CHAIRMAN’S ADDRESS AT THE ANNUAL GENERAL MEETING OF …
Transcript of CHAIRMAN’S ADDRESS AT THE ANNUAL GENERAL MEETING OF …
CHAIRMAN’S ADDRESS AT THE ANNUAL GENERAL MEETING OF
BESTON GLOBAL FOOD COMPANY LIMITED
Held at Hilton Adelaide, Ballroom C,
Level 1, 233 Victoria Square, Adelaide, South Australia on
Friday 23 November 2018 commencing at 10.30am (Adelaide time/ACDT)
INTRODUCTION
Good morning Ladies and Gentlemen.
On behalf of the Board, I would like to welcome you to Beston
Global Food Company’s Annual General Meeting.
I am Roger Sexton, the Executive Chairman of Beston Global
Food Company.
I ask that you ensure that your mobile telephones are on silent
mode or switched off.
AGENDA
At today’s meeting, we have a number of formalities to deal
with inclusive of the consideration of the Group’s 2018 Annual
Report, the adoption of the Remuneration Report, the re-
election of two Directors, and the renewal of the proportional
takeover clause.
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WELCOME
With me, sitting at the front of the room, are your Directors:
Catherine Cooper
Petrina Coventry
Stephen Gerlach
Jim Kouts
Ian McPhee, and
Company Secretary, Richard Willson
I am also pleased to welcome Brad Pollock representing our
auditors Ernst & Young, our legal counsel Andrew Corletto from
Minter Ellison, and Link Market Services, who will assist as
required in the counting of votes in respect of all resolutions to
be put to the meeting.
I am also pleased to welcome our many guests from interstate
and overseas. These include:
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APOLOGIES
We have received apologies from:
Mr Dequan Liu
Mr Benjamin Ding
Are there any other apologies?
We will now proceed with presentations on our Annual Report. I
would be grateful if you could hold any questions that you
might have on these presentations, or on the Annual Report
itself, until the end of the presentations.
CHAIRMAN’S REPORT
Last year at this AGM, I explained the work which we had done
to build out our Dairy Division and set up the Company with a
new level of operations to achieve sustained earnings and
capital growth. As we have detailed in the Annual Report, that
work has largely been completed and the Company is now
putting these investments to work.
While I wish to spend most of the time in this Report talking
about where the Company is going in the future, I would like to
spend a few moments reflecting on where we have come from
over the last three years.
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What did we set out to Achieve? (Slide 1)
What we set out to achieve, at the time of our listing in late
2015, was four main objectives.
1. To take healthy eating via the best of Australia’s food and
beverages to the world’s growing consumer markets.
2. To acquire undervalued assets and build out the assets to
realise their incoming generating potential and capital
growth for our investors.
3. To build a reputation for quality, integrity and trust with
all the products sold by BFC.
4. To build sustainable brands which have equity value in
their own right.
In a nutshell, we wanted to become recognised by both
wholesale and retail customers, in all the markets we supply, as
a company that can enrich lives every day by providing healthy
eating solutions with premium quality, nutritious food and
beverage products.
We have achieved all of these objectives and built a company
that we believe our shareholders can be proud of.
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Business Model (Slide 2)
The business model that we put together to achieve these
objectives was a three-component model whereby we control
the raw materials that go into our foods, control how those
materials are processed into healthy, premium quality products
and have control over how and where these products are
offered to consumers for purchase.
The strategy for implementing the first stage of growth under
this business plan (i.e. the first three years) was straight
forward.
The Business Plan & Growth Strategy 2015-2025
(Slide 3)
Essentially, the plan was to fix the assets we had acquired and
then build out of our Dairy Division while our financial
performance was underpinned by the sales commitments made
by our IPO cornerstone. We estimated in our original financial
forecasts that the sales volumes and parameters written into
these commitments would have delivered net profits of some
$25 million in these first three years if honoured.
As we have explained at previous Annual General Meetings and
other communications to shareholders, the non-performance of
our cornerstone investor against these sales commitments was
a result of reasons internal to that company. There is no doubt
that this non-performance had a significant negative effect on
BFC, and our shareholders.
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Amongst other things, we had to embark on the dairy build-out
program without the benefits of the earnings “cover” which was
to be provided by these sales commitments.
I do not intend to dwell on this matter today or to reiterate
what we have stated previously in relation to the matter. It is
important nonetheless to reflect on the matter in order to
explain why we changed direction from a predominantly
international sales focus to a predominantly domestic sales
focus.
It is often said that every dark cloud has a silver lining.
The silver lining in this case was that the non-delivery of
committed sales into China caused us to accelerate our efforts
to build our brands in our home market.
Three years ago, the Company had no presence whatsoever in
the Australian retail market . . . we had no brands, no domestic
consumer awareness and no retail sales.
