Bega Cheese Limited (BGA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Bega Cheese Limited Annual General Meeting Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Barry Irvin, Chairman. Please go ahead.

Thank you, and welcome to Bega Cheese's Virtual Annual General Meeting. We are holding this virtual meeting due to COVID-19 and associated restrictions. As we have a quorum, I now declare the meeting open. Details about how shareholders can participate have been set out in the Notice of Meeting and online virtual AGM guide. Both documents are also available to view and download at the bottom of your screen. I appreciate that some shareholders may have to leave before the conclusion of the meeting. I, therefore, formally open the poll on resolutions and encourage shareholders to submit their written questions online now. Questions will be received in either written form or by telephone, moderated for relevance and duplication and communicated to the meeting. I will then respond to requests for each item of business, or where relevant, ask either the Chief Executive Officer, Chief Financial Officer, company auditor or one of my fellow directors to respond. All polls will remain open until the conclusion of today's meeting. At today's meeting, we have a number of formalities to deal with, including the consideration of the group's 2021 Annual Report, the adoption of the Remuneration Report, the election of directors, directors' fee pool increase and amendments to the constitution. If I move to Slide 3, I am pleased to welcome new shareholders and our long-term shareholders who know the company so well and have supported the strategy and directors of the company over many years. Let me introduce my fellow directors: Raelene Murphy, Patria Mann, Peter Margin, Terry O'Brien, Rick Cross and Harper Kilpatrick. I'm also pleased to welcome Paddy Carney, representing our auditors PricewaterhouseCoopers, our legal counsel David Ferguson from Addisons and Julie Stokes from Link Market Services Limited and a number of Bega Cheese staff. I have received no apologies. We will now move on with the formal part of the meeting. I'm pleased to present along with Bega Cheese CEO, Paul van Heerwaarden, the 2021 Financial Year Annual Report. Moving to Slide 5. The 2021 financial year will be long recognized as the year when the company made a transformational acquisition in Lion Dairy and Drinks and delivered a very strong financial performance in challenging and changing markets. Revenue of $2.07 billion, inclusive of 5 months of Lion Dairy and Drinks ownership, continues Bega's record of consistent growth. We were very pleased to announce a statutory earnings before interest, taxes, depreciation and amortization of $182.7 million and a normalized EBITDA of $141.7 million. Importantly, the balance sheet continues to strengthen with a leverage ratio of 2.25 at the end of the 2021 financial year. We were pleased to announce our successful bid of $528 million for Lion Dairy and Drinks on the 26th of November 2020 and complete our net capital raising of $393 million on the 17th of December 2020. The acquisition was completed on the 25th of January 2021, and the business then embarked on an integration program. It is worthy of note that from an accounting perspective, Lion Dairy and Drinks has been provisionally assessed as a bargain purchase. While the 2021 financial year was a year of market volatility and significant corporate activity, it is important to recognize that the team remains very agile and committed to managing all of the operational and market impacts of COVID-19. I thank our dedicated team at Bega and all those in our supply chain that worked tirelessly to ensure our people were safe and our product was delivered to our customers in Australia and around the world. COVID-19 has had a particular impact in the food service, convenience and Daigou channels. While we expect that markets will return to a more stable footing post-COVID-19 lockdowns, our view there has been -- our view is there has been a structural change in the Chinese infant formula market, which will not recover to pre-COVID-19 levels. The change has impacted our infant and toddler dairy nutritionals business, which we are managing through the continued development of other markets and the rightsizing of our manufacturing infrastructure. It has been good to see the improved farming conditions in almost all of our milk collection regions. While there was only modest supply growth of 0.6% across the industry, there is far more positive outlook amongst farmers as they receive strong prices and experience good farming circumstances. Competition for milk remains highly competitive, reflecting positive market conditions and overcapacity within the industry. The company continues to align with United Nations Sustainable Development Goals, and we were very pleased to announce the mission targets for the business going forward for both 2030 and 2050 and embark on what we believe will be a number of significantly important pilot projects associated with the principles of the circular economy in the Bega Valley. The significant legal cases with Kraft and Fonterra are now concluded. The outcome confirms Bega's right to use delivery associated with the Bega Peanut Butter and our brand usage rights. The outcome of each case has meant that Bega has not had to make any changes to the approach we were taking in the market. Moving to Slide 6. I think it is fair to say that it is values that drive this company. Our values have seen us create a strategy that embraces everything from how we behave commercially, our impact on our community and environment and the approach we take to the business we conduct. It is very important to us that we continue to have that position for our customers -- that passion for our customers, I'm sorry, we grow our people, invest in our future and support one another across our entire supply chain from our dairy farmers, peanut growers and citrus producers to our staff, service providers customers and community. We are proud of the progress we have made in 2021 in terms of the development of the business, the values that we have maintained and the financial