Dairy processor, Beston Global Food Company (BGF), has entered voluntary administration after Japanese dairy company, Megmilk Snow Brand Co, pulled out of a deal to acquire the company. KPMG has been appointed as voluntary administrators.
BFG’s went into a trading halt on 1 July as it sought to resolve its funding arrangements. It extended the suspension in August, saying it was expecting a binding offer in early September and the resumption of trading would be materially prejudicial to its ongoing discussions.
On September 11, BGF confirmed it had received a non-binding offer from Megmilk Snow Brand Co to acquire its cheese and lactoferrin production business at Jervois in South Australia. Its other facility is in Murray Bridge.
Listed on the Tokyo Stock Exchange, Megmilk has a market capitalisation of $1.7 billion and has had an Australian presence for around 30 years. It owns the Udder Delights business, and the New South Wales based Unicorn Cheese Company and an infant formula packaging facility in Tatura.
Megamilk submitted a binding agreement on 6 September but withdrew on the 20th. BGF said the offer was subject to a number of conditions that would have required - among other things - the support of Beston’s senior lenders and shareholders.
BGF said Snow Brands undertook “very extensive” due diligence investigations including, “visits to our factories, our farmers, our customers and bankers, and by successfully using the dairy fractionation plant at Jervois to trial the manufacture of nutraceutical product to their own specifications”.
But it became apparent an agreement could not be reached on the terms and conditions of the sale to all parties.
BGF CEO, Fabrizio Jorge, said the Megmilk deal would have saved all the jobs at Jervois and over time, led to an increase of demand for milk processing at the plant.
“It would have represented a win for the workers, a win for our loyal dairy farmers and ultimately would have been a win for the whole of South Australia as the significance of the Jervois plant in producing premium quality, health enhancing products from dairy have become increasingly recognised around the world via the global marketing and distribution networks of Megmilk Snow Brands,” Jorge said.
Perfect storm
Beston said it had experienced a “perfect storm of adverse events”. “Beston went into Covid with relatively little debt and came out the other side with a debt burden which has weighed heavily as interest rates have increased,” it said in a statement to the ASX on 23 September.
“Over the last 12 months, BGF has experienced exceptionally high operating costs particularly due to onerous energy prices at a time when Australian farm gate milk prices have been uncompetitive in world markets,” it said.
The company was critical of the Australian Dairy Code legislation that was introduced in 2019.
“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,” it said.
A substantial increase in milk supply due to favourable weather conditions in Q2FY24 arrived when farm gate milk prices were at record highs.
Global dairy commodity prices have remained volatile while China increased its domestic production and lowered imports.
“The avalanche of cheaper dairy imports that have reached the Australian market during 2023 and 2024 from overseas producers (including New Zealand, Europe, and the US) have also impacted on Beston’s sales margins and short-term liquidity,” BGF said.
Its Lactoferrin and Cream Cheese business has had strong profits, it only accounts for 20 per cent of sales. The remaining 80 per cent is its cheese and whey business, which has incurred losses due to on-going cost/price pressures.
BGF said it absorbed some $28 million in additional costs in FY23, including a 300 per cent increase in energy prices. However, the persistence of cost pressures (particularly with gas, electricity, labour, chemicals, and transport), higher than expected milk volumes and farm gate prices impacted profits and cash flow.
The administrators – KPMG Australia’s Tim Mableson, James Dampney, Gayle Dickerson and David Kidman – have now assumed day-to-day control of the Australian operations of the company and its subsidiaries with the intention to continue trading as an immediate assessment of the business is undertaken.
KPMG Australia Turnaround & Restructuring partner, Tim Mableson, said, “As administrators, our initial focus will be to stabilise the business. We will be working with stakeholders, farmers, partners and customers to achieve the most optimal outcome.”
The Administrators are seeking expressions of interest to recapitalise or acquire 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,” Mableson said.
He said all dairy farmers, suppliers, customers, and key stakeholders will be contacted in the coming days and a meeting of creditors is scheduled for 12:00pm ACST, 2 October.
