Charlie’s acquires Australian processing operation

14 August 2007

Charlie’s acquires Australian processing operation and secures fruit supply

Listed beverage maker Charlie’s Group Ltd has reached an agreement to acquire the beverage-manufacturing assets of the Australian Gallard and Mirage Groups (“Gallard”) for A$681,230, with the expansion of the facilities and assets acquired taking the total cost to approximately A$2,000,000. The acquisition allows Charlie’s to expand its juice-processing and bottling in Australia, with long-term security of fruit supply, and is intended to be completed in mid to late September.

The deal between Charlie’s and Gallard, which went unconditional today, includes a long-term fruit-supply agreement, a lease of a manufacturing site and the purchase of certain manufacturing assets. The assets acquired allow juicing, processing, and bottling of fruit juices and smoothys at the Renmark site, near Adelaide in South Australia.

Gallard operates out of a 125ha (310 acre) property in the Riverland region by the Murray River, one of Australia’s premier citrus-growing regions. The orchard currently produces an average annual output of 6,000 tonnes of citrus fruit, including Valencia and Navel oranges, lemons and limes.

The business is run by Brad Gallard, a third-generation citrus grower who will become procurement manager for all of Charlie’s citrus and other fruit requirements in Australia. The Gallard family will continue to own and operate the Gallard Orchard to supply Charlie’s juicing citrus requirements, in an arrangement that will become exclusive over time.

Key benefits of the deal include:

- Conversion of Charlie’s into a fully integrated beverage company.

- Control of fruit from orchard to bottle improves gross margins to Charlie’s bottled products.

- Long-term lease of a 3,000sqm citrus processing and bottling facility situated directly on the Gallard orchard.

- Facility will handle all of Charlie’s current branded bottled requirements and allow production capability to keep up with Charlie’s significant forecasted future growth.

- Long-term supply contract of fresh citrus to Charlie’s from the Gallard orchard.

- Ability to innovate and increase speed to market.

Charlie’s chairman Ted van Arkel said the acquisition underscored the group’s “acquisition for growth” strategy.

“Our policy is to acquire companies that fit with the growth and strategic objectives of the group. They must not only give us a long-term earnings stream but also offer a strategic advantage in our market,” he said.

“The recent focus of our acquisition strategy has been in the area of production where we wish to improve innovation and gross margin performance for the Charlie’s brand.

“This acquisition along with a plant expansion of A$1.3m allows us to manufacture the Charlie’s bottled Not from Concentrate (NFC) range close to the fresh fruit source more cost effectively on a specialised bottle production line.

“In turn, further investment will go into the Henderson site to make it a dedicated glass-filling production facility only for the current Phoenix Organics range and the upcoming Charlie’s glass range.”

Charlie’s chief executive Stefan Lepionka said: “We have had a two-year relationship with the Gallards supplying their citrus to our beverages and we are pleased to be able to cement this relationship with the Gallard family,” he said.

“Charlie’s is an innovative beverage maker and distributor and this acquisition strategy aims to enhance long-term growth and lift our gross margins significantly. This improvement will be realised from the last quarter of current financial year (FY08) with the full annual effect occurring in FY09.

“This acquisition secures a long-term fruit-supply agreement for the business to give it a strong foundation for sustainable growth. After all, our orange juice comes only from oranges and nothing else so strategically owning the fruit is critical”.

The total cost to Charlie’s of A$2 million will be funded through operating cash flow and an ANZ debt facility.

“This is a significant move in Charlie’s history and the acquisition reflects the missing piece of the puzzle for the Group which is controlling our own supply and destiny for the processing and bottling of the Charlie’s branded juice range.”

ENDS

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