Beston Global Food Co. is in talks to potentially sell its dairy operations to “ensure the continued financial viability” of the Australian company.
The warning came with an announcement that Beston has confirmed a buyer for its meat division a year after the listed company put the unit on the market in what it said was a “strategic reset” to focus on dairy.
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However, Beston suggested today (19 July) it may be open to a sale of its dairy and dairy nutrition businesses, noting it has “received a wide range of interest” and is “engaged in live discussions on a number of proposals”.
Beston added that much of the interest in those businesses is centered on its capabilities in lactoferrin dairy protein production conducted at a plant in Jervois. The unit supplies B2B customers operating in the pharmaceutical, medical, and health and nutrition sectors.
“The interest received by Beston is subject to non-disclosure agreements and the company is not as yet in receipt of a binding offer or formal proposal which is in a form capable of acceptance,” the company added in a filing with the Australia Securities Exchange.
While the discussions are in process, Beston said its bankers have agreed to push back debt obligation agreements from 31 July to 30 September.
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By GlobalDataAny such deal would “provide an opportunity to re-set the financial foundations of the company”, Beston said, noting its shares have been suspended from trading while the talks continue.
The company warned that “such a transaction is necessary for Beston’s continued financial viability”.
Beston explained the company has faced difficulties from a rebound in Australian milk production following the lowest output in 2023 in 30 years, putting strains on finished production capacity.
The warning comes two months after global dairy giant Fonterra – headquartered in New Zealand but doing business in Australia too – said it planned to exit its consumer-facing dairy business to focus on ingredients.
Fonterra said in May it was “exploring full or partial divestment options for some or all of its global consumer business”.
Representative of the challenges in the Australia dairy market, Beston explained milk volumes and increased competition had put strains on its finances.
“The effect of the higher milk volumes vs expectations has also been exacerbated by the unprecedented level of dairy imports into Australia over the course of 2023 and early 2024 and the consequential competition at retail, bulk ingredients and foodservice channels,” Beston added.
“The effects of an intensified competition in the domestic market have forced the company to seek new markets for its high-volume mozzarella and whey products to protect its liquidity.”
Increased competition in Australia’s dairy market has also impacted profits and free cash flow, Beston said, as it also cited higher energy and labour costs, pricing volatility in global dairy markets and “liquidity challenges”.
Meanwhile, Beston outlined the details of an in-process agreement for the sale of its meat division, the Provincial Food Group (PFG).
The subsidiary will be sold for A$4m ($2.6m) to a six-strong business consortium led by Victoria-based Milne Bay. The private group is made up of trusts and a superannuation fund “with a background in the meat-processing industry”, Beston said in the filing.
Final settlement of the transaction is expected no later than 31 July. Beston added it will use the funds raised to pay down debt.
In June last year, Beston cited “the sudden and dramatic escalation in inflationary pressures in Australia” for its decision to dispose of the meat business.
At the time, the company said the sale would include PFG’s processing plant in Shepparton, Victoria, its water bottling production assets, land and water licences in Mt Gambier, South Australia, and its food-safety service Beston Technology.
Despite the dairy divisional talks, Beston made a veiled commitment today.
“With the completion of this divestment, Beston will continue to focus its resources and efforts on its dairy and dairy nutrition businesses, where the company has built world-class capabilities and capacity,” it said.
