Interview with Alan Kohler

Transcript

Alan Kohler: Well g’day, Laura. Welcome to Eureka Report. Thanks for joining us.
Laura McBain: Thank you very much. Nice to be here.
AK: Now, Bellamy’s… I wouldn’t mind going back a bit before we get in to the current situation. It was started in 2004 as a family company. You joined I think in 2006. Is that correct?
LM: Yes, I did. So I was originally their accountant and was heading down there while they had a gap in the position of financial controller and helping out. And I suppose fell in love with the company and was offered a position as the General Manager. But of course it was a pretty small team back then. You know, there were only three people, so we kind of generally managed everything, but yeah, nonetheless I joined in late 2006.
AK: And what was it like? I mean you say it was very small, three people. What were they actually doing?
LM: Well, we kind of did everything. So some days we’d be answering the phone to mums who would be calling with, you know, distressed babies in the background, looking for a solution for food or formula, and other times we’d be talking to Coles and Woolworths. We’d also be organising our supply chain. So really everyone was multitasking and it was very hard to come up with job descriptions back then because we really were doing a little bit of everything.
AK: But it was basically in the baby formula business. Is that right? You were making and selling baby formula?
LM: Yeah. So the company started with baby food, we had a range of cereals, our Toothiepegs product, which is a teething rusk and a range of Apple snacks which is a beautiful little freeze dried fruit, and from there we looked and explored the formula business and launched a formula range in 2005. So since then we’ve grown rapidly in both parts of our business, both the food and the formula are complementary to each other in terms of offering a complete solution for mums in organic baby food.
AK: And in 2007 the business was taken over by Tasmanian Pure Foods. Was Tasmanian Pure Foods an operating company? I mean tell us about that transaction.
LM: Yeah. So it was a great opportunity for Bellamy’s. Tas Pure Foods was a group of shareholders who were put together by the chairman then and as is now Rob Woolley and they were all like-minded around acquiring Tasmanian food businesses and brands and they set on a journey of looking at what opportunities there were in Tasmania, acknowledging that Tassie is a great place to develop food companies and a lot of them needed funding to be able to launch on to a world stage.
We were very fortunate to be the first cab off the rank for them. At the time the company also had a factory and an orchard and so they took those on board too. We were later to sell those parts of the business and really just focus on the branded food company, being Bellamy’s, and given the success and the dynamism of our business, the board of Tas Pure Foods decided to just stick with us through the journey that we’ve been on.
AK: Right. So Tas Pure Foods was just a group of executives led by Rob Woolley?
LM: That’s right. Yeah. Yeah.
AK: And then it changed its name eventually to Bellamy’s, right?
LM: Bellamy’s Australia. Yeah. Just prior to our float in August last year.
AK: Yeah, right. And Rob I think at the time was involved either running or on the board of Webster, right?
LM: No. Rob wasn’t at that point, but he was on the board of Tandou and…
AK: Oh, of course, Tandau.
LM: But previous to that he was with Webster. Yeah.
AK: Okay. So fast forward, and in 2014 you decided to IPO the business.
LM: Yeah.
AK: It’s been an unbelievable success. I think it came on at a dollar and now it’s more than twice that.
LM: Yeah. It’s been an amazing journey for me, for my team and great for… well, great for everyone really. The reason for listing and for going out for a raising was really because we could see the opportunities for continued growth of the business and we wanted to be able to, you know, make sure that we could make Bellamy’s available in all the places that we could see possible.
That was really the reasoning behind the raising and I think, you know, the opportunity continues to exist and moving forward we’re looking to keeping growing the distribution of Bellamy’s.
AK: Just to go back in to history a bit again, how important in the development and growth of Bellamy’s’ export business was the Chinese milk scare in 2008?
