While high interest rates may be impacting homeowners moreso when forced to sell under mortgage stress, the corporate world is not immune to these pressures which has claimed Beston Global Food Company (ASX: BFC) as the latest collapse.The food production company has entered voluntary administration, blaming a combination of post-COVID challenges, surging interest rates, and rising operational costs. The dairy and health nutrition company, which includes its subsidiary Beston Pure Dairies, has appointed KPMG as administrators.
Beston’s financial position deteriorated over recent years due to what it described as a “perfect storm” of adverse events. The Company emerged from the COVID-19 pandemic with substantial debt, exacerbated by a period of rapidly rising interest rates, which significantly impacted its ability to operate competitively in the global dairy market.
Impact of Rising Costs and Interest Rates
Beston outlined that while it recorded sales of $170 million in FY23 and generated a trading EBITDA of $4.4 million in its dairy business, this was not enough to offset soaring costs. The Company absorbed $28 million in additional expenses during FY23, primarily driven by a 300% rise in energy prices, alongside escalating costs for labour, chemicals, and transport. According to Beston, these cost pressures persisted into FY24, crippling its profitability and cash flow.
Global dairy markets have also posed a major challenge for the Company which cited the Australian Dairy Code, introduced in 2019, as an external element that kept farmgate milk prices elevated, despite falling global dairy prices. This misalignment made it increasingly difficult for Beston to compete with cheaper international dairy products, particularly from New Zealand, Europe, and the United States.
High interest rates further compounded these difficulties, as many businesses, including Beston, struggled under mounting debt repayments. With reduced consumer spending and increased operational expenses, many small-to-medium businesses have been pushed to the brink, as evidenced by the closure of multiple Australian dairy processors in recent months.
Failed Megmilk Snow Brands Deal
A potential lifeline for Beston appeared to be an offer from Japan’s Megmilk Snow Brands Co Ltd, which was interested in acquiring Beston’s cheese and lactoferrin production facility at Jervois, South Australia. The deal could have secured a reprieve for Beston, safeguarding jobs and providing stability to its farmers. However, on 20 September 2024, Megmilk withdrew from negotiations, citing an inability to agree on acceptable terms for all parties involved before KPMG were called in as administrators just days later.
“The Megmilk offer would have enabled all of the jobs at Jervois to be preserved and would have led to an increase in demand for milk for processing at the Jervois factory over time,” said Beston CEO, Fabrizio Jorge.
“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.”
What Happens Next?
As the administrators from KPMG assume control of Beston’s operations and assets, the immediate focus will be on assessing the Company’s financial viability and exploring options for its sale or recapitalisation. The administrators have indicated that trading will continue while they assess the company’s options. Updates on material events will be provided to the ASX as the administration process unfolds.
BFC shares, however, will remain suspended with the Company having first requested a suspension of their shares from trading on 28 June 2024 when they last traded at $0.003, giving the Company an indicative market cap of $5.9 million. The BTC share price had fallen 75% since the start of January 2024 when shares opened the calendar year at $0.012.
Shareholders are unlikely to have any recourse if the Beston is ultimately sold or liquidated, and any recovery of their investments will depend on the outcome of the administration process.
In their last set of audited financials, for the Half Year ended 31 December 2024, Beston Global Food Company reported $81 million in revenue but this was dragged down by a corresponding $18.8 million net loss after tax.
Mitch Korver is a Business Writer focused on high-growth companies listed on the ASX in the small and medium cap space.
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