outcomes. [Technical Difficulty] Are we online again? My apologies for those listening. Something obviously went wrong with the call there. The voice -- the joys of virtual meeting. We are on Slide 7, our transformation to becoming The Great Australian Food Company. I think this slide is the great demonstration of the values and approach I was talking about in the previous slide. The 2021 financial year was an important year in many ways. The consistent and careful growth of the company, both organically and through acquisition is well illustrated by this slide. It is a great story as we have worked with many dedicated people over the years to get to this important point. It is well documented that the dairy industry has had its challenges and is certainly not for the faint hearted. We have always been a company that believed in our strategy and the importance of harnessing all the knowledge, skills and experience necessary to be agile and quick to respond to both challenges and opportunities. This was very clearly demonstrated this year with the acquisition of Lion Dairy and Drinks and can be seen at many points in our history including the Tatura acquisition, growth in our core capabilities with the acquisition of Strathmerton, the much celebrated acquisition of Vegemite, the acquisition of Koroit and the Peanut Company of Australia and the many investments and occasional divestments we have made throughout our history. August 2021 marked the tenth anniversary, the 10-year anniversary of our listing on the ASX, which means that some of the -- some automatic changes occur regarding our shareholder cap. I'm pleased to say that our listing has been a great success and important contribution to the -- contributor to the ongoing goal of creating The Great Australian Food Company. Moving to Slide 8. I will not dwell on this slide for long, except to say it captures well the core capabilities of the business, and its continued success. We are now in a position where we have a diversified portfolio of market-leading brands and efficient distribution network servicing our customers, a globally competitive supply chain and strong direct relationship with our farmers. These combined capabilities along with deep industry knowledge, a strong balance sheet, disciplined capital management and importantly, a well-established approach to risk management, government -- governance, sorry, and sustainability mean that we have a wonderful platform for growth. Moving to Slide 9. Paul will speak in more detail on his presentation -- in his presentation on the strength of our brands, but I can say that clearly, the acquisition of Lion Dairy and Drinks is an important step change in both our product and brand portfolio. We are very proud of the wonderful brands that are now owned by Bega. Quite frankly, we've been bringing iconic Australian brands home. Whether that's Vegemite, Farmers Union, Dairy Farmers, Pura, Dare, Juice Brothers or the Masters brand in Western Australia, we have been bringing some of Australia's favorite brands back into Australian ownership and building on the strength of those brands. We are delighted with our progress and transformation from a position where only 5 years ago, less than 20% of our revenue was in brands. In the 2021 financial year, with just 5 months of Lion Dairy and Drinks ownership, we have 73% of our sales represented by retail and foodservice products, and we expect this to increase to an excess of 80% with a full year of Lion Dairy and Drinks ownership in the 2022 financial year. Ladies and gentlemen, Slide 10 will be the -- will be my last slide before handing to Paul, and I will join you again at the end of Paul's presentation. The Board, executive and I think that this is a very important slide in the context of all that is occurring in the world today. It was important for Bega to confirm its approach to emissions by announcing Scope 1 and Scope 2 emissions targets for 2030 and 2050. Given the acquisition of Lion Dairy and Drinks, we are using 2021 as our baseline for these targets. We have announced a goal of a 50% reduction in emissions intensity and a 40% reduction in absolute emissions by 2030. Perhaps to explain that a little more, obviously, we have different products and different facilities in our portfolio that have different emissions profile. By announcing a reduction in emissions intensity, it means that every one of our staff members, every person involved with the operations at Bega Cheese can think about how we can achieve a 50% reduction in emissions on the products that they are responsible for. If each of our sites is working towards a 50% intensity reduction, we believe that, that will yield us, in absolute emission terms, a 40% reduction by 2030 and of course, a net zero emissions by 2050. Sustainability and emissions targets are considered to be an important strategic priority for the business and have been included in annual performance assessments for both Paul and myself. The Board and I and the senior executive team believes that these are minimum goals, and we will, of course, be ambitious to achieve even better outcomes. Dwelling for a moment on circularity. We are very proud that we have been championing along with KPMG and Rabobank an approach to circularity that is community-wide in the Bega Valley. We have launched a non-distributing community-based cooperative, which Bega Cheese, Rabobank, the Bega Valley Shire Council and many other organizations from the corporate and research sectors are joining to pilot projects with the goal of making the Bega Valley one of the most circular regions in the world. We believe this will be an example which will be followed throughout regional Australia. It will assist us with sustainability initiatives across all our sites and importantly, it sees the collaboration with government, universities, small and large business, community organizations, indigenous communities to make sure that we are managing our environmental footprint across more than just emissions and that social and economic outcomes build stronger and more resilient community for the future. I will now ask Paul to present his perspective on the 2021 financial year. Paul, I hand it to you.

