Under the terms of the proposed transaction, Beston will receive all milk from the farms, currently around 17m liters per annum, over a ten-year period. Aurora is expected to continue to grow production from these farms in the future.
The sale process for the farms was conducted through an international open tender process that commenced in January 2020 with final bids received on March 5, 2020.
The timing of final bids coincided with the introduction of travel and other restrictions due to the COVID-19 pandemic. This impacted on the due diligence processes for a number of bidders and slowed negotiations.
Beston said it has been able to manage its way through these issues as a result of the goodwill and understanding demonstrated by the short-listed bidders and has negotiated a binding sale agreement.
The transaction is not predicated on a leaseback arrangement as Beston had offered to the market but provides Beston with milk supply security from these farms for a period of 10 years, with an option to extend.
Staff currently employed by Beston Farms will be offered employment with Aurora, subject to normal recruitment screening processes.
The transaction achieves Beston’s strategic objectives of releasing capital for re-investment in higher returning dairy factory assets, whilst securing long-term milk supply from the farms.
The proceeds will allow the investment program at the dairy factories to continue and allow Beston to fast-track the delivery of increased margins and sustainable free cash flow, while positioning the company to drive other actions consistent with its five strategic imperatives announced at the 2019 AGM. The sale price of the dairy farms is above book value.
Beston chairman, Dr Roger Sexton said “The sale of our dairy farms is an important milestone in implementing the strategic initiatives outlined at Beston’s 2019 Annual General Meeting, and continues the journey toward a streamlined, cash generating company. The dairy farms allowed us to secure milk supply during our start-up phase.
“Beston is no longer reliant on owning farms due to our long-term milk supply contracts with independent farmers. The company’s focus, as it moves into its next stage of growth and development, is on increasing the utilization of its production capacities and generating enhanced margins with a product mix based around higher production of mozzarella and lactoferrin.”
Sexton noted the transaction would also enable Beston to reduce debt and provide the balance sheet strength to take advantage of opportunities as and when they arose in the future in line with the company’s long-term business plan.
Chief executive of Beston, Jonathan Hicks, said, “We are pleased to be forging this relationship with Aurora who share Beston’s desire to invest in growing the milk pool in South Australia over time. The transaction will ensure continuity of milk supply to our cheese production facilities at Murray Bridge and Jervois and continue our focus on increasing output and improving efficiencies within the business.
“Notwithstanding some changes in product mix sales brought about by the closure of restaurants and other food service outlets during the COVID-19 pandemic, the demand for Beston’s mozzarella products has been steadily increasing. When we posted our half year financials in February of this year, we reported that mozzarella sales had increased by 59% to 4,290 tonnes, an increase of 2,690 tonnes on the previous half.”
“The sale of the farms, the securing of milk supply and the positioning of the business to focus on Beston’s strategic growth initiatives comes at a good time for the business as we work through the other side of the restrictions brought on by COVID-19,” he said.
Established in February 2019 following the acquisition of 11 dairy farms from Warakirri Dairies, Aurora currently manages 18 dairy farms in Victoria and South-East South Australia, with a forecast annualized milk production of 100m liters.
CEO of Aurora Dairies, Ben James, said, “We are very pleased to have secured these high-quality farms and increase our portfolio weighting to a very good dairy region. We look forward to building a strong commercial relationship with Beston over the coming years.”