Cheese-maker aiming for growth

By PHILIPPA STEVENSON

Award-winning Kapiti Cheese is thriving without the heavy hand of dairy export regulation and expects even more growth from the appointment of high-flying Fonterra executive Tim Gibson.

Ross McCallum, co-founder of the 18-year-old Paraparaumu company, will next month become executive director concentrating on market and product development.

Gibson, a 14-year Dairy Board veteran and formerly Fonterra director of international trade, will take over as managing director of the specialty cheese company, whose turnover is expected to nudge $19 million this year, up from last year's $16 million.

In the past year Kapiti's exports have doubled, the share price has risen sharply and a new $5 million plant has expanded production capacity 400 per cent.

Fifteen months ago Kapiti, one of the country's largest independent buyers of dairy products, was nervous about the formation of Fonterra, which would control 95 per cent of the milk supply.

McCallum urged the Government to impose tight controls to ensure transparency in the relationship between Fonterra's manufacturing arm and supply to the local market.

Today, he is pretty happy with the outcome of lobbying by Kapiti and other companies and the legislative provisions made for them under the Dairy Industry Restructuring Act that enabled Fonterra's formation.

For the past three years Kapiti had been constrained by lack of production capacity but the new cheese packaging and icecream plant at Paraparaumu, opened by Prime Minister Helen Clark in December, put paid to that. Kapiti now has two cheese plants and 160 employees.

The possibility of being free to control its own destiny gave the company the confidence to expand, McCallum said.

It also got a boost from Wellington investment company Rangatira, which took a 40 per cent shareholding in December 2000.

The removal of the "perceived impediment" of Dairy Board export licences heartened the company.

"[Deregulation] removed a risk factor ... of discomfort over the regulatory situation. There was always the thought that you were beholden to the Dairy Board for gaining export permits."

While the company probably had more licences than any other, uncertainty remained.

"It was more a psychological thing as much for us as our overseas customers. Many could never understand that we needed to apply for a permit and they perceived it as a threat that we needed to renew permits after their expiry. [Deregulation] has just removed that whole situation."

While 85 per cent of sales are in New Zealand, exports nearly doubled last year, largely into Asian airline catering kitchens.

The appointment of Gibson, who has wide experience in overseas markets, was part of the plan to realise more opportunities, McCallum said.

Kapiti had a good relationship with Fonterra, from which it sources its cows' milk.

"We can do things as a small company that is reasonably fleet of foot that are perhaps more difficult for them to do. We see that we can work very well with Fonterra in this new environment."

Kapiti's major markets are in Japan and Singapore, but through the flight catering network it is also active in Bangkok, Hong Kong, Beijing and Shanghai. It also handles flights in Los Angeles for Air NZ.

"We are focusing on the top end of the hospitality industry in those markets and others like Korea, Bali and widespread through east Asia."

Kapiti was established in 1984 after McCallum left cheesemaking at Kiwi Dairies in Taranaki and Neville McNaughton left a similar position with Eltham's Rennet Co.

"In those early days, the wine industry was just starting to grow, the restaurant industry was starting to bloom and we saw an opportunity to do similar things with cheese. It has been a success," said McCallum, who sees good reason for the company's fortunes to improve.

"We're in a part of the market, even in the domestic market, which is growing strongly - specialty cheese, icecreams - and that's pretty much of a worldwide trend."

New Zealand's clean, green image was helping, particularly its freedom from the scourges of foot and mouth disease, and BSE or mad cow disease.

"And as our brand profile grows, it is opening doors for us and we can network through the airline and hospitality industries and to some extent through retail as well."

The unlisted public company has about 160 shareholders. While stock trading is minimal share value has risen to $4 from about $2.20 a year ago.

"I think people are seeing what we're doing [with the] new plant capacity, we've got a brand that is very well recognised now not only in New Zealand but increasingly throughout Asia because of our airline catering and things like that."

The new man agrees. Despite finding it a wrench to leave Fonterra, whose formation he was closely involved in, Gibson was attracted to Kapiti by its possibilities after deregulation.

"When I was [Dairy Board] group director of strategy, I used to chair the export permit application committee. Although we tried to speed up the process, to facilitate things for smaller companies like Kapiti who weren't competitors, it still took time notwithstanding our best efforts.

"Now wearing the Kapiti hat, not having to go through the rigmarole of applying takes at least a month, or probably two months out of the planning horizon. So it just gives a lot more freedom, a lot more ability to respond quickly to initiatives."

Kapiti was a very innovative company with a great brand and a great team of people, Gibson said.

"They are not really a competitor of Fonterra as such, they operate in a different part of the marketplace, and I think there are some significant opportunities for the company."

The former NZ Milk managing director in Europe has also been group director of the board's global strategy team, the Japan-based regional chief executive for North Asia for four years, and general manager of the milk protein division.

"The particular attraction for me [in Kapiti] is the whole New Zealand food story.

"Having just spent two years in the UK, I've developed a much better perspective of just how important and potentially valuable the New Zealand imagery around clean, healthy, natural, premium food can be. Kapiti is ideally positioned to capitalise on it."