News

Poultry processor Inghams Group is set to acquire Bostock Brothers’ (BBL) organic chicken business for $33 million (NZD$35.3 million). The deal will see the company receive all of BBL’s shares, including its poultry products, three freehold farming properties, and the primary processing plant.

Established in 2014, BBL is the only certified organic poultry producer in New Zealand. Its operations are in Hastings on the central east coast of North Island, approximately four hours from Inghams Waitoa’s plant.

Inghams said the acquisition aligns with its strategy of establishing the company as the leading premium poultry operator in New Zealand. It will provide exclusive market positioning and brand equity, a vertically integrated supply chain to support future growth initiatives, and access to new markets, including high-value export channels. 

“With the strong recovery in the operational and financial performance of our New Zealand business, this acquisition represents a unique opportunity to enhance our capabilities further, extend our range and advance our plans for the business,” said Andrew Reeves, CEO and MD, Inghams. 

The company is estimated to earn between $3.2 million and $3.7 million (NZ$3.5 million and $4 million) in EBITDA by the end of FY24. Additionally, the acquisition is expected to immediately increase earnings per share in FY25.

“The addition of the highly regarded premium Bostock brand and team strongly aligns with our objective to establish Inghams as the leading premium operator in the market,” added Edward Alexander, CEO at Inghams New Zealand. 

The acquisition will be fully funded from existing debt facilities and is subject to the satisfaction of conditions, including those regarding the Commerce Commission and Overseas Investment Office.

It is expected to be completed by the end of September 2024, subject to the satisfaction of conditions.

“Finer foods” such as chocolate and olive oil are about to get a lot more expensive thanks to a supply squeeze of key ingredients due to adverse weather and geopolitical unrest, fanning concerns about sticky inflation.

Wet weather in West Africa has rocketed cocoa prices to all-time highs, making chocolate more expensive just before Easter. Adverse conditions have also lifted olive oil prices to record levels, and sugar prices to the highest since 2011. Shipping disruptions in the Red Sea, meanwhile, have sent coffee prices to new highs.

While finer foods and beverages typically account for a small portion of the consumer basket of the consumer price index, the broad price spikes could have a more noticeable effect on inflation, HSBC’s chief economist for Australia and New Zealand, Paul Bloxham, warns.

“Sorry to say, but some of the finer things in life are getting more expensive,” Mr Bloxham noted in a report to clients.

“For the macro scene, this is just one more factor ... to keep in mind when thinking about whether inflation will prove to be sticky.”

The severe wet weather in West Africa, which accounts for three quarters of world cocoa production, has driven significant supply shortages, with heavy rain, flooding and disease in 2023 pushing prices up 123 per cent in February from a year earlier.

More recently, the El Niño climate pattern has seen a shift to hotter and drier weather in the region, posing additional risks for the 2024 outlook.

Choppy waters

While the impact on production from inclement weather has been a key driver of the surging prices, a global reliance on a small number of geographically concentrated producers has not helped, as regional weather events can disrupt large portions of supply.

Orange juice, for example, has recorded a massive 50 per cent jump in prices in February from a year ago and they are nearly double pre-pandemic levels, having reached a record high in November. That was partly fuelled by a spike in cases of citrus greening disease last year.

And with Brazil, Mexico and the US accounting for more than 60 per cent of orange juice production, weather events in that region typically have implications for global prices, making it harder for consumers to avoid.

Dry conditions in Italy, Greece and Spain are also curtailing the supply of olives, sending olive oil prices surging 70 per cent over the past year to a record high.

While Robusta coffee prices have climbed 55 per cent in February from a year earlier to fresh highs, Mr Bloxham said it was not all bad news for caffeine lovers.

In contrast to orange juice, consumers can substitute between fresh beans, typically Arabica, and instant coffee, which is usually made from Robusta.

“Arabica growing regions are not exposed to the same supply side challenges as Robusta, and therefore not seeing the same sort of price pressure,” Mr Bloxham said.