LM: Yeah. We’d been working a little bit into China just prior to that issue and we’d certainly had some activity in Singapore and Hong Kong and basically when that happened, there was a huge amount of calls and emails from both consumers in China as well as companies and businesses in Australia and China that were looking to export fully made Australian formula products and, you know, we are the only real brand that was on the Australian shelves to have that solution. So it was fortuitous in that sense, but tragic in the fact that obviously so many babies were incredibly ill as a result of that terrible melanin incident.
AK: Yeah. Obviously it was terrible, but what happened to your sales?
LM: Well, I think the thing that started to emerge was that we could see that there was this brand that people were attuned to in the sense that we were Australian-made and we were certified organic, so we offered two levels of safety and credibility for mums and families in China. And so, yeah, we saw an explosion, I guess you’d say, of sales in China and we continue to see that momentum and that growth build as families become more aware of the brand right through China.
AK: So what proportion of your sales are now in China?
LM: So about 20 per cent of our sales are in China, but we know that we also have a growing demand of consumers that are purchasing our products and sending them to friends and relatives in China as well, so yeah, there are two parts of the spectrum to that for us.
AK: Oh right. So the amount of your product going in to China could be much larger than 20 per cent?
LM: Quite possibly and we can certainly see that through our brand awareness and the way that we’re tracking that. Our social media interactions in China are growing and our database of people that are interacting with the brand continues to grow as well.
AK: Do you think some of the sales in Singapore are also getting to China?
LM: I don’t know, but possibly, I guess. Obviously Singapore has very close connections with families in China. In fact, one of our team in China is from Singapore, so very close links there, and equally we have strong markets in Vietnam and Malaysia is growing as well, so yeah, we’re really, really pleased to see a spread right across Asia rather than just be focussed wholly on China, although that’s a massive growth market for us.
AK: But it’s not just China that’s growing for you, the domestic market is growing as well, isn’t it?
LM: Our domestic market has been growing rapidly, yeah. We’ve seen a market share from from our prospectus was 10 per cent. At 31 December, we were running at about 14 per cent for our formula business, so yeah, definitely that’s been growing massively. And again you can see that traction through our social media campaigns and how we are engaging with our followers, which is great to see.
AK: So what’s the key to your success or the sales growth in Australia? Is it your relationship with the supermarkets or is it social media or both?
LM: I think it’s been a combination of things. Certainly we’ve got a very strong and sincere brand. We really believe that Australian-made products are one of the most important parts of our brand story, but equally the fact that we’re certified organic which means that mums, you know, look to brands like us as a solution and to know that they’re giving their baby the best that they can.
And so I think that that core message which we haven’t deviated from and coupled with the fact that we’ve really focussed on making our distribution strong, so we’ve pushed right through from the major supermarkets out to the pharmacy channels and the independent stores across Australia to really be able to be everywhere that a mum wants to shop.
We want to make it easy for mums to be able to carry on in their day. We know how busy they are with managing life and family and babies and we want to just make sure that, you know, where they are we can be a part of the solution for them.
AK: In the first half versus the first half of 2014, you more than doubled revenue, EBIT and net profit.
LM: Yeah.
AM: So I’m just wondering as you survey the Chinese market in particular and the domestic market and your market share here, I mean what sort of growth can you expect in the future?
LM: Well, we’re looking to continue to expand our distribution. We believe that even though we’ve had a great, successful run through the last six months, there are still a lot more to come. Within Australia there are a number of pharmacy banner groups that we’re working with to continue to expand our distribution here, as well as develop our own team. We’ve got our own team on the ground in Sydney, Melbourne and Brisbane. We’re looking to do that again in WA and South Australia to be able to connect directly with retailers. It’s been an extremely successful program for us.
We’re also working through continuing our distribution strategy in China and it’s such a vast place and we’ve really only scratched the surface and we can see as we develop those relationships with retailers in that market, the opportunities that will continue to just build that momentum that we’ve already developed with the brand and the opportunity for mums to be able to access us, again, anywhere they shop.