As of today, we have our award-winning brands selling in 930
Woolworth stores and over 400 Metcash stores (IGA, Foodland,
etc.). We have recently launched products into 50 Coles stores
across the country and into 140 “On the Run” stores in South
Australia. Our total sales have doubled each year over the last
two years and our sales mix has moved progressively from
predominantly commodity trading channels at the outset to
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Retail, Quick Service Restaurants, Food Manufacturing and
Distribution and with a wider mix of products than when we
started.
When we embarked upon the journey to build the Beston
Global Food Company back in 2012, we had the vision of
creating something distinctive . . . a food company which
produced only healthy, safe and nutritious products which were
free from all the artificial additives like colourings,
preservatives, accelerants and fillers typically used by the large
global food companies.
As many of you would know, this is not the first time that
Stephen Gerlach and I have built a business from the ground
up. We have done so many times before, and always very
successfully such as with the Beston Wine Industry Trust (now
owned by Li Kai Shing) and Discovery Holiday Parks, the largest
owner operator of caravan parks in Australia.
That said, it is fair to say that it has taken longer to get the
building blocks in place for the Beston Global Food Company
than what we expected at the outset.
Headwinds on the journey… (Slide 4)
There is no doubt that we have had a lot thrown at us during
our journey . . . including from having a major competitor buy
the Mozzarella plant at Jervois when we were bidding for the
UDP dairy assets and subsequently cut them up for scrap . . .
from having our cornerstone investor back-track on its pre IPO
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sale commitments . . . from having our dedicated natural gas
line cut off at one point by the energy provider because of
supply constraints . . . from dealing with the massive fire at
Thomas Foods, our neighbour at Murray Bridge, which almost
trebled our insurance premiums and took some $1.8 million
straight off our bottom line . . . through to, most recently,
dealing with a six month delay in receiving delivery of our new
state-of-the-art Mozzarella plant from Italy.
We have nevertheless held the course, both because of our
fervent belief in the end goals that we set out to achieve . . .
and because of the commitment to our shareholders who have
stayed with us despite the lack of returns since our first
dividend payment in 2016.
As stated in our Annual Report, like most businesses from time
to time, and especially these in start-up mode, we have got
some things “wrong”. That said, we have also done many
things “right” and in a relatively short space of time.
We have achieved most of what we set out to achieve over the
last three years in terms of creating a portfolio of healthy
nutritious food products. Amongst other achievements, we
have:
What have we achieved: last three years? (Slide 5)
• Built 8 new brands and developed over 50 different
product offerings
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• Won 70 medals in 3 years for quality and product
excellence
• Taken products which previously didn’t exist into the
major supermarket chains across Australia, including
Metcash, Woolworths, Aldi and Coles
• Built a traceability and anti-counterfeiting technology with
11 International Patents
What have we achieved: last twelve months? (Slide 6)
Over the last twelve months we have:
• Acquired and installed a state-of-the-art Mozzarella plant
at Jervois
• Restored the hard cheese, cream and butter plants at
Murray Bridge and Jervois
• Increased our milk in-take by more than 25% over the
prior financial year to 120 million litres
• Increased the productivity on our BFC owned farms with
an increase in herd numbers to around 3,000 dairy cows
• Won a significant contract with a major Australian retailer
for 30% of our Mozzarella production
• Launched a new adult snacking range of products, “Fancy
Bites”, into over 900 Woolworths stores nationally
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• Moved to 100% control of Scorpio Meats and rationalised
ready-to-eat meat production into one factory at
Shepparton, Victoria (under the new brand of “Australian
Provincial Foods”)
• Doubled sales revenues to $48 million (92% of which is
dairy revenue).
During this time, we have expended considerable time and
resources in marketing our products to get them known
amongst both wholesale and retail customers.
Key sales channels in Australia (Slide 7)
The key focus of the company, now that we have completed the
build out of the Dairy Division and implemented the marketing
strategies, is on achieving sales at acceptable margins.
To do this we have substantially expanded and strengthened
our sales team over the past six months. Our sales team has
increased from 4 people to 14 people with staff on the ground
in Melbourne (to service the Victorian and NSW markets)
Brisbane (to service Queensland and the Food Service sector)
as well as in Adelaide.
Hard Cheese producing high value Parmesan & Gruyere
(Slide 8)
The build-up of our sales team has coincided with the
expansion of our product range . . . with the bringing on-
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stream of our new hard cheese products, Gruyere and
Parmesan . . . in addition to our new Mozzarella cheese and an
increase in associated by-products (cream, butter and sweet
whey powder).
Once we had commercial quantities of Mozzarella, of consistent
quality, available for sale, in the fourth quarter of the 2017-18
financial year, we implemented a campaign to take our
“Edwards Crossing” branded Mozzarella to the market.
The resultant sales have taken a lot more time to put in place
that we expected.
In the food service and food manufacturing area, many of the
large users of Mozzarella have fixed contracts (based on
volume and time periods). We have had to demonstrate the
superior quality of our Mozzarella product and then wait until
these contracts have expired to shift them across to our
product.
In the retail area, we have had to spend monies with marketing
campaigns to promote brand awareness amongst consumers,
which again takes time. Pleasingly, we have found that retail
customers are “sticky” in that once they have discovered the
premium quality of our brands, they tend to stay with us and
become repeat buyers.