Sugar prices are also sky-high, having reached the highest level since 2011 late last year as El Niño wreaked havoc on crops in Thailand and India, with the latter enduring its driest August in more than a century.

That stunted sugarcane crops in the growth phase, while Thailand’s sugar harvest quality and quantity also suffered.

For the US’s key consumer price index, snacks comprise 0.4 per cent, sugar and sweets are 0.3 per cent, while coffee is 0.2 per cent and juices and non-carbonated drinks are 0.7 per cent. All together they make up around 1.6 per cent of the consumer basket.

While that may not seem much, Mr Bloxham warned that “double or triple digit price gains in these products could start to add up” just as central banks were looking to start cutting rates.

Hardware giant Bunnings has replaced Woolworths as Australia’s most trusted brand, reclaiming the title after a three-and-a-half year hiatus.

Both the major supermarkets have lost ground with consumers, amid alleged price gouging claims by politicians. The Greens-chaired supermarket pricing inquiry started this week in Hobart.

The Wesfarmers-owned chain dethroned the supermarket from the top spot, while Coles fell from 3rd to 5th place in the rankings, according to the 2023 Roy Morgan Risk Monitor survey. Aldi was third and Kmart came in fourth.

Bunnings has strong goodwill and reputational strength backed by dramatically more trust than distrust, Roy Morgan chief executive Michele Levine said.

“Australians’ distrust in companies has grown in the last year, with reasons including corporate greed, poor customer service, unaffordable prices, dishonesty, unethical practices, and poor privacy practices,” she said.

“Bunnings has managed to buck the trend against an economic environment where trust has eroded.”

Ms Levine added that Bunnings has harnessed key trust attributes including great customer service, communicating what it stands for, being active in the community, solving customers’ problems and product knowledge.

The Roy Morgan Risk Monitor canvasses about 2000 Australians every month on 1000 brands across 26 industries.

Other brands scoring high were Apple, Myer and Toyota. Ms Levine said trust in banks has deteriorated due to successive interest rate rises and cost-of-living concerns.

The most distrusted list last year was topped by telco company Optus. Facebook-parent Meta, Qantas, private health insurer Medibank and media giant News Corp ranked high for distrust, as did TikTok, social media platform X and Telstra.

Qantas is the nation’s third-most distrusted brand and showing signs of recovery despite deep distrust with respondents.

A separate survey published in January by Brand Finance Australia ranked Qantas No. 41 by brand strength, in the consultancy’s annual survey of Australia’s strongest and most valuable business icons.

Pharmacy giant Chemist Warehouse has more than doubled its first half profit ahead of a proposed merger with ASX-listed Sigma Healthcare, as public consultation on the deal draws to a close.

Sigma, which reported its full year profit on Thursday, said it expected the Australian Competition and Consumer Commission (ACCC) to make a ruling on the proposed merger in the second half of the year, with the size of the combined businesses and the considerable community interest contributing to the time frame.

The ACCC is accepting public submissions on the deal until March 28, and Sigma managing director Vikesh Ramsunder said his company was in regular communication with the regulator.

The Chemist Warehouse first half results were included in the Sigma results briefing on Thursday, and showed the pharmacy group, owned by founders Jack Gance and Mario Verrocchi and their respective families, increased its revenue 5.5 per cent over the first half to $1.77bn, while net profit was $360.1m, up 104 per cent.

Chemist Warehouse added nine stores to its Australian network and nine internationally, and the briefing said the network’s value proposition was resonating with customers, while there had also been successful online profitability initiatives.

For its part Sigma boosted its full year net profit to a modest $4.5m, up about 150 per cent on the previous year’s result, on revenue of $3.32bn, down 9.2 per cent.

Stripping out merger costs to date, Sigma’s EBIT of $31.4m was up 62.7 per cent and net profit came in at $12.7m.

The company said its two year transformation process had resulted in a much-improved business.

“Customer service performance metrics are now sustained at world class levels and execution of the simplification strategy has recognised an improvement in productivity and cash flow,’’ Sigma told the ASX.

