Costs are higher than forecast, revenue is down and export orders are taking longer than expected to get rolling - it’s been a bumpy first year for South Australia’s Beston Global Food Company.
The dairy, seafood and meat products business had planned to pay shareholders up to two cents a share in dividends, but has slashed its full-year forecast to between 0.35c and 0.65c blaming revenue shortfalls, export setbacks and a blowout in dairy business costs.
Part of the problem has been one of its major shareholders, the Chinese-based retailer Dashang Limited, which failed to confirm a significant food and beverage purchase order by June 30.
Dashang, which owns a 15 per cent stake in Beston, supplies food products to about 200 retail stores in 150 Chinese cities and is considered to offer great potential for the Adelaide-based Asia-focused exporter.
Other expensive headaches included regulatory constraints on Australian exports to Asia, with many product registrations, export licences and quarantine samples required and subsequently slowing deliveries to consumers.
Efforts to regain export licences for the company’s factories at Murray Bridge and Jervois in SA (bought from United Dairy Products) had also dragged out, while Chinese import and quarantine rules was stalling supplies of the Yarra Valley brand’s ready-to-eat meals to supermarkets until November.
Yet despite recording a $1.1 million half-year loss in December, Beston does expect to make a full-year underlying net profit after tax.
However, it has not indicated how much profit because some of its minority interest ventures are still finalising their accounts.
Its joint venture interests include an organic dairy processor, Sydney-based research and ingredients firm, Neptune Bio-Innovations, Victoria’s Scorpio Foods red meat and poultry business, and seafood exporter Ferguson Australia.
The company’s poor earnings news turned its recent share price rices into a steep slide, down from peaks near 50 cents last week to 39c/share.
Beston, which listed on the Australian Securities Exchange (ASX) in late August 2015, has taken a $1.6m hit at its newly acquired Mt Gambier district dairy farm “Pedra Branca”, which was leased to one of its suppliers until January.
The lessee defaulted, leaving the 1230-hectare farm and 1250-cow herd under company control, which Beston chief executive officer Sean Ebert said had actually turned out to be a good move.
It enabled a noteable productivity lift which was likely to be reflected in 2016-17 operating results.
Meanwhile, the company also absorbed extra dairy costs by buying more milk than budgeted for its Murray Bridge factory which is stockpiling aged hard cheese lines for later release to potentially earn significantly higher margins.
Beston is also using its aged “cheese bank” initiative to build supply relationships and trust with independent dairy farmers.
Some of the profits have been pledged to assist dairy families hurt by the recent industry-wide slump in farmgate prices in southern Australia.
Mr Ebert said Beston was continuing to engage with Chinese partner Dashang on its outstanding sales commitments, but had also taking action “to mitigate risks arising from our initial reliance on Dashang as a principal buyer for China by expanding our buyer network”.
Agreements included direct supply deals with retailers, foodservice distributors, e-commerce platforms and restaurants.
“The sales impacts of these new relationships are expected to emerge in the current financial year and progress we have made in China in broadening our customer networks is very promising” Mr Ebert said.
“It has affirmed the merit of our closed loop supply chain business model in addressing the needs of customers in China.
“This has also helped us to open new markets in the Asian region, such as Thailand and Korea.”
Unbudgeted costs in some areas of the business were also attributed to decisions made to introduce risk mitigation measures, which would help longer term viability.
Chairman, Roger Sexton, said Beston was confident it would provide a “rewarding investment” for shareholders as it built the company to be a preferred supplier of quality safe and clean Australian food to the Asia-Pacific.