Notwithstanding the time delays, and expenditures on
marketing, we have received considerable traction in
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penetrating these markets, as can be seen from our revenue
results.
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Framework for execution of sales targets in place
(Slide 9)
Going forward, our market focus and strategy, is three-fold.
Firstly, to continue to expand sales revenues in the food
service, food manufacturing and quick service restaurants
(QSR) sectors away from the bulk trading channels where much
of our revenue was earned initially.
Secondly, and importantly, to substantially increase our share
of revenue gained from the Retail segments of the market.
Thirdly, to continue to grow our international sales.
Markets and Customers (Slide 10)
In this last financial year, 2017-18, the Wholesale markets
(food service, food distribution and QSR) accounted for 59% of
our sales, Food Manufacturing accounted for 33% and Retail
accounted for 8%.
In this current year, 2018-19, our plan is to continue to
increase revenues overall but shift more of our sales into the
higher margin earning Retail segment.
To explain the plans we have put in place to achieve this shift,
and outline the changes which we have made to our sales team
(and strategy), I would now like to introduce our General
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Manager, Sales and Marketing, Mr David Wilson and our
General Manager, Marketing, Ms Maryanne Noon to the podium.
After the presentation by David and Maryanne, our Chief
Financial Officer Darren Flew will speak to our Financial Results.
(SALES AND MARKETING 2018 AGM PRESENTATION)
Sales & Marketing (Slide 11)
Firstly, I wish to quote from the 2017/18 FY Annual Report
under the section – The Path Forward…
“Sales are expected to approx. double again in this FY19
financial year on the back of the increased milk supply and the
start-up of the Mozzarella plant.”
I would like to point out that in January to May this year we
averaged 2.3M per month in sales, however the average
between then and now has tripled. The focus is not only on
doubling or tripling our sales- it is about delivering sales growth
with healthy margins.
How have we prepared for this to meet our Annual Report sales
vision?
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Sales focus & team (Slide 12)
We have really put our sales operation under much scrutiny
and have identified our gaps, and by filling these will ensure
that we have the best opportunity to deliver or even exceed our
targets. I would like to introduce some recent appointments
and highlight some of these strategies that we have put in
place or going to put into place in the near future:
• In August we appointed an Account Manager focusing on
VIC and NSW: Mr Paul Glenister.
• Paul comes to us with a wide breadth of experience in the
Food Service and Retail sectors. We have identified that
VIC is a State that has the highest demand for Mozzarella
in Australia, so it made good sense to have a senior
account manager located in this State. Paul will also be
servicing NSW, until such time as we appoint a dedicated
Account Manager for NSW.
• Part of this restructure was also the appointment of Rob Di
Pietro – Rob also comes to Beston with a wealth of
experience predominately within the distributor network.
We are already experiencing very positive outcomes from
his appointment.
• We have also focused on the back-of-house operations i.e.
demand planning, sales analysis and sales and customer
support and have been able to develop existing Beston
staff into these roles. This work has provided us with
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much needed critical management information that assists
our decision making.
• Lastly, I would like to introduce Paul Richardson who has
joined the team last week and comes to Beston with 18
years’ experience in FMCG retail as a National Retail
Manager. This is an area that will be a significant focus
going forward and an area that we believe will be our
greatest opportunity.
What I mean about Retail being “our greatest opportunity” is
that it will give us the greatest margins. We need to be
shifting the Beston product sales focus more into retail as this
will give us the greatest margins. Re-iterating what the
Chairman mentioned in his address that FS, FM and QSR
accounted for approx. 95% of our sales in the last 18FY with
only 5% of sales being generated from Retail.
My background is not dissimilar to Paul Richardson who I just
introduced, when I joined Beston in May this year I brought
with me over 30 years’ experience in the FMCG retail.
Retail Focus (Slide 13)
Since I commenced at that time we have successfully launched
4 products into major retailers including Woolworths, Coles and
the Independent network i.e. IGAs, Drakes, Romeo’s and also
Aldi and Costco in Australia – these being Fancy Bites, Edwards
Crossing 200 gram range, Edwards Crossing Vintage 150 gram
and a 3 Cheese Entertainment Board that have just become
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available leading up to Christmas 2018 and Easter 2019
(Scorpio now Provincial Foods, as the Chairman mentioned,
have been stocked in Aldi and Costco for a couple of years).
Another exciting recent initiative is a launch of our retail range
in the 140 Award winning OTR convenience/BP stores in SA
(OTR are looking to expand their SA operation nationally).
Also, worth mentioning are our key partnerships- with a major
retailer where we supply 180MT per month for their private
label along with GYG and McCains.
The key strategy to penetrate Retail further is to grow our
existing relationships in MSO’s and the national key retailers.
While our focus will primarily be on Retail, especially now that
we have a dedicated team member with a strong retail
background, we will also continue to grow our Food Service
area. Another new area that we are going to focus on and
where we see potential is the manufacturing sector, for
example; as what we are currently doing with McCains.
