CORRECTED VERSION

OUTER SUBURBAN/INTERFACE SERVICES AND DEVELOPMENT COMMITTEE

Inquiry into sustainable development of agribusiness in outer suburban Melbourne

Melbourne—12 May 2009

Members

MrG. Seitz / MrK. Smith
MrM. Guy / MrD. Nardella
Chair: MrG. Seitz
Deputy Chair: MrK. Smith

Staff

Executive Officer: MrS. Coley
Research Officer: MrK. Delaney

Witnesses

Mr Alex Sloan; and
Mr Simon Crone
Betta Foods.
MrSloan and MrCrone were sworn in.


TheCHAIR—Our next participants are Alex Sloan and Simon Crone from Betta Foods. Are you familiar with the procedure? It is either an oath or an affirmation, and then give us your mailing address. You have a PowerPoint presentation.

MrSLOAN—The mailing address is 33-59 King William Street, Broadmeadows.

TheCHAIR—Thank you. You know the procedure. If you spend 20 minutes talking and then give us about five or 10 minutes to have a bit of dialogue happening.

MrSLOAN—Thank you very much for the opportunity to speak to the committee this morning. We are somewhat left field in the subject matter and going to be speaking to you about a manufacturing business in the area. It is an opportunity for us to tell you about our company and some of the challenges that we face but some of the great advances that we have been able to make in the last couple of years.

Overheads shown.

MrSLOAN—First of all, a little bit of a background piece on the company itself. We have about 200 employees here across the road. You can see the Betta Foods sign from the shopping centre; 140permanent employees. You can see over the last several years we have made a transition from a more casual workforce into a more permanent workforce as a basis of being able to stabilise the operations of the company. We are in a very challenged area and the committee would be familiar with South Pacific Tyres, some of the woes of the car industry currently. There are certainly a lot of manufacturing jobs being lost in this vicinity in more recent times.

Our company at the moment has revenues around $35 million but we expect to grow by almost 50percent over the next three years due to our export activities which is something I want to spend a few minutes on if I may. All of our employees are now covered under new collective workplace agreements, excellent relations with the two unions on the site, all the entitlements are secured and we certainly have a diverse cultural background in this part of the world.

Our recent history has been pretty interesting. I came to the company personally, as did Simon, back in 2005 following a very rocky period where the company had gone through a voluntary administration. A private equity group had become involved with the company but had found some pretty stormy times and had to go through the VA process. We started in the company almost exactly four years ago on a turnaround project. I must admit it has been very challenging along the way. In December 2007, the private equity group lost a little bit of interest and in fact we have had to go through an MBO process. Simon, myself and six other management of Betta Foods have put money into the company to make sure that we could steer our way forward and complete the project. That has been a pretty interesting story in itself.

What we have done essentially is turned a domestically based icecream cone business into an export orientated confectionery business. I will show you in a moment a break-up of the company's revenue so you can get that appreciation. Excitingly we do have a number of the biggest retailers on the planet as part of our customer base. If you look at the recent breakup of the company, the yellow bit on the bottom is the cone business, so you can see the cones when we started in the company were something over 40percent of the revenues. They are now down to less than 20percent. That is not because the revenues are slipping so much but the company has been growing and we are about to enter a new phase of growth.

The area in red and the area in blue are the interesting ones. That is representing our liquorice business which has become our major concentration. I want to talk to you about that liquorice business particularly in the context of our export focus. This is a quick summary of what we do in that liquorice area. We are one of the very few liquorice allsorts manufacturers in this part of the world. There is another one in NewZealand but we are the main liquorice allsorts manufacturer in Australia. The blue striped package is what we pack our soft eating liquorice product in and that is a traditional style Australian soft eating liquorice which is capturing some real market interest now overseas. Alongside of that, which you cannot see in the red pack specifically, is the same product but chocolate enrobed which is also doing extremely well, and then on the far right of the screen is our chocolate bullet which is a liquorice centre which has had a panning process put over the top of it.

What have we been doing with that range of product? We have been expanding distribution right around the world on that range of products. Obviously Australia and NewZealand are the base but we now have a business in the UK, in Canada and in the USA through a distributor based in those places. That has taken a long time to set that infrastructure up. It has been three years or more of really hard work and quite large expenditures to get the contacts, get the infrastructure and also get that trademark registered in all of those jurisdiction. We now have that fully established and we are rolling out the product line. This is what we see happening to our business in that export area over the next couple of years. If I went back into 05-06 there was virtually no export business in the company. We will do something around five million this year—09—and you can see we are projecting $5 million of growth over the next several years. You might look at me and say, 'Where is that going to come from? How is that going to happen?' Hopefully I can give you a quick rundown on that.

I will talk about our Canadian business for a moment. We are and have been on the shelves with WalMart in Canada for over two years. That is where that business started in that country. We have now rolled out into a group called Sobeys which is the second largest retailer behind WalMart in Canada. We are in one of their banner groups with a couple of product lines. We are in the Rexall Pharmacy Group which is the largest pharmacy group in Canada. We have a couple of product lines on the shelves there, and we are entering a test market with Costco which is the large club group in Canada and also in the US.

MrNARDELLA—So you are going to be in Docklands as well?

