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The high-cost environment of food production has churned out another casualty as leading South Australian dairy producer Beston Global Food Company (ASX: BFC) is set to be be wound down, after voluntary administrators from KPMG failed to find a buyer for the business.
Known for such cheese brands as Edwards Crossing and Mable's, as well as its production of mozzarella, butter, whey powders and the dairy protein lactoferrin which is used in infant formula, Beston raised $100 million in a 2015 ASX listing.
Before going into administration in September its valuation had sunk to just $6 million as the group battled with costs and "unusually volatile global dairy prices", leading to the divestment of its non-core meat and water businesses to help pay down debt.
By the end of June Beston had just $2.4 million in available funding between its cash and financing facilities, with around $67 million in debt drawn down from different lenders, the largest being National Australia Bank (ASX: NAB).
But at the same time the company was experiencing its highest milk flows on record, up 8.5 per cent in FY24, with group sales remaining steady at $170 million. The group sold record volumes of mozzarella in that year, some 15,000 tonnes, and also formed new strategic partnerships with major dairy companies in China and across Southeast Asia.
Soon after releasing these results in August, in September the group received a non-binding offer from Japanese conglomerate Megmilk Snow Brand to buy Beston's cheese and lactoferrin production business at Jervois, South Australia by way of an asset and business sale.
In addition to helping Beston pay down debt, the sale would have brought the Jervois facility under the same ownership as the Unicorn Cheese Company in NSW, an infant formula packaging facility in Tatura NSW and the Udder Delights business in the Adelaide Hills.
But within weeks the Japanese suitor withdrew its bid and the appointment of KPMG Australia’s Tim Mableson, James Dampney, Gayle Dickerson and David Kidman as voluntary administrators came in swift succession.
Administrators revealed yesterday that significant trading losses on a weekly basis meant they would not be able to fund the business beyond 30 November 2024. An orderly wind-down will be undertaken with milk production operations to cease from 6 December.
"Therefore, the administrators have been left with no alternative but to wind down the business and begin an orderly sale of its assets," the administrators say in a statement.
They note that since 26 September several parties expressed initial interest as part of a sales process for the business as a going concern.
"While the administrators provided certain parties with additional time to finalise the terms of their respective offers, these parties have been unable to put forward a binding offer for a going concern sale," they say.
"Ultimately, the sales process has failed to secure a buyer in the time frame required given the trading losses being incurred."
A second meeting of creditors is expected to be convened in late January or early February 2025, where creditors will decide whether to place the company in liquidation or if a Deed of Company Arrangement (DOCA) can be accepted, should one be proposed between now and that meeting.
The ABC reports that the jobs of 159 workers and 22 dairy farmers are on the line as a result.
In a statement provided to Business News Australia, the South Australian Dairyfarmers' Association (SADA) described the outcome as a "disappointment" after working tirelessly with farmers, administrators and potential investors to keep the business as a going concern and "vibrant part of the South Australian industry".
The SADA claims the result will mean 41 farmers will not be paid for milk, worth an estimated $10 million, that was supplied before the appointment of administrators.
It adds the impact also means that valuable valuable infrastructure will now be auctioned off, leaving a hole in the processing capacity of South Australia.
"This announcement is extremely disappointing. SADA has worked to support our farmers and the industry and the demise of Bestons comes as a blow to us all," says SADA president Rob Brokenshire.
"SADA will continue to work with all parts of the industry as part of the South Australian Dairy Industry Action Plan 2024-2029. This means that the SA Dairy Industry will find ways to step away from these events and become stronger and better into the future.
"SADA wishes to thank all those who assisted with the bid for Beston and places on the record SADA’s appreciation to all of the dedicated people in South Australia who want to see a better, stronger and enduring dairy industry in the state."
The Jervois and Murray Bridge dairy facilities have been producing cheese and milk-related products for around half a century, and the current episode is the second time within a decade that they have undergone financial and operational upheaval.
Beston acquired the assets from receivership for $4.5 million prior to its 2015 listing, after they were previously in the hands of United Dairy Power Group (UDP). UDP's parent company 5 Star Foods was acquired by Chinese investors for around $70 million in January 2014 but was placed in receivership by its bankers in November of that same year.
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