International (Slide 14)
Part of the Sales and Marketing restructure has also been the
appointment of a GM International Business and Logistics being
Jen Christensen. Jen brings with her a wealth of experience
and education in International markets and logistics along with
her excitement and enthusiasm. Jen will be continuing to build
our current ASEAN markets with the focus on appointing new
Distributors in potential markets moving forward, including
Korea, Philippines, Japan and the USA.
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I will now pass to Maryanne our GM Marketing who will give
you an overview on how marketing supports our sales vision.
MARKETING
David has just given a great summary of how he has
restructured the Sales area of BFC and to a lesser extent how
we have been restructuring the marketing side of the Company.
I commenced with the Company in July this year and since that
time I have brought a number of marketing functions in-house.
Branding (Slide 15)
Over the past few months we have also put our brand
architecture under the microscope. Going forward, our Beston
Global Food Company Corporate Logo will take more of a
presence on our products and actually in all our marketing
across the board. For example, we have now embedded the
word ‘Beston’ into our ‘Edwards Crossing’ and ‘Mables’ logos
which goes on all our cheese packaging. In the process we are
also looking at how we best position all of our Awards on our
products.
Awards (Slide 16)
As the Chairman mentioned in his address, we have won a
grand total of 70 Champion, Gold, Silver and Bronze high
profile, highly respected and enviable industry Awards over the
past 3 years, including being named the Best Cheddar in
Australia in 2017 and the Best Colby Cheese in Australia in
2018 by the industry body the DIAA. More recently we have
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received an Emerging Exporter Award from Business SA 2018
Export Awards.
Presenting our products (Slides 17&18)
Now, to fit all these awards onto our products, we would either
have to produce enormous chunks of cheese (which would take
up most of the retail shelves) or else be clever in how we
design our packaging and present our products. We have
decided to be clever, as you will see from the examples of this
around the room after the AGM.
Our Marketing focus since the beginning of this financial year
includes the following areas;
• Digital Marketing (Slides 19,20)
It is worth noting that since we brought Social Media in-
house in August our Facebook followers for our main 3
accounts has increased as follows;
Edwards Crossing from 3,402 to 3,604 followers (an
increase of 6.3%), BGFC from 86 to 325 (an increase of
278%) with our Mables from 27 to 1,719 representing an
increase of 6266.67%)
• Website upgrade
We are in the process of upgrading our website after
receiving a financial grant to assist in this critical process-
and will be completed by the end of this calendar year.
The website design will be centred around driving leads
and sales.
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• Partnership with South Aussie with Cosi (Slide 21)
Cosi has delivered 6 posts reaching a staggering 324,122
people and engaged with 22,134 people.
• Jervois Factory Opening/Mural (Slide 22)
The Hon Steven Marshall MP, the Premier of South
Australia conducted the official opening of our Jervois
Factory referred to as the ‘Home of Mozzarella’ on 10
October which received exposure on all mainstream
channels. The Premier and the Mayor of the Rural City of
Murray Bridge Council Brenton Lewis unveiled a Mural
depicting the history of the factory and surrounding area.
• Farmer’s Tribute Cheese (Slide 23)
Whilst still in the development stages, we are partnering
with OTR who will stock our Vintage Cheddar Cheese in
140 stores, with proceeds going to South Australian Dairy
Farmers.
• Specific Events and Conferences (Slide 24)
Driving brand awareness and sales (i.e. Fine Foods 2018
under the Food SA contingent, China Expo and Thailand
Food Expo, Farmers Day)- we participate strategically in
applicable conferences and events held throughout the
year to drive awareness and sales.
There is much evidence that our marketing efforts, especially
over the last few months, have built consumer awareness and
translated into increased sales in the retail space.
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Thank you. I will now hand over to our CFO, Darren Flew.
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FINANCIAL PERFORMANCE
The statutory financial results for the company, as prepared
under Australian Accounting Standard Board (AASB)
requirements, were certainly disappointing in relation to the
bottom line outcome.
Sales revenues doubled to $47.9 million, compared with $23.8
million in the previous year.
However, net profit after tax was a loss of $12.6 million.
The earnings results were impacted substantially by the
Mozzarella plant being six months later than planned due to
unexpected delays from the equipment manufacturer. This
delay meant that approximately two-thirds of the planned sales
of Mozzarella and derivative products in the second half of FY18
did not occur. Sales would have been significantly higher again
had the original schedule for delivering and installing the plant
been met.
The financial impacts of the delayed commencement of
Mozzarella production on the FY18 result were quite pervasive.
Milk supply during the delay period was largely diverted into
the production of cheddar and other hard cheeses. These
products typically require between 3 and 9 months maturation
in storage before becoming saleable. This had four significant
impacts on the expected FY18 results:
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Impact of delay in Mozzarella (Slide 25)
• Firstly, there was reduced volume of product available for
sale as the increased cheddar stocks matured;
• Secondly, the high value by-products of Mozzarella
production, that is cream and whey, were not produced
during the six-month delay period;
• Thirdly, the prices received for cheddar when subsequently
sold into the wholesale markets tend to be influenced by
international commodity prices, which fell away in the
second half of the year at the time when our cheddar had
matured ready for sale; and
• Fourthly, lower overall production volumes limited the
recovery of indirect factory costs which were subsequently
expensed.