Thank you, Barry, and thank you to everyone for joining us this morning. As I normally do, I will take you through an overview of the year, a year of challenge, opportunity and transformation. If you can turn to Slide 12 of the presentation, you will see a list of items, some of which Barry has already touched on and others that I will provide more detail on later in the presentation, including the financial performance and the transformational acquisition and integration of the Dairy and Drinks business. I would like to draw your attention to a few points on this slide including the completion of our lactoferrin investment at Koroit and the organization and process review. Both of these initiatives were successfully completed in fiscal year 2020, with the full year benefit of the investments providing material contribution to the FY 2021 result. While I will not dwell too long on history, I would also like to make mention of our transaction 4 years ago when we made the decision to sell an infant formula dryer at Tatura and our canning and blending facility at Derrimut for $200 million to Mead Johnson, who were subsequently taken over by Reckitt Benckiser. We also entered into a 10-year access and service agreement, which will provide approximately an additional $100 million in earnings over the contract period. Early this calendar year, Reckitt, as they are now known, served a termination notice on these agreements. As a result, they were required to provide termination payments to Bega, which I will touch on later. While our preference was to continue these contracts, the material payments we will now receive will allow us to reset this part of our business and position it for further growth and consolidation. From a personal perspective, the other 2 points that I would like to emphasize on this slide is our continued focus on safety and diversity and inclusion programs and, as Barry mentioned, the positive conclusion of the litigation with both the Kraft and Fonterra cases that commenced a few years ago. Moving to Slide 13, and Barry has touched on a couple of these points earlier, but it is worth reflecting for a moment on the continued growth of the company over the past 20 years in both acquisitions and business development. Importantly, you can see from the pie charts on the right-hand side, the increase in sales from our branded business, which will continue to grow in FY '22 as we see the full year impact from the acquisition of the Dairy and Drinks business. Slide 14 provides headline financial numbers, and it is very pleasing to see our leverage ratio continue to improve, noting that the 2.25 leverage does not include the full 12 months of earnings from the Dairy and Drinks business. Barry mentioned some of our earnings and revenue numbers earlier, so I won't draw your attention to all of them. The statutory profit after tax of $72.2 million and a normalized profit after tax of $39.6 million both increased compared to the prior year. I would also point out the EPS numbers reflect only 5 months of earnings from the Bega Dairy and Drinks business. Moving to Slide 15. We always think it is important to be clear on normalizing items in the result and assess the business on its underlying performance. Obviously, this year, there was a significant amount of activity with the acquisition of LDD, and we therefore had quite a few adjustments, which I'm happy to highlight. From a statutory perspective, we achieved EBITDA of $182.7 million, EBIT of $107.7 million a profit for the year of $72.2 million after income tax expense. The first key normalizing adjustment was the transaction costs related to the Lion Dairy and Drinks acquisition, which, in broad terms were made up of stamp duty of approximately $30 million, transition costs of $13 million, redundancy for the Lion Dairy and Drinks business unit of $6.5 million and then approximately $6 million of consultancy costs and advisory costs. Barry mentioned earlier that the LDD acquisition has been provisionally assessed as a bargain purchase, which is due to the difference between the price paid for the asset and the provisional balance sheet value from our initial valuation work. The gain is provisional at $70 million, which we are very comfortable with at this stage of the assessment. As I mentioned earlier, we also received part of the termination fees from Reckitt in FY 2021, which contributed $29.8 million to our statutory result. We will receive the remainder of the termination fees in FY '22. As previously announced, we also normalized the Kraft legal settlement, which amounted to $9.3 million. We do have some other normalized cost items relating to software and service and the finalization of the Fonterra legal costs. All of the above sees our normalized result of $141.7 million of EBITDA compared to the previously mentioned statutory EBITDA of $182.7 million. It is worth noting, we did incur just under $10 million of restructuring costs associated with the IWS transition and also the completion of our organizational process review, which were not normalized. On Slide 16, we have the balance sheet, which reflects the acquisition of Lion Dairy and Drinks which, as previously mentioned, has been provisionally assessed as a bargain purchase with approximately $600 million of new assets now added to our balance sheet, including a property portfolio of approximately $400 million. We were very pleased with the strong shareholder support and the success of our capital raise of $393 million to fund the acquisition of $528 million, which was the net cost after transaction finalization. Pleasingly, net debt only increased by $94 million to $325 million, which sees our EBITDA to net debt leverage ratio at 2.25x, the improvement on last year. The calculation only includes 5 months of earnings from Bega Dairy and Drinks, and we would, therefore, expect that the debt leverage ratio will reduce further as we phase in the full 12 months of BDD earnings in the calculation. Moving to the next slide. Operating cash flows were down slightly from last year, but still very strong. We were able to make good progress last year with working capital improvements, and obviously, those gains were not able to be repeated in this year. We built a small amount of additional inventory towards the end of the financial year as we took advantage of the opportunity for some late season milk procurement and had one of our largest peanut crops in recent times, with the crop exceeding 20,000 tonnes. We announced stable dividends of $0.10 per share for FY 2021. Given the recent capital raise, the dividend equated to $30.2 million in distributions, increasing from $21.4 million in FY 2020. Turning now to an update on the Lion Dairy and Drinks integration on Slide 18. In summary, we were very pleased with the success of the integration to date. We initially implemented a 100-day plan, which was focused on stabilizing the business and conducting an assessment to ensure we understood any cultural differences and plan the most appropriate way to navigate and manage the change process. It was important to retain talent and keep people engaged within the Lion Dairy and Drinks business. That initial first step then allowed us to plan for our synergies. Progress in realizing the expected synergies is progressing well, and we are on track to achieving $36 million in synergies in our first full year of ownership and $41 million of annualized synergy savings in FY 2023. These outcomes are consistent with our initial modeling and announcement to the market. As part of the acquisition, we entered into a transition service agreement with Lion for 15 months, and we have made significant progress in transitioning a number of services including payroll, accounting, treasury and tax, with only technology infrastructure remaining to be transitioned, which we hope to complete early in the new calendar year. Having completed the initial 100-day integration program, we quickly turned our attention to building momentum and allocating capital to new projects within BDD. We have already begun to invest in a capacity upgrade at our yogurt facility in Morwell, which will meet market demand and provide further growth for this category. We have also invested in new packaging capability at our Wetherill Park facility, which will contribute to meeting our sustainability goals on packaging while also providing good financial return. Earnings performance for the first 5 months of our ownership of BDD was above expectation. While we have been very pleased with the integration and momentum in the business, it has obviously been a somewhat challenging time in recent months with operational challenges and channel disruption in our convenience and foodservice trade as a result of COVID-19 and the associated lockdowns. The lockdown should hopefully become a thing of the past, and we are confident of the continuing momentum that has developed across the business. Turning to Slide 19. We made mention throughout the presentation that FY 2021 was a transformational year for the business. I think this slide more than any other illustrates the transformation and the strength and diversity of our business. It is worth noting none of these brands existed in our business a little over 4 years ago. This is a true transformation, which we are very proud and excited about. A brand portfolio which includes iconic brands such as Vegemite, Bega, Farmers Union, Dairy Farmers, Pura, Dare, Yoplait, Mildura, alongside smaller brands but profitable including Zooper Dopa and the emerging brands, including B Honey, we now compete in major food and beverage categories and have a dominant market share in many of them. These numbers include structured convenience and grocery channels, but do not include a lot of our route trade business, which continues to grow and services up to 30,000 customers a day across Australia, a really impressive portfolio of brands and a reach across multiple channels in Australia and in international markets, which we look forward to continuing to grow and expand. I won't dwell on Slide 20 for too long. However, it does provide a real sense of the extent of our manufacturing network across Australia. We now have 20 manufacturing facilities, creating our wonderful product range and supporting our extensive chilled distribution network across the country. As Barry mentioned earlier, this extended network provides us with scale and flexibility as we continue to optimize and extract value not only milk, but also citrus and peanuts supplied by our farmers across the country. Before handing back to Barry, I would like to make mention of our progress on our CSR targets on Slide 21, which are aligned with the United Nations Sustainable Development Goals and include our 5 focus areas of food and nutrition, diversity, inclusion and equality, greenhouse gases, packaging sustainability and water sustainability. I will not go into the detail on the slide, which we have reported on in previous years and provides a good update across each of these focus areas. I would comment that in addition to good progress on our improved nutrition targets, we have made good progress on diversity inclusion. However, we still have a lot of work to do in this area. Barry covered our carbon emission targets earlier, which provides further focus for the business as we address the challenges from climate change. The importance of packaging has increased as we grow the proportion of our branded food products across our business, and we are on track to meet our commitments to the 2025 packaging covenant. I will now hand you back to Barry.

