Chinese cheese maker buys Brownes Dairy

Employees at Brownes’ Balcatta plant were told of the change of owner last week, ending more than two years of industry speculation that the iconic WA company, founded in 1886, was for sale if the price was right.

The purchase price has not been disclosed but has been described as “fair” by Brownes’ managing director Tony Girgis.

It is understood the deal is essentially complete and has not triggered government concerns about foreign ownership, although the official Brownes’ announcement on Tuesday stated finalisation was still some weeks off.

The new owner is Australia Zhiran Co Pty Ltd, a private company first registered in Balcatta in May.

It is backed, according to Brownes, by a consortium of Chinese investors including private investment firm Changchun Lianxin Investment Consulting Company, founded in Shanghai in 1986, and dairy manufacturer Ground Food Tech Co Ltd, established in 1988 with headquarters in Changchun, the capital of Jilin province in north-east China.

Ground Food produces milk, yoghurt drinks and cheeses, including cheese slices, mozzarella, cheddar and cream cheese, at its four domestic processing plants.

It is listed on the Shanghai stock exchange.

It also has research and development capability and is a food offshoot of an iron ore mining company.

Brownes, which has experienced supply chain difficulties like other Australian milk processors attempting to export fresh packaged milk into China, is understood to be Ground Food’s first dairy venture outside China.

The Brownes’ management team, including Mr Girgis, will be retained by the new owner under the sale agreement.

The sale ends Sydney-based private equity firm Archer Capital Pty Ltd’s first and only venture into the Australian dairy industry.

Archer Capital’s wholly-owned fund company DairyWest sold Brownes six and a half years after buying it for an undisclosed sum from New Zealand dairy giant Fonterra.

Fonterra had owned Brownes for about 14 years and benefitted from sale of the Balcatta processing plant site which DairyWest then had to lease back.

It has a secure 25-year lease with a 25-year option which will transfer to the new owner.

It is understood DairyWest spent between $50 and $60 million from operating revenue on plant upgrades and new technology during its ownership of Brownes.

The Balcatta plant, which processes Woolworths brand milk as well as Brownes’ label products, has unused capacity potential.

Archer Capital brought in corporate-turnaround specialist Mr Girgis, who had no previous dairy industry experience, in 2015 after a string of financial losses and sudden departure of a previous managing director.

Mr Girgis rationalised product lines to fresh milk, flavoured milk, cream and yoghurt and mothballed a Brunswick cheese plant which had operated mainly to soak up suppliers’ spring flush of extra milk production.

In the past two years under his leadership staff numbers have declined, Brownes’ products have been revised and it has claimed to be doing more with every litre of milk supplied to it.

According to the Brownes’ announcement, Mr Girgis’ decision to stay with the business was an important factor for both Archer Capital and the new owner.

Mr Girgis said the sale was a defining moment for the future of Brownes as it looked to continue producing some of the highest quality dairy products anywhere in the world.

“As it has done for 130 years, Brownes will remain an important part of the WA community and continue to contribute to the sustainability of the local dairy industry,” Mr Girgis said.

“This deal is a significant step in positioning Brownes for growth well into the future and we are excited at the opportunities offered to the business, our suppliers, employees and consumers.”

Mr Girgis said he expected the deal to “turbocharge” development of new product lines and access to emerging export markets, particularly in Asia – Brownes exports a combination of bulk and packaged fresh milk and cream into China, Singapore, Taiwan and South Korea.

“Not only will we seek to expand into new products such as cheese, but we will also be better positioned to take advantage of export opportunities and promote the WA dairy industry to a much wider audience,” he said.

Mr Girgis said having access to Ground Food’s supply lines and distribution facilities was expected to significantly boost and simplify exports into China and give Brownes’ products a marketing edge there.

“One of the things we and others attempting to export product into China have learned is that you need control of the complete supply chain, particularly when one degree (Celsius) either way can affect your shelf life by a day.

“There are a number of things that we had hoped to do that may now be possible,” Mr Girgis said.

He confirmed Brownes’ management team had already been consulted by Ground Food on marketing and market development strategies for their products in China.

Brownes’ products will be promoted by its new owner at a major regional coffee-related convention and exhibition in Singapore next year.

On returning to cheese manufacture Mr Girgis declined to say whether the Brunswick plant would reopen.

He acknowledged that while it had a commercial capability of 6000 tonnes a year, it had only produced about half that when it was operating and would require significant capital investment.

“All I can say is watch this space,” Mr Girgis said.

He said the change of owner would have no impact on Brownes domestic operations.

“Day-to-day there will be no disruption to our employees and suppliers and we expect to be able to make more positive announcements in the near future,” Mr Girgis said.

“Furthermore, the decision to retain Brownes’ management provides ongoing structural certainty and is a vote of confidence in the business’s current position and its future direction,” he said.

Jeffrey Lim, partner of Archer Capital, said the deal was able to be reached largely due to Brownes’ strong market position in WA, its brand recognition, and reputation for producing the highest quality, locally-sourced dairy products.

“Integral to the final outcome was finding a buyer with proven industry experience and a record of operating and growing similar businesses,” Mr Lim said.

“We believe we have found that buyer and look forward to Brownes taking full advantage of the opportunities ahead.”