In addition to the impacts of the delayed Mozzarella plant start-
up, the results were also impacted by:
• Insurance premiums increasing by approximately 1.8
million (i.e. an increase of 250% over the previous year)
as a result of the devastating fire at the Thomas Foods
factory at Murray Bridge, which sits adjacent to our
factory.
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• Write downs of the inventory and receivables in Thailand
and China, which were partly attributable to exchange rate
adjustments.
A detailed explanation of the reasons for these financial results
is contained in the printed Annual Report and in particular on
pages 99 to 111.
I will be pleased to answer any questions on the financial
results when we move into the General Business section of the
meeting and will now hand back to the Chairman.
I would like to make several additional points on the financial
results to those made by our CFO:
1. Insurance Premiums
Firstly, in relation to our insurance premiums.
As you would appreciate, the dramatic increase in
insurance premiums has had a serious negative impact
on our financial results for FY18.
At the Board’s direction, a comprehensive review was
undertaken of our insurance cover and risks as part of
our insurance renewal program. Savings were achieved
by the restructuring of our underwriting panel.
The lead insurer for our new policy, to apply from as from
this month, is Berkshire Hathaway (replacing QBE) which
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is a good outcome and will result in annual savings of just
over $700,000.
2. BPAM Management Agreement
Secondly, the financial results for 2017-18 were not
adversely impacted by the arrangements in place for the
Company with its Investment Manager, Beston Pacific
Asset Management (BPAM). Indeed, as we have
explained previously, the fee paid to BPAM is less than
the actual costs incurred by BPAM, which the fee was
intended to cover. This fee, which pays for the Executive
Management team, has not changed for two years,
despite cost of living increases paid to these Managers
and other costs which have been absorbed by BPAM and
not passed through to the Beston Global Food Company.
If this arrangement had not been in place for the past
three years, the costs incurred in managing BFC would
actually be significantly higher. The arrangement was put
in place at the outset to protect the interests of
shareholders on the one hand, while providing an
incentive for BPAM on the other. Given that it has
contained the operating costs of BFC, it has achieved the
objective of serving the interest of shareholders over this
time.
BPAM has made it known that at some point, it would
accept the collapsing of this arrangement. However, that
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point will be when it is in the best financial interest of the
BFC shareholders to do so.
3. Snapshot of Investee Companies (Slide 26)
Thirdly, a significant part of the bottom line result can be
attributed to the poor performance of our Investee
Companies Ferguson Australia and Neptune Bio
Innovations in which we hold minority interests. The
investments which BFC has made in these companies
followed on from comprehensive financial and due
diligence reports prepared by independent professional
experts, primarily the major Australian account firms.
BFC relied on these independent reports when making its
investments, and were supported by historical
performance information.
For various reasons, these investments have not
performed as expected or was forecasted, and they have
therefore not paid dividends to BFC. Both Ferguson and
NBI have set in train initiatives to either sell the business,
(in the case of Ferguson Australia), sell securities in the
business to raise additional funds for growth (in the case
of NBI) or to consider other options to be put forward by
interested parties.
The reasons for the decisions by the two investee
companies to embark on these initiatives vary in each
case. BFC has advised the companies that it will not
stand in the way of these initiatives, but that it expects to
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realise at least the book value of its assets should we
decide to exit our investments via the processes now
underway.
Should we decide to exit, we will look to put in place
supply agreements to ensure continued access to the
products of these companies.
4. China
The final point I would like to make in relation to the
financials is on China.
As I touched on earlier, China has turned out to represent
a much smaller proportion of our revenues than originally
envisaged. To date, our China Division has not
contributed any profit to the Company, but rather, has
cost us a lot of money.
That said, we continue to see China as a key part of our
market development strategy.
We see China and Asia, more broadly, as an important
and rapidly growing market for our products. China is
now one of the largest markets in the world for imported
food and beverages and is growing every year.
According to a recent Rabobank Report (Michael Harvey,
“Asia’s Fast Moving Cheese Markets”, Rabobank,
September 2018) global cheese exports to China
exceeded 100,000 tonnes in 2017 and recorded annual
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growth of more than 20% between 2012 and 2017. While
the per capita consumption is low, in comparison with
consumption of dairy products in Western Countries,
there is plenty of headroom for growth.
Much of the growth in cheese demand in China as across
the whole of the Asian region in fact, is coming from the
rising popularity of pizza, which is increasing the demand
for Mozzarella. The growing appetite for pizza is being led
by the rise of relatively affluent young consumers, their
desire for convenience and their propensity to follow
western food trends.