Thanks, Paul. It's certainly been a big workload for you and the team in a very challenging environment. I am pleased to publicly acknowledge the efforts of the entire team in terms of what we have been able to achieve in the 2021 financial year. I will take a moment to reflect on how those efforts have positioned us today. Moving to Slide 23 and where we find ourselves today. Sorry -- as we have repeatedly said, we acknowledge the work that has been done to date and the progress of all the initiatives that we have put in place inclusive of the progress of the Bega Dairy and Drinks integration. We continue to see our financial performance improving and the benefits of scale that we are now achieving given the successful combination of the traditional Bega business and the newly acquired Bega Dairy and Drinks. That does include the strengthening of our balance sheet in the past year and an expected further strengthening in the year ahead. As Paul covered in his presentation, we now have a strong suite of brands, many in quality growth categories, which provide a great opportunity moving forward. The geographic product and channel diversity that we now have, whether in the procurement of milk, citrus and peanuts, or in our customer base, which now includes major retailers, structured convenience and foodservice across the country contributes to building greater business resilience, which we think is even more important in these changing and unpredictable times. I would say that we should never forget that our diversity of market includes international markets where we continue to have a strong presence exporting to approximately 40 countries around the world. I do believe that our focus on geographic diversity in Australia for milk procurement and in Australia and internationally in terms of market and customer channels has assisted us -- has assisted in us managing challenging times, whether that be in the procurement of raw materials or disruptions in particular markets. We have again seen strong farm gate milk prices and significant competition for milk. In some circumstances, competition for milk has seen farm gate prices exceeding returns for particular commodity product streams. This circumstance reaffirms the importance of our strategy to have a large proportion of our business focused on higher value and branded dairy and food products. The dairy industry has seen modest growth in supply in the 2021 financial year and expect to see further growth in 2022. There is certainly more optimism amongst dairy farmers as they experience another year of strong prices and good seasonal conditions. As I mentioned in my opening comments, we have a view that there is a structural change in infant formula and toddler category, particularly related to China and associated with the collapse of the Daigou channels and changes in consumer preferences in that market. We have been producing infant and toddler formula products for a great many years. It is very much a part of our core competency, and we are very pleased to continue to have that as an important part of the overall business. In our many decades of servicing this category, we have seen both major downturns in market and significant demand increases. We've always managed and adjust quickly to the market circumstances we find, which has included responding to high demand but also realizing assets at higher points in the market and considering opportunities for consolidation. Our response to changes in the market include the rightsizing of our infant formula capacities and the directing -- and directing investment to ensure that we have the right assets to service our existing customers and no doubt, new customers as the market begins to stabilize and inevitably grow again. The importance of the capability to be agile and adjust to changing circumstances in the market has never been more evident than in the 2021 financial year, whether that be changes in international markets or the impact both operationally and in market of COVID-19 and the associated lockdown. As Paul mentioned in his update, we continue to manage the many impacts of COVID-19. Clearly, the lengthy lockdowns in Sydney and Melbourne over the last few months has impacted our business, in particular, in the foodservice and convenience channels. We have been very pleased, as I am sure the community in general is, to see high vaccination rates facilitating the opening up of our communities and return to more normal market setting. Moving to the last slide in my presentation, after which, Paul, and I will be happy to take questions on the annual accounts. I always think that it's important that all the stakeholders at Bega Cheese, be they shareholders, suppliers, staff or the community are aware of our focus and priorities for the coming year. As is always the case, and I would emphasize it again today, the safety and well being of our people, and by that I mean all associated with Bega Cheese is our #1 priority. We continue to deal with the impact of COVID-19. A COVID-19 committee, which includes Paul and myself, along with key executives and those directly managing COVID-19 internally remains in place to ensure all resources are available and we are able to quickly respond to the ever-changing circumstances associated with COVID-19. We are very pleased to have our major cities coming out of lockdown. As mentioned earlier in the presentation, lockdowns have particularly impacted our convenience and foodservice channels, and as with all in the community, we are delighted to see businesses reopening. There are continuing impacts from COVID-19 including issues such as shipping costs and availability, supply chain disruption and general operational market instability. We, of course, manage all of those carefully, and I would commend our team and all those who we work with on their efforts and outcomes to date. We have spoken a lot of the importance of realizing the synergies associated with the acquisition of Lion Dairy and Drinks, which we now refer to as Bega Dairy and Drinks. As reported, we are very pleased with the progress we have made in integrating the 2 businesses and the effectiveness of our program to realize synergy. It is our plan to increase our investment in brands, markets and capabilities. We see opportunity in increased capacity, particularly in growing market segments; greater promotion of our brands; adding end market capability internationally; and supporting new product development and innovation to deliver our customers a great range of dairy and food products. We will continue to invest in our manufacturing and value-added infrastructure. There are further manufacturing optimization projects available to us, particularly those associated with the Bega and Dairy and Drinks integration. However, we will take a very deliberate approach to ensure the right long-term infrastructure to effectively service our customers is in place. While coming together of our traditional Bega business and the Bega Dairy and Drinks business is an important consolidation within the Australian dairy industry, I do believe there is still more consolidation required to maximize the opportunities for all involved in the industry from dairy farmers through the entire supply chain to our customers in Australia and around the world. As is always the case, Bega remains well placed to consider opportunities both internally for our business and externally should opportunities arise. As Paul mentioned in his report, we have a strong focus on diversity and inclusion in our business. While we still have work to do, this is an important initiative in the business that continues to have the full support of the Board and executives and is very much part of our priorities. It was very important that we announced both interim and long-term emissions targets at our results conference on the 27th of August, and I'm pleased to have released our 2021 Sustainability Report last week. The company's history of having deep engagement with our farmers and the communities in which we operate means that sustainability is part of our DNA. The company has origins that reach back more than 120 years, and indeed, we have some dairy farmer suppliers whose families have provided milk to this company for that entire period, generations of commitment. It is therefore natural for us to think about the long term to support the sustainability issue that will stand the test of time. I'm particularly pleased that the company is leading an important circular economy pilot program in the Bega region with the support of many, including our corporate associates, universities and research organizations, local and state government and our community. I'm sure we will create new approaches and new opportunities that significantly add to the sustainability outcomes in the regions and beyond. Ladies and gentlemen, it has certainly been a significant year for Bega Cheese. I hope the report you have received this morning reflects this, and I would like to thank all of those involved with the company for their ongoing support. And I'm now happy to take questions. Are there any written questions, Brett?

