Amid a global shortage of milk powder and infant formula, dairy company Halo Food Co (ASX: HLF) has taken a conservative approach to secure a large chunk of their revenue through a contract extension with Coles Supermarkets (ASX: COL).
The 2-year contract extension is valued around $9.5 million and will see Halo supply Coles with a range of powdered dairy products in a variety of formats, flavours and sizes. These products will then be branded by Coles for distribution and sales across their nationwide network.
While the supermarket operator will retain their full margin on sales, the deal secures sales revenue for Halo which also sells its own range of the same products, under their KeyDairy brand.
The extension is a sign of confidence from Coles which first commenced selling private label Halo products in July 2021 on an initial 1-year deal.
“This further win ratifies the strong relationship we have built with Coles over the last couple of years and one which we will continue to grow and nurture,” said Halo CEO, Danny Rotman.
“Halo has delivered throughout the initial term and cemented our reputation and credentials as a leading manufacturer for quality, consistency and on time delivery.
“Halo continues to maintain its high-profile clients in a competitive environment while simultaneously growing the sales pipeline with new wins, new clients and increased volume of orders.”
Albeit a conservative approach to allocating their production that secures ongoing revenue, the Coles deal is underwhelming in comparison to Halo competitors that have capitalised on the global shortage of dairy products to drive up their margins. A reactive focus on the US market in particular has seen rival Bubs Australia (ASX: BUB) deliver a 50% increase in their share price over the past month.
With the extension however, Halo continues its focus on securing revenue where the Company reported $59.5m in sales for the year ended 31 March 2022 – a 18% increase on the previous year. The jump in revenue saw Halo realise a positive swing in EBITDA of $4.6m in FY22 to $2.3m compared with a normalised loss of $2.3m in FY21.
Those figures do not include any contribution from The Healthy Mummy, a digital health and wellness business, acquired and settled in April 2022 which Halo expects will bring higher margin digital distribution channels as a “transformational” eCommerce channel.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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