The company said the fall in revenue largely reflected the disposal of its hospital

distribution business during the year and elevated sales of Rapid Antigen Tests (RATs) in FY23 that have not repeated.

Mr Ramsunder said the company had delivered a solid result.

“With our operating performance strong, we have been able to drive efficiencies across our business, reducing total operating costs by 10.7 per cent after absorbing merger proposal costs, providing a catalyst for our current and future financial performance,’’ he said.

“The company-wide simplification program and divestment of non-core assets has delivered a

leaner operating model.’’

Mr Ramsunder also said he was hoping for a positive outcome from negotiations with the federal government over five-year funding arrangements for the distribution of pharmaceutical products, which will set the margin Sigma can earn on the distribution process.

“The supply chain is critical to ensure that more than 6000 pharmacies in the country get supply of medicines.

“What we’re negotiating at the moment with government is a new five year agreement as part of the 8CPA (Eighth Community Pharmacy Agreement).

“We really need a funding increase to ensure that we can sustain that level of service to all the community pharmacies across the country.

“We are in a confidentiality agreement with government as part of this negotiation.

“The government has signed a heads of agreement with pharmacists and that was actually quite positive for the pharmacists, so we remain optimistic that the government would review our requests and see that in a positive light as well.’’

Mr Ramsunder said Sigma had made a submission to the ACCC regarding the merger in February and was in regular engagement with the regulator.

“This is a significant and complex transaction which will require a detailed review by the regulator,’’ he said.

“There will be community interest and a wide consultation process which adds to the complexity of predicting time frames.’’

Under the deal Sigma would acquire all the shares in Chemist Warehouse in exchange for Sigma shares and $700m in cash.

This would result in Chemist Warehouse shareholders holding 85.75 per cent of the ASX-listed merged entity while Sigma shareholders would hold 14.25 per cent.

Putting the proposed merger to one side, Mr Ramsunder said the company was performing well and had, as has previously been reported, locked in a supply agreement with Chemist Warehouse, starting on July 1, which would bring in annualised revenue of more than $2bn.

“With our core business focused on medicine distribution to community pharmacy, we are more resilient against discretionary spend patterns, however growing volume, managing costs, and enhancing our margin are critical, with initiatives already in place,’’ he said.

“We reaffirm our medium-term EBIT target of 1.5 per cent to 2.5 per cent on a stand-alone basis.”

Sigma made changes to Mr Ramsunder’s remuneration package, in light of the proposed merger, and will pay him a $1m retention bonus in cash on the December 2024 anniversary of the merger’s announcement, on top of his existing arrangements, plus another $500,000 a year later.

If the deal does not go through, the second payment will increase to $1m.

Mr Ramsunder was paid $3.38m including share based payments for the year to the end of January.

Sigma will pay a partially-franked dividend of 0.5c per share April 17.

Denmark’s BHJ has acquired Staughton Group, one of Australia’s leading pet food manufacturers, for $100 million.

Staughton owns Cool Off, a raw pet food producer, and Murray River Pet Food, which makes dry pet food and sells it under its brand and private labels. 

Ridley Corporation, a major animal feed producer, was Staughton’s underbidder, reports the Australian Financial Review. 

Staughton has been recording solid sales growth, with revenue reaching $156.9 million in 2022, up from $132.1 million in 2021. However, the company recorded a loss of $913,000 after paying large interest charges.

Established in 1969, BHJ sources and processes raw materials from Danish slaughterhouses and fish producers to produce pet food. The company is an international supplier of raw materials and ingredients for the food, pet food, feed, pharmaceutical, and energy industries. 

Although BHJ was briefly listed on the Copenhagen Stock Exchange, it is now owned by The Lauridsen Group, an investment group headquartered in Iowa that focuses on animal health and food. 

The company recently merged its proteins and stock ingredient division with another of its portfolio companies, Proliant, to create a new brand called Essentia Protein Solutions. This move left BHJ focused solely on raw pet foods. 

The deal is expected to close this month.

Australia’s leading recycling company Visy has unveiled a major $50 million upgrade to its glass recycling factory in Laverton, Melbourne, raising its capacity to up to 200,000 tonnes of glass each year.