Yes, Chairman, there's quite a number. The first one comes from [ Denzil Flores ]. And he asked, in relation to the dividend reinvestment plan, any excess amounts not equal to a whole share or loss to the shareholder and not carried forward, this has impact on small shareholders. Are there any plans to allow uninvested dividends to be carried forward as many ASX 200 companies do?

Yes. Thank you, [ Denzil ]. Yes. In response to that question, there was, in fact, an error in the last dividend statements that occurred -- that were sent out, not informing shareholders that those fractional small amounts would in fact be rolled over. So they will be rolled over to the coming year, and so they are not lost. And yes, it will be our policy to make sure that occurs as it was before.

Thanks, Chairman. The next question comes from [ Jeffrey Weiker ]. What happened to the Kameruka brand?

So thanks for that. That's a little bit of nostalgia there. We do still own the Kameruka brand and we do sell it in the Heritage Center in Bega, which unfortunately because of COVID, it's been temporarily closed, but we'll be looking forward to reopening. But the brand is very much a local brand at this point in history.

Next question comes from [ Peter Ciattino ]. Are the Board looking at growing the business by further acquisitions of 4 iconic Australian brands such as Arnott's biscuits?

I think -- so I think what I would say is that we are very proud of the brands that we've been able to repatriate, if you like, to Australia. So some of those iconic brands that I mentioned earlier, I'm delighted that we've brought them home. But it is fair to say that the first thing we do is consider whether the particular acquisition fits our business model and business plans and is commercially appropriate in terms of adding it to our business. So we, of course, as I've mentioned, do stay alert to opportunities and are always delighted if those opportunities include iconic Australian brands, but the first thing we have to do is make sure they fit the business strategy and make good commercial sense for the company.

Thank you, Chairman. The next question comes from [ Ken Wood ]. Where do you see the Tatura's complex future going forward as the prices offered to suppliers were uncompetitive, thus the loss of supply and the resulting loss of jobs? For me, it's a great concern to the future of the manufacturing site with a [ plentiful ] supply right at the back door. It's a mystery to me.

So look, there's probably a multipronged answer to that question. I think the first thing I would say is that the profile of Northern Victoria milk supply has changed from the point of view that a lot of that milk supply has become destined for market milk and higher-value domestic products. And therefore, there are a number of different pricing profiles, if you like, offered to farmers. I would not agree that we are uncompetitive. We seek very much to be competitive. But in saying that, and I think it's unfortunately well documented. We have to ensure that the price we pay is reflective of the market and returns that are received from that market. I think in Northern Victoria, particularly in recent times, we've seen that there's been a significant impact where the price offered to farmer has been -- has not been reflective of the market, and that's created more financial disruption to suppliers than a more careful assessment of what the price might. Having said that, as I said, we seek to be very competitive. We have maintained our approach in many years that we don't offer special deals, but the same opportunity for all. In terms of the Tatura infrastructure, our focus for a long period of time has been to make sure that, that infrastructure processes high-value dairy products because at the end of the day, as described earlier, we recognized that the demand and competition for milk and indeed, the destination for that milk is different to what it was, say, a decade ago. The most recent job losses are as a result of the change in arrangements on the Reckitt drive that Paul mentioned earlier. But just to reassure people, we are making investments in the Tatura site, and we are continuing to make investments in the Tatura site to make sure that indeed we can meet the needs of our customers and in particular, in the areas of infant formula and toddler nutrition and in the [ franchise ]. So we're still very much committed to the Tatura site. We're still very much committed to Northern Victoria, and we still see good opportunity there both from a farmer perspective and a business perspective.

Thank you, Chairman. Next question comes from [ Andrew Fitzsimmons ]. What more can your company do to further engage with the climate change crisis?

So I think the announcements that we made on the 27th of August, which both Paul and I have mentioned in our presentation, have been really important. So that setting of goals around emissions and both interim and long-term emissions are important around Scope 1 and Scope 2. And it is fair to say that a lot of the work that we are doing in circularity will allow us to also focus on Scope 3 emissions. And I think -- so it's very much a focus of the business. I think it has an increasing priority. But as mentioned earlier, it's been, those sustainability initiatives that we've put in place and are very much a part of our culture will continue with strong focus in the future.

Thank you, Chairman. Next question comes from corporate shareholder, [ Amanda Rainworth ]. My team, we like mild block cheddar cheese, but all we can find is tasty block cheese by all makers. Tasty cheese is too salty and uninteresting. We have tried all the supermarkets in our area, but no luck. Could you please supply ordinary mild block cheese for people like us?

I might just check with Paul on this one, but I do believe that we still produce mild cheddar cheese. And I think that the reality is it is obviously one where our retailers and various outlets decide what products they want to stock. But my understanding is that, that product is still available, but probably has limited availability given consumer preferences. But I might just check with Paul to see what he can share, throw any more light on it.

Thanks, Barry. And you could try a Colby, that will -- if you haven't already done so, you might be aware of the Colby style, but that's certainly produced similar to a cheddar. A slightly different production technique, but it is similar to a milder cheddar. And if you find the taste is too salty and you're not that keen on it, you might try the Kameruka Tasty Cheese in the Heritage Center that Barry mentioned earlier, which is a very good cheddar. But certainly, have a go at a Colby. And if you have any problems with that, perhaps -- but they could get in contact with you and to me, and we can try and sort out a more accurate and helpful answer for this.

Yes. Thanks, Paul.

Thank you. Next is more of a supportive comment, Chairman, from [ Richard and Edith Jackson ]. Can the Chairman ask that all shareholders familiarize themselves with all of the Bega food consumer products for those not familiar with the range? Then they are able to support the company by purchasing these products for their enjoyment and to support the company overall.

Thank you, [ Richard and Edith ]. And I absolutely agree with you. I think in the presentation, we had a good profile on one of our slides around all the brands. But maybe just to test my memory, I'd say, obviously, they range from Bega, Simply Nuts and Peanut Butter, through to B honey. But then we've got the Pura milk, Dairy Farmers milk, Vegemite, Farmers Union, Daily Juice, Dairy Farmers yogurts, Farmers Union, The Juice Brothers, Dare, Yoplait, obviously, as Paul mentioned earlier. So a wonderful array of products, but I absolutely agree, we'd be delighted to have all our shareholders in Bega, all our stakeholders out there supporting those brands.

Thank you, Chairman. The next question comes from [ Edmond Peru ]. Does Bega use inter-capital/interest state rail freight by Pacific National, Qube or FCT on routes such as Kokomo for Strathmerton, Dennington for Koroit to Melbourne, Melbourne to Sydney, Brisbane, Cairns, Sydney to Adelaide, Perth and Darwin. Has Bega considered increasing use of rail given the environmental benefits, and what can be cost advantages over less efficient, greater emitting road transport?