MrSLOAN—We hope so, yes. We are speaking to Costco in the Docklands about the Docklands store right now. I did have some data literally at the end of last week which is particularly exciting on that Canadian market. In the last 52 weeks, as measured by AC Nielsen, our Capricorn traditional soft eating liquorice is now the number 1 selling liquorice product in the Canadian market. We are very excited about that. It is hopefully going to be an excellent marketing tool for us. It speaks to the quality of the product, its acceptance by the Canadian consumer and paints hopefully a pretty special future for us. We have six lines in that market in the top 30 and our liquorice products are growing at something like 40percent against the market growth of about 10, some very good signs there.

If I turn quickly to the US market, we now have four products listed in the Walgreens Drug Store group in the US. That happened as recently as March it went on shelf. Walgreens has 6½ thousand stores across the United States, is the largest drug store group there. We are waiting with bated breath to see how that product now performs as it has been on shelf for only a short time. We have also confirmed, based on our success in Canada, a trial with WalMart in the US. Our first shipment to them will either go off at the end of this month or the beginning of June to go into a trial in July, again a very exciting possibility there that will go into 400stores and there is a possibility of them rolling out into 3,800 stores. WalMart US is the biggest retailer on the planet.

CVS Caremark is the second-largest drug store group in the United States, just over 6,000 stores. We have discussions under way with them through our distributor and that appears to be going in the right direction. A lot of possibilities and a lot of excitement but a lot of challenges. I am going to pass over to my colleague for a few moments to talk about some sustainability issues but also some of the other issues that we have faced along the way and are still facing in the business.

MrCRONE—Thanks, Alex. It is all very well to have a product, to sell it and to develop the market but if you do not have a sustainable business you do not achieve anything. That was brought home to us when we were in discussions with Wal Mart. One of the key requirements now to go into the US for the big retailers is in fact to have a sustainable position and a plan to improve that sustainability on a range of fronts. The major things we have done to do that—waste management. As Alex touched on, we came into a business which was in deep trouble in just about every aspect of its fibre. We spent a lot of time turning around just about every aspect of it. In waste water consumption in the current environment it is a big issue. We were using about 50 megalitres a year. We made it onto the bad list with Yarra Valley Water by about 10litres, which was very unfortunate, but we have managed to reduce that. This year we used somewhere around 26megalitres so we have almost halved our consumption. Our target is to get down to an annual consumption of about five to six megalitres. We have already investigated harvesting systems. We have six acres of roofline and we have already identified the ability to create about two megalitres of storage on site to harvest that water and reuse in the business.

Landfill: we have reduced landfill by 84percent. Our waste management is now selfsustaining. We sell all of our food product waste to local farmers, a topic of this committee. We sell off to pig farmers and various other people around the place to use as feed. Most of it is obviously cone waste. The confectionery waste forms a good part of the diet for them. We also package and sell off all our paper and plastic recycling.

Health and safety is another big issue for us. A lot of businesses get put under by health and safety. I will come back to WorkCover and where they sit in the process and how they are doing as little as possible to help businesses stay in business today. But we have certainly a much stronger internal focus. It is not about accidents, it is about prevention, and therefore it is about identifying near misses. We have had a big focus on doing that which has reduced our accident level dramatically. One of the things we did do is a complete plant review. We had an ex-VWA inspector come in and do a review from one end of the plant to the other. We asked the Victorian WorkCover Authority four years ago to do that and they said, 'We can't do that unless you have an accident. If you have an accident we'll come in and look at that bit of machinery. We won't look at anything else and we can't be of any further use.'

I would like to say though, positively, the VWA have changed their approach and they do now send inspectors out. In fact we have had one out about two months ago. He did a complete review of the plant and only came up with three compliance notices which we will have fixed within the next month, so we are very happy with that out outcome. I must say it is positive to see them going out proactively looking at plants rather than waiting for something to go wrong which is a bit too late for the person who loses their life.

The other thing is food safety which is the third leg of the stool when it comes to sustainability, especially in a food manufacturing company, and we are now SQF2000 accredited which sounds very exotic. Basically it is the global standard now for food quality. You cannot get into an export market without that SQF rating. We have had that now for two years and we are audited every six months. Certainly one of the things when we went into the US, they were very conscious of food safety, and we found out in the US if you were an importing company, the directors of that company are personally liable for any food quality issues that are found in the product that they import. Obviously the food quality is a big part of the future.

One of the things we were asked to talk about was what are the biggest issues we see facing us. The classic one, it is always hardest to get the assistance when you most need it. In that context though I would say that one of the few people that have been very supportive to us has been City of Hume. They have been very supportive in a number of ways to help us work through issues on plant. I talk there, down the bottom, about compliance in an ageing plant takes considerable resources. That was something obviously we did not have a lot of. We have learned how to turn a penny into 50 through very judicious use of it. The council here has been very helpful in helping us work through— in a very old plant—compliance issues to make sure it is a winwin and that we can maintain those 200 jobs in the local municipality, most of which are people who live in the municipality as well as working here.

Refinancing in the current global financial crisis: it is probably easier to pull a tooth from a chook than it is to refinance at the moment. The banks are all very shy about lending you money. We put a proposition to someone the other day, it was only about a 40percent internal rate of return, and they said, 'We're not sure that's quite high enough.' We are a bit jaundiced when it comes to talking to financiers. Even with good security—for example, at the moment we have a term loan with one of the financiers for about $1.3 million, secured against plant with a liquidation value of $5.2 million and they are a bit nervous about it. The replacement value on that plant, for example, would be $35 million, so it is an interesting environment.