The Laverton plant is crucial in Visy’s goal to manufacture new glass bottles and jars made with an average of 70 per cent recycled content. A glass container made with recycled content requires up to 30 per cent less energy than an original container.

To keep more glass in the circular economy, the plant will install 20 advanced cameras to sort glass down to three millimetres in size.

In 2021, Visy chairman Anthony Pratt committed to spending $2 billion on reducing landfills, cutting emissions, and creating manufacturing jobs for Aussies. The upgrade of the Laverton plant was part of this commitment.

“We’re actually in the landfill avoidance because recycling and remanufacturing are important weapons against climate change,” said Pratt.

Using recycled content in glass manufacturing can help lower greenhouse gas emissions, he added.

The a2 Milk Company has upped its annual sales guidance after posting solid first half revenue and earnings growth, and assuring shareholders that key infant formula market China is showing signs of stabilising.

Its ASX-traded shares rocketed to a 10-month high, advancing more than 11 per cent to $5.64 on Monday.

Revenue rose 3.7 per cent to $NZ812.1 million ($865.5 million) in the six months ended December 31 while earnings before interest, tax, depreciation and amortisation gained 5 per cent to $NZ113.2 million, generating an EBITDA margin of 13.9 per cent.

Net profit beat analyst forecasts rising 15.6 per cent to $NZ85.3 million in the half, ahead of $NZ74 million consensus.

A2 Milk boosted its total infant formula sales 1.5 per cent despite a double-digit decline in volume and value in the China – the world’s largest infant milk formula market. A record level of marketing spend at $137 million in the half helped it achieve a top-five China market position.

Sales in China and other Asia markets climbed 16.5 per cent, helping offset a 24.1 per cent fall in Australia and New Zealand because of a change in distribution strategy.

Chief executive David Bortolussi said the group was still focused on China for growth, which now represents 80 per cent of total branded sales. Although revenue guidance was upgraded, a2’s EBITDA margin is expected to be broadly in line with last year.

“We have improved our guidance for revenue going from low single digits, to the low to mid-single digits over the full year. The reason that we’ve done that is partly associated with China label performance,” he told The Australian Financial Review.

He said the transition to its new China label product has gone better than expected. Last year, a2 Milk’s manufacturing partner secured approval to sell tins made to China’s new standards, removing a major concern for investors. The market for English label formula, which is cheaper to produce, is also improving as Chinese mothers trade down.

China’s birth rate was better than expected in calendar 2023 even as the number of newborns fell 5.7 per cent to 9 million births, a record low. “We’re still of the belief that the 2024 birth rate will be higher than calendar 2023,” Mr Bortolussi said.

He said family planning had been delayed during COVID-19, and marriages were trending upwards.

Mr Bortolussi is determined to gain access to more China label registrations, which will enable a2 Milk to grow its portfolio in China. Major players in the industry have between 10 and 20 registrations while a2 Milk has one.

In Australia and South-East Asia, a2 Milk will this half launch the first new English label formula product in 10 years, called a2 Gentle Gold, aimed at the premium segment. The range is developed at its Mataura Valley Milk processing plant and a new commercial supply chain partner, Yashili NZ, a subsidiary of China’s Mengniu Dairy.

Mr Bortolussi pushed out the company’s medium-term revenue ambition of $NZ2 billion by 2026, to 2027 or later, given China – while stabilising – is taking longer to recover than he thought when the goal was set in October 2021.

Another key priority for a2 Milk is getting its Mataura Valley Milk processing plant profitable by 2026.

Synlait, a2 Milk’s manufacturing partner, suffered another poor trading update this month, but Mr Bortolussi said a2 Milk does not have any major operational concerns, nor is he aware of any pending capital need by the troubled New Zealand-based group in which it owns nearly 20 per cent.

Shoplifting is on the rise with reports of a 100 per cent increase in the theft of meat between 2022 and 2023.

Chief industry affairs officer at the Australian Retail Association, Fleur Brown, says meat theft is on the rise.

