After doubling its operating profit to $19.4 million in 2017-18, fast growing food, beverage and nutrition supplement producer, Freedom Foods, is closely watching the weather this financial year.
Drought threatens to disrupt milk and grain supplies by late 2018-19.
Freedom Foods Group’s overall sales surged 34.5 per cent to $353m in the year to June 30.
Costs associated with relocating its Sydney production plant contained statutory net profits to $12.72m.
Business is growing strongly on the back of local and Asian export demand, aided by the release of 70 new product formats in the past year, including premium-priced A2 protein milk, and full cream and modified milks in long life packaging under the Australia’s Own label.
Freedom forecasts its group sales will jump to between $500m and $530m for 2018-19.
To maintain supplies to its expanding milk processing plants in Sydney, and Shepparton in northern Victoria, and its grain-based snack and cereal products sites at Leeton in southern NSW and Dandenong, Victoria, the company has looked to Western Australia as a likely source of grain, particularly oats, and could be signing up more dairy farms.
We expect milk supplies might tighten up by next autumn-winter, but we’re not getting too concerned at the moment
It currently has more than 40 Victorian and NSW farms contracted to supply 150m litres a year, but the Shepparton plant alone will increase capacity from 300m litres to 500m/year in the coming nine months.
Although drought has already squeezed dairy farmers’ margins as feed and water costs soar, and a tough winter has parched much of NSW’s 2018 grain crop hopes, Freedom managing director, Rory Macleod, was not panicking.
“We expect milk supplies might tighten up by next autumn-winter, but we’re not uncomfortable or getting too concerned at the moment,” he said.
The company’s dairy business earnings for 2018-19 were still expected to be stronger than last financial year.
“We do have some risk to manage, and we’ll need to co-ordinate our production plans carefully, but we’re not as exposed as the big processors which require billions of litres of annual throughput.”
Looking to WA
Mr Macleod expected to “probably be paying a bit more” for maize, sorghum, oats and barley from further afield than traditional nearby production areas in NSW, Victoria and South Australia.
“Luckily WA has had a big cropping season, so we’re looking west for some supplies, most probably oats,” he said.
“But, who knows. Australia’s a big place and longer term weather outcomes are hard to predict.
“Victoria’s looking better than was expected a few weeks ago.”
There were positive signals on the dairy front, too, with new milk suppliers still approaching Freedom to sign contracts to secure themselves long-term mid-market farmgate prices, which would bolster the company’s intake at a time when other processors are scrambling to retain suppliers through the big dry.
Freedom also enjoys access to the big Moxey Farms milk pool from Central West NSW.
Moxey Farms, which grows about 80pc of its herd feed needs, now runs more than 8000 milkers and is building production towards 110m litres for a range of mainstream and specialist processors.
Freedom’s expanding milk processing capabilities will be increasingly directed towards branded high margin products for the nutritional supplement market and new long life cream and drinking yoghurt lines made at its newly built Ingleburn plant in Sydney.
Building its brands
Until recently a major contract processor of food and ultra high temperature treated beverages for other export brands and supermarket chains, Freedom Foods Group has made significant sales inroads in the domestic, Chinese and South East Asian markets under its own brands, which apart from the Freedom and Australia’s Own ranges include Arnold’s Farm, Heritage Mill, Vital Strength and Crankt Protein.
Freedom Foods brands now generate 60pc of the company’s sales revenue – up from 40pc three years ago.
The group is increasingly well positioned to strategically build into a major global food and beverage business with scale in key food and beverage platforms
Mr Macleod said a deliberate shift from contract manufacturing was making way for the company’s focus on developing value from its own lines.
In mid-August it announced plans to buy Crankt’s nutritional drinks and snack bar business for $3.5m, having already distributed the range as part of its nutritional product offering to convenience stores, fitness outlets and supermarkets in Australia and New Zealand.
“The group is increasingly well positioned to strategically build into a major global food and beverage business with scale in key food and beverage platforms,” he said.
“We continue to experience strong demand in Australia, China and SE Asia.
“This growing demand in dairy, plant-based beverage, cereal and snacks reflects the positive impacts of structural change within the Australian dairy industry, consumer demand for the group’s expanded operational footprint and increasing brand penetration providing for increased market share in key channels and categories.
“New product revenue streams from these major capital expenditure projects are expected to materially positively impact sales and earnings into FY 2020 and beyond.“
Freedom Foods Group will pay a final dividend of 2.75 cents a share, up from 2.25c last year.
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