A related trend is the increasing concern in China, as well
as in the other big 5 countries in Asia, is food safety. A
2016 study by the Financial Times found that food safety
had become the No 1 concern amongst Chinese nationals
(i.e. ahead of concerns about economic security or
terrorism).
Western foods, and in particular those from Australia, are
generally thought of as being of premium quality – that
is, of higher quality, safer, healthier and more
trustworthy than Chinese produced foods. Middle class
consumers in China value authenticity and products
which they consider to be healthier.
This is the “sweet spot” where BFC has sought to make
its mark in China over the past three years. We have
developed relationships with distributors and end
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customers and have worked hard to establish the
credentials of BFC as a reliable supplier of premium,
healthy, consistent quality dairy products.
Building brand recognition in the highly competitive
market of China is not easy. There are no quick wins. Yet,
the rewards from exercising patience and tenacity can be
considerable.
In the case of Kentucky Fried Chicken for example, it
took 10 years from the time of establishment in 1987, to
grow to 100 KFC outlets. In the last 10 years, from 1997,
KFC has grown to 5,000 outlets in 1,100 cities. China is
now the largest market in the world for Kentucky Fried
Chicken.
Just in case you are starting to get concerned that you
might have to wait 20 years like KFC for us to get results
in China, I can assure you that this is not the case.
To be sure, we have invested significantly in the China
market over the last three years, but this investment is
now paying dividends.
I am pleased to announce today that we have completed
negotiations for a Supply Contract with one of the largest
importers of cheese products into China. The contract
covers Mozzarella and our other cheese products and
provides for minimum purchases of 1000 tonnes per
annum, starting immediately.
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Initial purchase orders have been placed for two
containers of mozzarella, which are in the process of
being shipped, and we are anticipating follow up orders of
1 to 2 containers of mozzarella every two weeks once
these containers arrive in China. A Purchase Order has
also been placed for 10 containers of Cheddar Cheese, for
delivery in February 2019.
This contract will contribute more than $5 million in
annual revenues to the Company, at acceptable margins,
and is a significant step forward for the company in
building our sales base in China.
It is the result of two years of discussions and
negotiations, including in-market product testing, and
highlights how-long it can take to secure large sales
contracts in China. Notwithstanding our ability to match
the prices offered by other Cheese Makers from Australia
and New Zealand, key distributors in China often have
long term relationships with their suppliers and are
reluctant to break those relationships unless for good
reasons, such as superior quality or consistency of
supply. And, even when they make the decision to
change supply, the process of switching over typically
takes time and a dedicated effort by all involved (exactly
the same as applies in Australia).
31
GENERAL BUSINESS (Slide 27)
I will now deal with the formalities which bring us together
today.
The purpose of today’s meeting is to deal with the formal
business as set out in the Notice of Meeting.
The Company Secretary has advised me that a quorum is
present and that 170 proxies representing 105,854,353 Shares
or 23.88% of the shares on issue have been received. The
proxy votes received for each resolution will be displayed on
the screen.
I wish to ask that you state your name for the record when you
address the meeting or move or second a resolution.
You have all received the Notice of Meeting detailing the
business to be dealt with today. If there are no objections and,
in an effort to expedite proceedings, I ask that the Notice of
Meeting be taken as read. Thank you.
As each item of business is considered, I will invite comments
from the floor. After any discussion, I will be asking for a show
of hands to vote on the item. If I consider that the show of
hands does not reflect the views of the shareholders entitled to
vote, I will ask for a poll on the resolution. So as not to hold up
the rest of the meeting, we will conduct the poll at the
conclusion of all other business of the meeting.
32
If you wish to raise a question, please raise the coloured card
that you were issued with when you registered today. In the
interest of giving all shareholders an opportunity to ask
questions if you wish, I ask that any questions be kept to no
more than 2 or 3 parts.
FINANCIAL STATEMENTS & REPORTS
The first item of business is to receive and consider the
Company’s financial statements and independent audit report
for the year ended 30 June 2018.
The Annual Report containing these reports was distributed to
shareholders and announced to the ASX on 22 October, I hope
everyone has found time to read it. As you know a large part
of the document is mandated by Law and by Accounting
Standards. However, we do try to ensure it is useful as well as
compliant.
For now, I am happy to take questions on the Financial
Statements and Reports.
Our CFO, Darren Flew, will be pleased to answer any questions
on the financial reports of the Company. Shareholders are also
welcome to ask questions of the Company’s Auditor, Mr Brad
Pollock, who is present today. Are there any questions or
comments on the financial reports?
We will now move to the Resolutions to be considered at this
meeting.
33
34
RESOLUTIONS
Resolution 1 – Adoption of the Remuneration Report for the year ended 30 June 2018
To consider, and if thought fit, pass the following resolution as
an ordinary resolution:
(Slide 28)
“That, for the purpose of Section 250R(2) of the Corporations
Act, the Company adopt the Remuneration Report for the
period ended 30 June 2018 as set out in the Directors’ Report
in the 2018 Annual Report.”
I now formally move the motion that Resolution 1 be put to the
meeting in the form set out in the Notice of Meeting.
