Beston Global Food Discusses Dairy Sector Opportunities

Beston Global Food Company Limited (ASX:BFC) CEO Fabrizio Jorge discusses half-year results, the impact of weather on milk supply, lactoferrin pricing, export markets, the recent capital raising, and M&A opportunities.

Tim McGowen: We’re talking today with Beston Global Food (ASX:BFC). The company aims to provide natural and verifiably safe food and beverages to global markets so that consumers can make healthy choices. They do this by owning the raw materials, taking advantage of technology in the production processes and controlling distribution. It’s got an ASX code of “BFC” and a market cap of around $50m. We’re joined by the company CEO, Fabrizio Jorge. Fabrizio, thanks for your time.

Fabrizio Jorge: Pleasure.

Tim McGowen: First question, your first-half 2023 financial year results, you had record numbers with group revenue up around 33 per cent and stronger margins. What were the key drivers of the result?

Fabrizio Jorge: Yes, very, very happy with the results for half one. Now, 33 per cent up versus same time last year, driven primarily about our focus on price. We have been able to command some significant price rises across the spectrum of our customers, not only in Australia, but also internationally. And added to that, really a strong focus on our portfolio. We have been able to improve the product mix of the company, going much, much stronger in our lactoferrin sales, which is our hero product, which is now commanding higher and higher prices. So, very, very happy with those results.

Tim McGowen: And milk supply is obviously a key driver for Beston. Now, given recent weather events, we’ve got inflationary pressures, how have you kept supply on track and what’s the outlook for milk supply going forward, and can you grow this further, this market?

Fabrizio Jorge: Well, first of all, we have been heartbroken by the devastating effects of the Murray River flooding impacting some of our farmers, especially in the river lands, right? I’ve been very proud of the team supporting those farmers when it’s most needed. Simple things, for example, finding creative ways to collect the milk when the farmers were impacted. And we also went to the extreme of even offering jobs for some of those farmer families impacted by the devastating effects of the flooding.

We are on track. At the moment, we are reporting, despite of those challenges, we have reported we closed the half at about 81 million litres of milk collected. Now, this is milk not only collected from the farmers, but also we took a much more proactive stance on buying solids from third-party companies. We have entered into some important collaborations with other dairy companies in South Australia. For example, for the first time we are buying skim milk solids that are used now for the mozzarella production in our Jervois facility. So, finding creative ways to not only support the farmers in those difficult times, and obviously receiving back equity from those guys because it means a lot to them, it means a lot to us. But, most importantly, partnerships that are taking us there to meet the numbers.

Tim McGowen: And can you give us a bit more colour on your lactoferrin product? It’s one of the key drivers of your performance and profitability.

Fabrizio Jorge: Absolutely.

Tim McGowen: How do you see the pricing moving forward, and what are the key drivers of that pricing?

Fabrizio Jorge: Yes. So, lactoferrin, if you think about the same time last year, we were in the early days of our commercialisation of lactoferrin. Now, we had to go through the difficult road, right? There’s no easy road for when it comes to sales of lactoferrin. We had to register our product overseas with clients in places like China, for example. We had to go through the entire site registration process with China. We are now up and running with that. And we closed now the half at 10.5 tonnes of lactoferrin sales, which is significantly better than same time last year. To give you an idea, the entire financial year of ’22, we only sold about seven to eight tonnes. Now, selling 10.5 in six months is a big, big step in the right direction. And we are indicating that, for the full year, we would be selling over 20 tonnes. So sales are very, very strong. Prices are also recovering from, let’s say, if you think again, same time last year, record lows, to a much more stable and exciting place. So, we are really trying to capitalise now the most through the second half and take advantage of the strengthening of lactoferrin prices.

Tim McGowen: And where does the export market fit for your products?

Fabrizio Jorge: Look, we partner with not only Australian companies that are exporting infant formula products that are using lactoferrin to even countries now like US and China, but we are also exporting to places like Eastern Europe, Western Europe, India, South Korea. So, multiple locations now. Again, a real testament of our quality, a real testament of the effort of the team to conquer those new customers and markets.

Tim McGowen: And, of course, you had a significant capital raising last year, which kind of reset the balance sheet. Are you now comfortable that the company’s funding requirements are under control?

Fabrizio Jorge: Yes. We’ve raised a little bit over $28m. $16 million were used to pay down debt, which for us was a significant reset on the balance sheet. So, effectively, that took our gearing levels to down 38 per cent, which is a good place to be, right? Gives us the strength to really now go to market and capitalise really from the opportunities that the market presents itself. I mean, whenever you see volatility, there are opportunities as well, and we are keen to participate on those. That’s what the strengthening of the balance sheet brings to our company.

Going forward, we were also very public about our intentions to redesign our debt facilities in such a way that is going to be fit for purpose when it comes to funding working capital, funding capital plans, and also our international expansion. So, right at the moment, we are where we need to be. And, I mean, going to market, it can only improve our situation now into the second half.

Tim McGowen: And you mentioned market volatility. It seems to be prevalent in 2023. Are there M&A activities or M&A opportunities that you’re looking at?

Fabrizio Jorge: Look, we are also public about it. We are looking to M&A opportunities that will continue to complement our portfolio. Being a dairy company, we are looking to find different ways to derisk our portfolio. If you look at Beston today, we have a commoditised portfolio, if you think about mozzarella or our whey portfolio, of our butter portfolio. So, the intention is to find a vehicle that can bring value to that portfolio via, for example, a retail play. So, one of our possible M&A activities is to look into that space in a much more aggressive manner than we used before. And also make the most of strategic alliances and partnerships with companies that needs dairy to their retail portfolios, and that can be a very nice synergetic type of relationship there. So, multiple fronts between alliances, partnerships, M&A, all in our plans.

Tim McGowen: Fabrizio Jorge, thanks for your time.

Fabrizio Jorge: My pleasure. Thank you.

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