Obviously, with our manufacturing infrastructure and our presence of plants in all states, our fresh chilled product is obviously largely produced in the regions where it's consumed. In terms of ambient product, we do use rail freight, obviously, across to Adelaide and Perth. We consider opportunities in rail freight elsewhere. But yes, it is obviously something that we continue to review. But we do use that long distance haul across Melbourne and to Adelaide, less so in other regions, but something that we keep under review and clearly, something we'll continue to investigate.

Thank you, Chairman. [ Edmond ] has asked a further question. Container ships are incurring delays at each [ carriage ] ports of up to 2 weeks. Shipping lines change schedules so some vessels miss ports like Botany or Melbourne or blank sailings push back every vessel by a week. Can you elaborate on where the large increases in container carriage rates are recoverable from foreign Bega customers?

So I think the shipping delays and shipping challenges are pretty well documented and obviously do impact. We've been managing through that impact over a great many months now, and the team have been doing a good job of managing it. In terms of being able to recover the increased costs, it -- largely, a lot of the products that we are moving by ship tend to be in that commodity product -- in that commodity category, and you'll be pleased -- I'm sure that you would be pleased to know that commodity, dairy commodity prices, in general, have been strong and improving. So that does give the opportunity to recover some of those costs. But I might just ask Paul if he's got any additional comments that he might make there.

I think you've covered that. We were covered on rates on a number of routes, Barry, and so haven't had the full impact coming through, but that will start to come through in the coming months, and we will be able to pass quite a lot of that cost through once we kick in the new pricing in the second half. It's also interesting to note, we've got certainly a lot of cover on inventory. We also rely on imported goods and packaging for a number of our lines, and we've got sufficient safety stock in most cases to manage through that. In some cases, we have to do a little bit of airfreighting, particularly with some of the high-value ingredients, to get them into the country. But overall, the team has been doing a tremendous job in terms of managing this disruption across the business. And we've got a very accommodating customer base who are dealing with similar issues across their business. So we find in a lot of cases, the players along the supply chain, really working together well not only with the disruption we've seen, but also in some of the COVID disruptions we've seen in the lockdowns. And that's been also alleviating a number of the pressures that we're seeing across the supply chain.

Thank you. Next question comes from [ John Marston ]. Mention has been made that Fonterra's Australia business may be up for sale. Does this mean that Bega may be able to reclaim its Bega-branded retail cheese products?

Obviously, there's been some speculation in the media and some public comments from Fonterra. It's probably not appropriate for me to make any comment at this stage as we're not fully across the detail of Fonterra's intention. So I can't really make any speculative comment about that at this stage.

Thank you. Next question from [ Janet Wolf ]. Why doesn't the share price at Bega increase?

Well, clearly, that is not a matter that is within our hands. What we endeavor to do is operate a very strong and resilient business. And I think we're very pleased to put the results of our work on the table today or indeed at our announced conference. Then obviously, it's for other -- it's for investors to determine the value of the company and at what level they are comfortable purchasing the share.

Thank you. A further question from [ Edmond ]. Will consumers see the word Bega on more products? Or would this result in labels being confusing, for instance, if Bega was placed on existing Pura Milk, Big M, Dare and Dairy Farmers?

This is obviously some of that. So our view would be we don't want to consume -- confuse the consumer and we are very proud of some of those iconic brands that you've named there that we own and we want to support those brands. I think from a broader perspective, we do want to -- we do want to have our customers, which relates to an early question, understand the family of brands that are now under Bega ownership. We just need to think about the most appropriate way to do that. So we've not concluded on how we might make sure that customers across Australia understand that, that wonderful family of brands are owned by Bega, but nor they want to create either confusion or lessen the strength of those individual iconic brand.

Thank you. Another question from [ John Marston ]. What happened to ZoOsh dips and dressings? And also, how is Bonox performing?

I might actually just go straight to Paul on that question, if that's okay with you, Paul.

That's okay, Barry. So the ZoOsh dips and dressings, you can still find some of the dips range in the major retailers and certainly the independents for those products. So you'll be able to find those products range in many of the independent stores, the IGAs and the like. As far as Bonox, that's a fairly unique product in that it's targeted what we might describe as an aging demographic. So it's fair to say that volumes of that product are continuing to decline as our customer base is decreasing, if I can put it that way, but it's still very much a favorite, and we get a lot of feedback from some very long-term loyal customers on that product.

Thank you. There are no business written questions, Chairman.

So are there any telephone questions?

There are no questions, Chairman.

Thank you. So I assume there are therefore no further questions. So ladies and gentlemen, we have now come to the formal part of the meeting. So if I refer you to Slide 27. A poll is being held on all resolutions at this meeting. If leaving early, please ensure you have completed voting using the online voting system. For each item of business, I will first open the floor for discussion, and then we'll put the motion for that item to the meeting and ask you to complete your online voting in relation to that item. Share registrar, Ms. Julie Stokes of Link Market Services Limited, will act as returning officer in relation to the poll. If there are any aspects regarding voting that you are uncertain about, please refer to the online virtual AGM guide at the bottom of your screen. The results of the poll will not be available before the end of the meeting. You can, however, obtain the results of the poll later today by visiting the company's website or the ASX announcement web page. Slide 28 is to adopt the Remuneration Report for the year ended 30th of June 2020 -- sorry, the resolutions include adoption of the Remuneration Report for the year ended 30 June 2021, election of directors, directors' fee pool increase and amendments to the constitution. I'll now move to Slide 29, which is the adoption of the Remuneration Report. We now move to adopt the Remuneration Report on Pages 36 to 49 of the Annual Report outlining the remuneration for the Board, executive, CEO and other key personnel. In setting remuneration, the Nom and Rem Committee referred to market and external advisers. I would inform the meeting that the following proxies have been received in respect to the Remuneration Report. So for those proxies appear on Slide 29. For those that are not able to use them, we've had -- for the Rem Report, we've had total votes cast of 161,741,426. For, 157,341,105 or 97.28% in favor. Open, 3,296,298 or 2.04%. And against, 1.104 -- 1,104,023 or 0.68%. I will be casting the undirected proxies in favor of the motion. Are there any written questions?

No, Chairman.

Are there any telephone questions?

No, Chairman.

As there are no questions, I will now move the Remuneration Report for the period ended 30th of June 2021 be adopted. I'll now put the motion to the meeting. If you haven't already done so, record your vote in relation to Resolution 2. I now move to Slide 30, election of directors. Please refer to Item 3 in the Notice of Meeting. Offering themselves for reelection are Harper Kilpatrick, myself, Raelene Murphy and Rick Cross. On Slide 31, I will now move to the election of Harper Kilpatrick. Harper, I'll now invite you to say a few words.

