Beston decides against terminating BPAM management agreement worth millions

Beston Global Food Company has examined a management agreement which pays a company owned by two of its directors to manage it - and decided to stick with it.

Roger Sexton is a director of both Beston, and BPAM, the company paid to manage it.

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Beston Global Food Company will not terminate the management agreement which last year paid a company owned by two of its directors more than $2 million to advise and manage it.

The Adelaide company said in an announcement to the ASX that its independent directors had reviewed its relationship with Beston Pacific Asset Management, and decided against terminating it.

The announcement did not mention that BPAM’s directors and owners are Beston chairman Roger Sexton and director Stephen Gerlach.

BPAM is paid a management fee calculated as 1.2 per cent of the portfolio value of Beston, and for 2019-20 was paid $2.13 million, putting the portfolio value at $178 million.

This compares with the market capitalisation of the company of $60.25 million.

Beston’s senior management team is paid out of the BPAM fee, and it is responsible for Beston’s day to day management, as well as advice to the board on strategy, capital raisings, and asset development.

The ASX announcement says BPAM has said publicly that it had “absorbed various increases in employee remuneration costs, bonuses, CPI increases and other related costs without any compensating adjustment for these increases in the management fee paid to BPAM’’.

It had also “met shortfalls” relating to these costs. The Investment Management Agreement (IMA) was up for review this year, after its initial five year term, and the independent directors of Beston and the directors of BPAM “recently entered into discussions to consider the possible termination of the IMA’’.

“BPAM made it known to the independent directors that it would agree to terminate the IMA within the arrangements set out in the IMA,’’ the company’s statement says.

That termination would require a shareholder vote and would trigger a termination payment to BPAM.

“After extensive review, the independent directors have resolved that it is not in the best commercial interests of the company at this time to move forward with the termination of the IMA,’’ Beston said.

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“Accordingly, the IMA will continue to remain in operation and the issue of termination will be kept under review by the independent directors.’’

Beston said that because of the sale of its dairy farms earlier this year, the management fee would reduce to a pro-rata $1.62 million payment for the first half of the financial year, at which time the fee would be subject to further review.

Beston also said the first phase of its $13 million lactoferrin expansion was on schedule for completion in February.

Beston shares closed steady at 10c.