Is there a seconder to the motion?
Thank you Mr/s ______________.
Is there any discussion on this resolution?
I now formally put the resolution to the meeting.
Those in favour? Those against?
I declare the motion carried/not carried.
35
Resolution 2 — Re-election of Ms Catherine Cooper as a Director
To consider, and if thought fit, pass the following resolution as
an ordinary resolution:
(Slide 29)
“That Ms Catherine Cooper, having retired by rotation in
accordance with clause 59 of the Company’s Constitution and
being eligible and having offered herself for re-election, is re-
elected as a Director of the Company.”
I now formally move the motion that Resolution 2 be put to the
meeting in the form set out in the Notice of Meeting.
Is there a seconder to the motion?
Thank you Mr/s ______________.
Is there any discussion on this resolution?
I now formally put the resolution to the meeting.
Those in favour? Those against?
I declare the motion carried/not carried.
Thank you, and congratulations Cathy.
As the following resolution deals with my re-election as a
Director, I will ask Stephen Gerlach to take the chair for this
resolution,
36
Stephen Gerlach
Resolution 3 — Re-election of Dr Roger Sexton as a Director
To consider, and if thought fit, pass the following resolution as
an ordinary resolution:
(Slide 30)
“That Dr Roger Sexton, having retired by rotation in accordance
with clause 59 of the Company’s Constitution and being eligible
and having offered himself for re-election, is re-elected as a
Director of the Company.”
I now formally move the motion that Resolution 3 be put to the
meeting in the form set out in the Notice of Meeting.
Is there a seconder to the motion?
Thank you Mr/s ______________.
Is there any discussion on this resolution?
I now formally put the resolution to the meeting.
Those in favour? Those against?
I declare the motion carried/not carried.
Thank you, and congratulations Roger.
I will now hand the chair back to Roger for the remainder of the
meeting.
37
Resolution 4 — Renewal of Provisional Takeover Clause
To consider, and if thought fit, pass the following resolution as
an ordinary resolution:
(Slide 31)
“That the proportional takeover provisions under clause 25 of
the Company's Constitution be renewed for a period of three
years commencing on the day this Resolution is passed.”
I now formally move the motion that Resolution 4 be put to the
meeting in the form set out in the Notice of Meeting.
Is there a seconder to the motion?
Thank you Mr/s ______________.
Is there any discussion on this resolution?
I now formally put the resolution to the meeting.
Those in favour? Those against?
I declare the motion carried/not carried.
Ladies and Gentlemen, that concludes the business section of
this Annual General Meeting.
38
The path forward (Slide 32)
Earlier in this presentation, I made the statement that we
believe we have built a company that our shareholders can be
proud of. Over the past three years, we have taken two
substantial dairy factories out of receivership, rebuilt the
assets, restored the export accreditation and brought them
back into commercial production. We have also successfully
installed a state-of-the-art Mozzarella plant at a cost of $26.5
million.
We have taken the view that the long-term interests of our
shareholders would be best served by investing judiciously to
increase the productive capacity of our dairy assets as quickly
as possible, and by focussing on the quality of our production
processes in order to build a market presence and brand
reputation.
Pleasingly, this strategy has proven to be the correct course of
action and is now in the process of producing positive
outcomes.
As we have stated previously, the Dairy Division will be front
and centre of our plans to grow revenues and profits in the
short term.
We have a lot of productive capacity at our dairy factories
which will enable us to drive profitability as sales increase.
39
Asset utilisation (Slide 33)
Currently our Cheddar and Mozzarella production assets are
only operating at around 30 to 35% of capacity. The cream
cheese and specialty hard cheese assets have a current
utilisation of around 20 to 25% and hence have a lot of
capacity for increase output. Our Lactoferrin plant has only
recently been switched on and also has a lot of capacity to
meet the significant global demand for this product. Having this
capacity obviously means that we can take on more sales and,
in the process, achieve production cost efficiencies and
improved profitability.
And, as you heard earlier, we have a well-resourced sales team
in place which is actively working to fill our order book at
healthy margins.
We still have a long way to go on the journey to realise our
longer-term objective of building BFC into a robust and strongly
performing Australian based food company. But significant
progress has been made on this journey, in a number of areas,
as summarised on pages 20 to 25 of the Annual Report.
One of the points listed in that summary in the Annual Report is
the Dairy Fractionation Plant which is located adjacent to our
Jervois Dairy Factory and which we separately acquired in
2015. The significance of this plant to the future profitability of
BFC should not be underestimated.
40
The significance of Mozzarella & Lactoferrin
(Slides 34 & 35)
With the Mozzarella plant coming into production in Q4 of the
last financial year, we now have the capacity to produce more
products, including dairy nutraceuticals, particularly Lactoferrin.
Lactoferrin commands a relatively high price in the market
place (around $1,500 to $2,000 per Kilogram), versus the low
cost feedstock of whey liquid, which is a by-product of cheese
making. While whey liquid is also produced from our
manufacture of hard cheese at Murray Bridge (which is then
transported to Jervois), the new Mozzarella plant produces
much higher volumes of liquid whey, and hence the capacity to
produce more Lactoferrin.
