Tasmanian diversified food company TasFoods (ASX: TFL) has announced it will acquire the milk processing assets and brands of unlisted public company The Betta Milk Co-operative Society Limited in an $11.5 million deal designed to strengthen TasFoods’ existing dairy business.
The sale agreement includes Betta’s recently-upgraded, export-accredited processing facility in Burnie, and its distribution centres in Launceston and Hobart.
The assets will complement TasFoods’ existing dairy brands – Pyengana Dairy, Meander Valley Dairy and Robur Farm – and will add to the company’s distribution network across Tasmania.
In line with its business objective of showcasing Tasmania’s fine produce, the company also owns ethically-focused brand Nichols Poultry and Australia’s largest commercial wasabi farm Shima Wasabi.
Subject to due diligence and approval by Betta shareholders, the proposed acquisition will be funded from TasFoods’ $6 million cash float as well as external sources including an $8 million non-renounceable rights issue, fully underwritten at $0.12 per share.
Once finalised in late July, it is expected to lead to significant revenue opportunities and operational synergies for TasFoods and contribute to a positive earnings before interest, tax, depreciation and amortisation for the 2019 financial year.
The results would follow a year of strong growth in 2018, during which TasFoods experienced a 25% increase in sales revenue to $38.4 million, and a 54% increase in gross profit to $10.7 million.
The company’s unaudited results for the first quarter of 2019 also showed positive sales revenues of $10.3 million (11% up on the previous corresponding period); a gross profit of $2.6 million (7% up); and a 21% improvement in operating EBITDA.
“Our margins weakened slightly (during the quarter) but they were in line with our expectations,” said executive chairman Shane Noble.
“The dairy and chicken industries are experiencing commodity price headwinds and TasFoods is progressing a number of initiatives to offset any further margin impact.”
He said optimisation and cost control would be a focus for the remainder of the first half, while the second half of the year would target revenue growth through initiatives including increased volume in the poultry division and expansion of the dairy division’s product range and distribution.
Mr Noble said the Betta acquisition would be “transformational” for TasFoods.
“This will enable us to leverage our present resources and facilities,” he said.
“Betta has excess production capacity presenting multiple avenues for growth within Tasmania, other states and export markets.”
Established in 1956, Betta processes approximately 10 million litres of milk each year, and has market shares comprising 17% of Tasmanian fresh milk sales and 37% of branded milk sales.
In the 2018 financial year, the business’ net revenue was $16.4 million.
At midday, shares in TasFoods were trading 12% higher at $0.14.