Beston Global Food placed into administration in the latest blow for local dairy industry

The appointment comes a little over two weeks after Canada’s Saputo Inc announced it is closing King Island Dairy, ending 123 years of history for that famous brand.

Beston, which produces a range of dairy products under various brands such as Edwards Crossing and Mabel, announced to the ASX today the appointment of KPMG Australia’s Tim Mableson, James Dampney, Gayle Dickerson and David Kidman as voluntary administrators.

The voluntary administration involves two companies, Beston Global Food Company and Beston Pure Dairies, impacting the group’s two production facilities in regional South Australia which process butter, milk and mozzarella. Becton also extracts the lactoferrin protein, which is used in infant formula, from one of its facilities.

The administrators have assumed operational control of the company’s operations, with plans to continue trading while an assessment of the business gets under way.

“As administrators, our initial focus will be to stabilise the business,” says Mableson, turnaround and restructuring partner at KPMG Australia.

“We will be working with stakeholders, farmers, partners and customers to achieve the most optimal outcome.”

The administrators propose to seek either a recapitalisation or sale of the business.

“There are significant dairy processing assets across two sites, strong relationships with loyal dairy farmers throughout South Australia and into western Victoria and established distribution channels both domestically and globally,” says Mableson.

Beston Global Food Company for some time has pointed to the challenges its business has been facing despite its most recent quarterly update revealing unaudited cash flow of $3.539 million in the fourth quarter of FY24 aided by record milk inflows and record sales of mozzarella.

The company announced in July the $4 million sale of its meat processing subsidiary company Provincial Food Group to a consortium of six buyers led by Milne Bay with the funds used to pay down debt.

The company today reveals that it appointed voluntary administrators after failing to secure a deal with Japan’s Megmilk Snow Brands Co to acquire its cheese and lactoferrin production facility at Jervois in South Australia.

The deal was among several non-binding offers that Beston says it received in recent months involving debt refinancing and equity solutions for its core operations.

“Beston welcomed the offer as an opportunity to capitalise on all the hard work done to date to build and scale the business, secure the jobs of our employees and provide long-term security for our farmers,” says the company.

“However, Megmilk Snow Brands advised on 20 September 2024 that they will not be proceeding with the binding offer submitted on 6 September 2024. The offer is no longer open and capable of acceptance.”

In a statement to the ASX today, Beston gave a broader view of its business challenges that have come about due to “a perfect storm of adverse events” despite the company heading into the COVID period with “relatively little debt”.

Beston says it “came out the other side with a debt burden which has weighed heavily as interest rates have increased”.

“Over the last 12 months, Beston has experienced exceptionally high operating costs particularly due to onerous energy prices at a time when Australian farmgate milk prices have been uncompetitive in world markets,” says the company.

“An unintended consequence of the Australian Dairy Code legislation introduced in 2019 (four years after Beston commenced operations) has been to keep farmgate milk prices at high levels and disconnected from the global prices of dairy commodities.

“The government-regulated operating model between dairy processors and dairy farmers embodied in the Australian Dairy Code does not recognise the volatile nature of dairy markets globally, nor allow appropriate price signals to be captured through the movements in supply and demand and has contributed to the closure of 11 dairy processing businesses in Australia during the past 18 months.”

Beston says that favourable weather conditions in the second quarter of FY24 “substantially increased” milk supply to its factories at a time when farmgate milk prices were at record highs.

“Global dairy commodity prices remained volatile during this period on the back of China’s rising domestic production and lower imports,” it says.

“The avalanche of cheaper dairy imports that have reached the Australian market during 2023 and 2024 from overseas producers (including from NZ, Europe and the USA) have also impacted on the Beston’s sales margins and short-term liquidity.”

Solid profits from Beston’s lactoferrin and cream cheese business, which represent about 20 per cent of sales, have been offset by losses in the cheese and whey powder business which have been hit by higher costs.

Beston notes that it was forced to absorb about $28 million in extra costs in FY23, driven by a 300 per cent increase in energy prices.

“However, the persistence of cost pressures (particularly with gas, electricity, labour, chemicals and transport) in continuing to push up the cost of goods in FY24, along with the higher-than-expected milk volumes and farmgate prices that have remained uncompetitive versus global markets, have adversely impacted profits and cash flows,” Beston says.

The first meeting of Beston’s creditors is scheduled for 2 October 2024 at 12 noon (ACST).