In the Annual Report, we noted that we anticipated being able
to “switch on” the Dairy Fractionation Plant towards the end of
this calendar year.
I am pleased to report that we have now turned on the plant
and are producing Lactoferrin in liquid form.
Previously, under the former ownership of the Dairy
Fractionation Plant, this liquid Lactoferrin was shipped to
Melbourne where it was freeze dried and then milled to turn it
into powder for sale (primarily to infant formula manufacturers
and pharmaceutical companies).
Pleasingly, we have been able to source our own freeze-drying
plant from overseas which will be installed in late January 2019
41
and enable us to save considerable costs in the production of
the end product.
The global demand for Lactoferrin has increased significantly in
recent months due to a change in regulations in China which
mandate that Lactoferrin be included in all infant formula sold
in China and that it be at a certain level of purity. This demand
is expected to further increase over the next 5 years as shown
in the slide on the screen.
With the capacities which we have in the production of
Lactoferrin, along with Whey Powder, we now have the
opportunity to earn revenues and high margins from a focus on
dairy-based health nutraceuticals. This area of the business,
which uses largely the by-products from our cheese
manufacturing, will be pushed strongly over the next twelve
months to exploit the opportunities which exist in the global
market place for dairy nutraceuticals.
Closing Remarks and Thank-you (Slide 36)
Ladies and Gentlemen and Shareholders,
On behalf of the Board, I thank you for your attendance today
and your continued support for our great Company.
Before closing the meeting, I would like to update you very
briefly on the status of our search for a new CEO.
42
As you would all be well aware, our CEO since listing has been
Sean Ebert who has done a great job in taking the Company
through the first stage of our Growth Strategy.
Sean stepped down from the CEO role on 31 October after
advising the Board that he felt that he may not have the
appropriate skill set to take the Company through its next
phase of growth . . . which is very much around enhanced retail
sales, margins and brand penetration. I stepped up to become
Executive Chairman from 1 November and will remain in this
role until we fill the position of CEO.
The Board has conducted an extensive Executive Search
process for the position and has completed interviewing the last
of the short-listed candidates this week.
I must say that we had an extraordinarily talented and
experienced set of executives to choose from. All of those on
the short-list have worked, or are working for global companies
at the C-Suite level. It was a truly awesome list of applicants
that we had to choose from . . . which has made it very difficult
. . . but the process has also been an extremely strong vote of
confidence in BFC that so many high performing globally
operating executives would line up to work for our company
here in Adelaide.
I am pleased to advise that we have now selected our new CEO
and have extended an offer to the successful person.
43
Once the relevant employment contracts have been signed,
which we expect to occur in the next week or so, we will make
an announcement to shareholders.
I am sure you will all be pleased with the decision. The new
CEO comes with a wealth of experience from working in
international companies in the food industry.
I now close the meeting and invite you to join with the Board
and Management to enjoy some of the great foods produced by
our Beston Global Food Company – and in particular to sample
our new Mozzarella Cheese which will be served on Pizzas
produced by the very talented Chefs here at the Hilton Hotel.
Slide 37 (as per slide 16) – AWARD SLIDE SHOW
44
IF A RESOLUTION IS NOT CARRIED/RESULT IS UNCLEAR
Resolution number X was unclear/lost on a show of hands and I
now demand a poll.
POLL SCRIPT
We will now conduct the poll on the Resolution number X
I appoint the representative of Link Market Services be
Returning Officer and to conduct the poll. The representative
has power to co-opt as his agents, members of his staff and
staff of the company.
[Link or Chairman to continue]
Firstly, if there is any person present who believes they are
entitled to vote but has not registered to vote, would you
please raise your hand for assistance.
The persons entitled to vote on this poll are all shareholders,
representatives and attorneys of shareholders, and
proxyholders who hold admission cards.
On the reverse of your admission card is your voting paper and
instructions.
I will now go through the procedures for filling in the voting
papers.
45
In respect of any open votes a proxyholder may be entitled to
cast, you need to mark a box beside the resolution to indicate
how you wish to cast your open votes.
Proxyholders and Shareholders need to mark a box beside the
resolution to indicate how you wish to cast your votes.
Please ensure you print your name where indicated and sign
the voting paper. When you have finished filling in your voting
paper, please lodge it in a ballot box, which will be circulated,
to ensure your votes are counted.
If you require any assistance, please raise your hand (pause
whilst voting papers are completed)
Would you please indicate by raising your hand if you require
more time to complete and lodge your voting paper. (Read out
again if necessary)
(When no-one has indicated they require more time to
complete their voting papers, Chair to close the poll.)
Have all votes been cast? [PAUSE] I now declare the poll closed
and formally charge the Returning Officer to count the votes.
After the votes have been counted, the results of the poll will
be released to the ASX and will be displayed on the company’s
website.
Go to “Closing Remarks”.