Thank you, Mr. Chairman. Good morning, ladies and gentlemen, and thank you for the opportunity to address you today and offer myself for election to the Bega Cheese Board. By way of background, I am both a dairy farmer and retired chartered accountant, having spent most of my career in agriculture or agri business. My most recent executive position being Deputy CFO of Almarai, the Middle East leading food and beverage manufacturer and distributor. My wife and I moved to Southwest Victoria in 2011, where we now own and operate 2 dairy farms. I have held a number of nonexecutive positions since moving to Australia, most notable being a Non-Executive Director of Murray Goulburn Co-op for 18 months prior to its sale to Saputo Dairy Australia. I bring a strong knowledge of dairy from both sides of the farm gate and believe this, together with my experience in finance and food and beverage manufacturer and distribution, will serve me well in the Bega Cheese Board. I believe I can represent the interest of all stakeholders in a professional and ethical manner and feel both excited and privileged to have the opportunity to be part of a team growing a great Australian food company in Bega Cheese. I appreciate your support, and will now hand back to the Chair.

Thank you, Harper. Before we [ proceed ], I would like to inform the meeting we have the following proxies in respect to Harper's election. There was a total [ cast ] of 107,750,540. For Harper's election was 164,004,978 or 97.77% of the votes. Open was 3,092,207. And against, 653,355, 0.39%. I will be casting the undirected proxies in favor of the motion. Are there any written questions?

No, Chairman.

Are there any telephone questions?

No, Chairman.

As there are no questions, I now move that Harper Kilpatrick be elected to the Board. I will now put the motion to the meeting. If you haven't already done so, please record your vote in relation to Resolution 3(a). Slide 32. I now move to the election of myself. I'll ask Deputy Chairman, Peter Margin, to chair the meeting while my election is conducted. Peter, if you're there.

Thank you, Barry. And I just invite you now to say a few words if you would want.

Thank you. Thank you, Peter, and all on the call. And I think I would actually start with a thank you. It's been a great honor. I wouldn't mind to serve this company for many years and indeed, have been delighted to be able to share a vision and work with many, many people to make that business vision a reality. We have worked to create a Great Australian Food company that has involved all stakeholders in the supply chain from farmers through to our staff and communities. And the opportunity to grow and build this important business to strengthen regions but meet the needs of customers in Australia and around the world is one that I greatly appreciate. Part of the effort to grow this company was to create opportunity for many. And I believe that we continue to do that. Important to offer myself up to provide continued service to the organization and all stakeholders involved with the business, and thank you for your ongoing support.

Thank you very much, Barry. And there's no doubt the Board is very supportive of Barry's reelection. Just before we proceed, can I just ask Brett to read and inform the meeting of the proxies in respect to Barry's election?

Certainly, Deputy Chairman. Total votes cast were 167,815,939 or 55.39%. Those for were 147,955,718 or 88.17%. Open votes cast were 3,060,451 or 1.82%. Those against, 16,799,770 or 10.01%.

Thank you very much, Brett, and I'll be casting the undirected proxies in favor of the motion. Now are there any written questions, Brett?

No, Deputy Chairman.

Are there any telephone questions?

No, Deputy Chairman.

Now as there are no further questions, I now move that Barry Irvin be elected to the Board. And I'll now put that motion to the meeting. And if you haven't already done so, could you please record your vote in relation to Resolution 3B. Congratulations, Barry. And on that, I'll pass the meeting back to you.

Thank you, Peter. And I now move to the election of Raelene Murphy. Raelene, I invite you to say a few words.

Thanks, Barry, and a warm welcome to our shareholders who are joining us virtually for the second year. It's a great privilege to offer myself for reelection to the Bega Board. As you're aware, I've been an independent Non-Executive Director of Bega since 2015. And in that time, the Board has overseen the transformation of Bega towards becoming The Great Australian Food Company through the acquisition of the Mondelez Grocery portfolio including Australia's favorite spread Vegemite, the acquisition of the Peanut Company of Australia to secure our provenance credentials for peanut butter, the acquisition of our Koroit factory for growth and diversification of our milk sourcing and to strengthen our dairy portfolio. And this year, we doubled down and doubled the size of our business when we acquired the Lion Dairy and Drinks business and its iconic portfolio of Australian brands. In addition to our acquisitions, and as a result of our acquisitions, we've continued to evolve our factory footprint and work towards becoming a highly efficient and leading FMCG organization with diverse channels and reach and with respectful and productive relationships with farmers, suppliers, and our people and an authentic and values-led approach to corporate social responsibility and sustainability. As you've heard today, you now have a business which has delivered $2.07 billion in sales in 2021 with only 5 months of our most recent acquisition reflected and has branded sales of 73%, up from pre-2017 at 20% and a portfolio of iconic brands in growth categories. While this is exciting, what is more exciting is the potential that this represents. In many ways, we're just getting started, and it is in this context that I offer myself for reelection. The Board leads the team of exceptional executives, which, in turn, is led by Paul van Heerwaarden, supported by Pete Findlay that have evolved our strategy and executed on this strategy to an incredibly high standard and to deliver great value to shareholders. But equally, they constructed a platform that will enable us to deliver greater value in the future. This is seen through the progress on systems and process modernization and the increasing sophistication and relevance of our people and culture and safety environment. My background is outlined in the material for the meeting, so I won't emphasize it more. Other than to confirm the benefit of that experience to the Board as we have pursued this growth agenda, but in particular, to my role as Chairman of the Audit Risk and Compliance Committee, where we're not only seek to perform a governance function but where there is a genuine [indiscernible] to promote the most contemporary and relevant practices and processes to our business. I'm firmly committed to the Bega's strategy, its people and importantly, our shareholders. It's a great honor to serve on a Board which shares the Bega values, and whose counsel and skill I value very highly. But most importantly, they set the highest bar for corporate governance. We are fortunate to have a Chair in Barry whose leadership and ambition for our company propels us forward and keeps us engaged and committed to delivering shareholder value every single day. And I hope that I'll have your support to be part of that Board, where I will continue to devote my energy, commitment and passion to our great company. And [ Janet ], yes, I'm confident that the market will ultimately recognize the value that's been created above in our share price. Thank you all very much.