“Some of the recent data shows that 60 per cent of in-store thefts are now being conducted by one cohort of coordinated theft professionals,” she told Tom Elliott.

Operator of Morgans IGA, Neale Morgan, says theft has gotten worse since COVID.

“Theft is costing us … around one per cent … It’s not just meat and it’s been going on for years,” he said.

Treasury Wine Estates’ net profit dipped as revenue remained flat in the fiscal first half amid a decline in premium and commercial portfolio sales.

The liquor company’s net profit fell 11.4 per cent to $166.7 million while revenue stood at $1.28 billion.

Earnings before interest, tax, SGARA and material items plummeted 5.8 per cent to 289.8 million.

The Penfolds segment’s revenue increased 9.2 per cent to $448.1 million but Treasury Americas’ sales slid 4.3 per cent to $447.7 million. Treasury Premium Brands’ revenue went down 4.5 per cent to $388.5 million.

“Penfolds continue to perform and strengthen whilst Treasury Americas has made significant progress in reshaping its portfolio focus with continued growth of its luxury brands now supported by the acquisition of Daou in December,” said Tim Ford, CEO of Treasury Wine Estates.

“The premium wine category, whilst resilient, is highly competitive and we continue to innovate and invest to achieve the goal of outperforming the category and importantly attracting new customers to wine.”

Ford said the company is confident to achieve mid-high single-digit earnings for this fiscal year.

Global cocoa prices have hit a new record high due to poor harvests in West Africa, where the bulk of the global supply is grown.

The cost of cocoa – the key ingredient for making chocolate – has roughly doubled since the start of last year, and prices on the New York commodities market reached a new historic high of $9010.59 (US$5874) a ton last Thursday (February 8).

According to analysts, the El Niño weather phenomenon has caused drier weather in Ghana and Ivory Coast – the world’s two biggest producers of cocoa beans – leading to smaller crops. 

“The traders are worried about another short production year, and these feelings have been enhanced by El Niño threatening West Africa crops with hot and dry weather,” said Jack Scoville, an analyst at Price Futures Group.

Meanwhile, according to Nasdaq, the intensity of this year’s seasonal Harmattan winds in West Africa is drying out cocoa fields and boosting cocoa prices on concern that cocoa yields for the region could be reduced and curb global cocoa production even further. 

Meanwhile, data from the Ivory Coast government showed the nation’s farmers shipped 1 million metric tonnes of cocoa to ports from October 1 to January 28, down 36 per cent year on year.

The Ivory Coast’s cocoa regulator, Le Conseil Cafe-Cacao, has halted forward sales until it has a clear picture of expected cocoa production in the Ivory Coast, further adding to the tumult of the region’s cocoa supplies.

Maxar Technologies’ data shows that the total precipitation in West Africa, since the rainy season started May 1, has been more than double the 30-year average, and this has contributed to unfavourable growing conditions and crop disease on West African farms over the past year, curbing cocoa production and fuelling a scorching rally in cocoa prices. 

The rising prices are already filtering through to consumers and squeezing major chocolate makers.

Cadbury parent Mondelez says its sales volume significantly dropped this fiscal year, while Hershey saw sales decline last year.

“While historic cocoa prices are expected to limit earnings growth this year, we believe our strong marketing plans, innovation and brand investments will drive top-line growth and meet consumers’ evolving needs,” said Michele Buck, president and CEO of The Hershey Company, in a recent earnings report.

Farm cooperative Cobank predicts that cocoa prices will likely remain high until a new African crop comes to the market later this year.

As a result, confectionery manufacturers still recovering from the impact of increased sugar prices will have “no choice” but to raise the prices of chocolate products.

“The cocoa issues come at a particularly challenging time for manufacturers, considering the increase in sugar prices they’ve been coping with over the past three years,” says Billy Roberts, senior food and beverage economist for CoBank.

“While sugar prices have recently retreated, cocoa futures prices remain near record levels and show little sign of any significant movement. That could lead to a further erosion of chocolate volume sales and impact dollar sales as well.”