $700m.

A third of the Bega group's cheese output is now exported, while the town of Bega itself is also now home to a second production plant - part of Australia's biggest cheese cutting and packing operation.

The factory wraps cheddar blocks from 10 grams to 10 kilograms for the Bega label - and a host of others - and makes processed cheese blocks and slices for food service and retail markets.

In the space of 15 years Bega's company payroll has ballooned from about 100 local employees to about 600, plus another 1000 elsewhere across the group.

"There's a lot of stuff always going on these days," said chief executive officer Aidan Coleman.

"We've probably got about eight or nine different key (corporate-level) initiatives on the boil at any one time - some may never come to fruition, but others have delivered good results."

The company's efforts to absorb the prized WCB business follow a series of recent expansion moves which saw Bega Cheese buy Tatura Milk Industries in northern Victoria (initially with a 70pc stake in 2007), then Kraft's cutting, packing and manufacturing plant at Strathmerton near the NSW border, and a cheddar and mozzarella production plant at Coburg in Melbourne in 2009.

The next year it began buying into WCB.

In April it starts canning nutritional formula powder at a new Melbourne plant, having already invested about $11m in 2012-13 to upgrade its Tatura powder production facility in response to 20pc growth in its nutritional milk formula business.

Back on the South Coast, booming demand for infant and adult protein formula powder has prompted Bega to plan a big upgrade to its whey demineralisation plant at its North Bega cheese factory site.

By producing a 90pc refined demineralised powder, rather than the current 40pc, Bega will double the value of what was once a waste by-product to about $3200/t.

Demineralised whey powder is a key ingredient (often imported) in nutritional formula powder products and baked goods.

In the past five years Bega has spent about $150m on new business acquisitions, almost matching that sum with follow-up infrastructure investments.

To help raise funds needed to keep growing, Bega's farmer shareholders floated their business on the stock market in 2011, listing at $2 each a share and valuing the company at $375m.

Shares are now worth about $4.50.

Shares in demand

BEGA Cheese has talked with overseas investors about potentially selling its 18.8 per cent stake in Warrnambool Cheese and Butter (WCB).

But the company is refusing to fuel speculation that Chinese investors are among those approaching with offers.

Bega officials said the company had not decided whether it would sell, or if so, when it would sell or to whom.

Canadian milk giant Saputo is hoping to win Bega's 10.5 million WCB shares having almost matched Bega's holding after recent market acceptances gave the global business a potential 17.92pc.

Murray Goulburn, another 17pc stakeholder in WCB, also wants Bega's shares, which industry speculation suggested may be "on the market" for more than $10 each.

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FarmOnline
Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

Adam Joseph
10/01/2014 5:10:29 PM

With the sale of foreign-made cheese on supermarket shelves (often more expensive) and the growth of smaller brands that are generating sales by connecting food consumers to their brands through tourism (Udder Delights cheesemaking course, Bangalow Cheese plans for agritourism), the Bega brand can further strengthen its brand by joining forces with ‘destination brand’ marketers. The NSW south coast has excellent food tourism offerings, from coastal fishing competitions through to farmstay, food festival, farmers’ markets to other hinterland experiences.

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Sorry did i get it wrong..? Rankins Springs is still open..?!
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No doubt a few frosted Freddies out there who will wish they had taken a closer look at the AGC
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Matthew, I was wondering if you had followed up this story with the farmer after the whole