Thank you, Raelene. Before we proceed, I would like to inform the meeting we have the following proxies in respect to Raelene's election. I will be casting the undirected -- sorry, the proxies are: total votes, 167,800,788. For, 155,760,939 or 92.82% of votes. Open, 3,078,497 or 1.83% of the votes. Against, 8,961,352 or 5.34%. I'll be casting the undirected proxies in favor of the motion. Are there any written questions?

No, Chairman.

Are there any telephone questions?

No, Chairman.

Given there are no questions, I will now move that Raelene Murphy be elected to the Board. I will now put the motion to the meeting. If you haven't already done so, please record your vote in relation to Resolution 3C. I will now move to the election of Rick Cross. Rick, I invite you to say a few words.

Thank you, Mr. Chairman. Good morning, everybody. It gives me a great pleasure to stand in front of you, virtually, of course, once again for reelection as a Director of Bega Cheese. My wife and myself have been farming in Northern Victoria at a small place called Kilcunda for the last 30-plus years. While we've been involved at farm level, it's -- I first became involved at -- with Bega Cheese since their strategic purchase of Tatura Milk Industries back in 2007. Gave me an insight that the company that we've just signed on to be part of has a great future. And I've been very fortunate to be part of that. Quickly following the purchase of Tatura, Strathmerton was another strategic buy and then Koroit down the track. The transformation of the business that we've seen before us at present has come following a strong belief from the Chair and the Board that to move forward, we needed to transform this business from 20% branded products to where we see it now to around 80% of the portfolio in branded products. The Port Melbourne purchase of the iconic Vegemite and Peanut Butter brands followed. And the Lion Dairy and Drinks purchase more recently has transformed...

I think he has a bad line, [ Tim ].

This is the conference operator. We have temporary lost connection with the speaker line.

Right. We'll just -- think he'd be back.

No.

Look, I think I'll take the -- I think everybody would understand the sentiment that Rick was expressing there. And I think I'm sure Rick will understand that we will move the meeting forward. If he comes back on, I'll invite him to conclude his comments. But I think Rick's contribution and credentials are well understood by shareholders. He's been on the Board for quite some period of time. So I will move forward with his nomination and election process.

I got back, Barry.

Oh, very sorry, Rick. I was wrapping up for you, but if you would like to just close off your comments, I haven't moved the meeting forward yet.

Yes. Sorry, it transformed to my youth sitting in the house. Look, I'm not sure how much you got, but I'll just restate that it's a great pleasure to be -- to stand before shareholders again. One of the most pleasing things that I've been involved with the company is that as we've grown, our values have not changed to all shareholders and all stakeholders, both from the supplier base, to our staff, our customers to our community. And I just feel so privileged to be part of that. So thank you all, and I look forward to your firm support. Thank you.

Thank you, Rick. Before we proceed, I would like to inform the meeting we have the following proxies in respect to Rick's election. Total votes of 167,795,436. For, 160, 261,315 or 95.51% of the vote. 3,907,214 or 1.85% of the vote is open, and 4,436,907 or 2.64% were against. I will be casting undirected proxies in favor of the motion. Are there any written questions?

No, Chairman.

Are there any telephone questions?

No, Chairman.

As there are no questions, I now move that Rick Cross be elected to the Board. I will now put the motion to the meeting. If you haven't already done so, please record your vote in relation to the Resolution 3D. [Voting]

I will now move to the directors' fee pool increase. As we move to -- please note, as requested by the Board of Directors, the fee pool hasn't been increased for 5 years, and the proposed increase is expected to be sufficient for a further 5 years. I would inform the meeting that following proxies have been received in respect to the remuneration -- or I'm sorry, the Remuneration Report -- no, it's for the directors' fee pool. Yes. Okay. So sorry, we're on the resolution around the directors' fee pool increase. And the total votes are 162,515,394. Those for are 157,776,434 or 97.08% of the vote. Open is 3,085,605 or 1.9% of the vote. And against, 1,653,356 or 1.02% of the votes. I will be casting undirected proxies in favor of the motion. Are there any written questions?

No, Chairman.

Are there any telephone questions?

No, Chairman.

As there are no questions, I now move that the directors' fee pool increase be adopted. I will now put the motion to the meeting. If you haven't already done so, please record your vote in the Resolution 4. [Voting]

Sorry, I'll now move to changes in constitution. Lastly, as we move to Item 5 in the Notice of Meeting, changes in the constitution. I would inform the meeting that the following proxies have been received in respect to these changes. I will be casting the undirected proxies in favor of the motion. In relation to the proposed amendment to Rule 8.2(d), the COVID-19 pandemic has made it impossible to hold physical meetings, and companies can't predict whether this will arise again in the future due to the pandemic or some other circumstances. As such, it is prudent for companies to have the capacity to hold virtual general meetings. The Board of Bega has taken this view. The Board's intention is certainly to hold physical general meetings where possible. In terms of the proxies, I would inform the Board of the following. Total votes cast, 165,669,820, 93. Votes for, 130,780,460 or 78.94% of the vote. Open, 3,139,157 or 1.89% of the vote. Against, 31,750,276 or 19.16% of the vote. I'll just -- I will be casting the undirected proxies in favor of the motion. Are there any written questions?

No, Chairman.

Are there any telephone questions?

No, Chairman.

As there are no questions, I now move that changes to the constitution of the Board be adopted. I will now put the motion to the meeting. If you haven't already done so, please record your vote in relation to Resolution 5. [Voting]

Ladies and gentlemen, that brings me to the close of the meeting. I would just refer back to, perhaps, the directors' fee pool increase and comment that I should have said adoption of the Remuneration Report rather than the fee pool increase, but obviously, people would be aware of that. Ladies and gentlemen, in closing, thank you very much for your attendance at the AGM. I would comment, obviously, a virtual meeting does have its challenges, as has occurred here, and that includes not possible for us to thank the directors for their services in person and indeed are the executives for their service in person and particularly acknowledge the outcome of the elections of the various directors that we -- as voting has not closed. But needless to say, I'm sure that all in attendance would be delighted with -- would join me in congratulating all those that have been involved in what's been a very significant year for Bega Cheese. The voting will remain open for a further 5 minutes. If you haven't already voted, please do so now. The result of the resolutions will be announced from the ASX later today and available on our website. I now declare the meeting closed. Thank you very much.