AK: I noticed your margin, your gross margin, shrank a bit, even though the revenue went up so much when the margin came down from 35 and a half per cent to just above 33 per cent. Not much of a decline, but is that beginning of a long term squeeze on your margin or not?
LM: No. We had a I suppose a short-term issue in dealing with a change in particularly whole milk prices in that last half and we’ve been able to implement some changes around the way those ingredients are being sourced and also looking forward to longer-term arrangements to try and, you know, grow and build the organic dairy industry, both here and internationally, which I think is critical.
We unfortunately can’t source everything in the Australian market and we hope to see that changing in to the future. Bellamy’s is a story that farmers can look to as an example of a successful organic business that we can work with in terms of growing the opportunity for them and certainly giving them clear visibility in to where we can take each other’s businesses and develop them.
AK: Are there any kind of transformational opportunities you think that Bellamy’s should get involved in? I mean I note that you’ve got $17 million or so cash in the bank, and obviously you’d have a borrowing opportunity as well. I mean you could probably spend $20 million or $30 million on something or other. Is there anything that you’d want to do?
LM: At the moment we’re very focussed on continuing the strategies for the business which are around deep distribution, leveraging the opportunities within the baby food category, so within new products and innovation within that space, and also looking at the opportunities then taking the business outside of baby and in to older age groups, certainly for children and then, you know, beyond that and being part of the life journey.
So we think we’ve got a good foundation for that with the Bellamy’s baby food business and we’ll continue to grow down that space. But we’re also aware of course that, you know, Bellamy’s is in a growth phase and we’re very much focussed on continuing that and part of the raising last year was really around working capital and making sure that we could keep that growth trajectory that we’ve been on for such a long time and continue to be so.
AK: Yeah. So what’s the age group that you service now and what’s the sort of oldest child?
LM: We have a toddler milk goes through to about three years, but beyond two in some markets. There’s certainly no reason that even adults can’t drink our toddler milk and a lot of our product range has application in at home in cooking and opportunities around that, so we can extend to 99 years I guess, Alan, if we really wanted to, or beyond.
AK: Is that the long-term plan, do you think? I mean just to increase the age groups? I’m not actually sure what products you’d provide for four, five, six and seven year olds.
LM: Okay. So basically our product ranges start from zero, from birth through to six months is our first stage, and then from six months to 12 months, and then 12 months onwards. We’ve had a number of products though, like our snack food range, that are very much suitable for older children as well. There’s certainly no harm in putting them in your lunchbox for kids going to school, but of course we’re just in the baby food category in terms of where you’d find Bellamy’s in the supermarket.
AK: Yeah, right. So you see potential growth in the future and a in a sense shifting where you are in the supermarket to the older children’s section?
LM: I think so. There’s a demand for organic food and there’s a demand for Australian-made food that is made in a healthy and pure way. So I think there’s plenty of opportunity for a company like Bellamy’s, which has built its credentials around core brand principles that we haven’t swayed from.
AK: Yeah. But, as you say, you’re getting plenty of growth in the six months to three years age group, aren’t you?
LM: Very much so and, you know, and in to Asia, you know, that age group is expanding rapidly as well in terms of toddler milk in particular, so our product that’s suitable from 12 months onwards is used quite often through to 10 years of age, so it is a very different market there to here in some respects.
AK: And you’re really only in Singapore and China, aren’t you, so you could actually not only ride the China growth that’s clearly coming but expand in to other countries?
LM: Yeah. We’re in Hong Kong of course and Vietnam is another dynamic and growth market for us. We’ve been in Vietnam for a number of years now and the opportunity really for us there is through the southern parts, so around Ho Chi Min City. We’re really primarily found in and around Hanoi. And, you know, other markets such as Malaysia and Thailand, the Philippines and Indonesia are all markets that are well on our horizon for opportunities that we’re talking to people about for those places.
AK: Well, it’s all very interesting. Thanks very much, Laura. It’s been great talking to you.
LM: Thank you very much, Alan. Great talking to you also.