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Freedom Foods mulls seafood future after surging milk sales restore profit

Freedom Foods is evaluating the sale or restructure of its specialty seafood business as its transformation strategy nears a successful end. 

The dairy and plant-based food and beverage company reported strong sales growth from continuing operations for the June year after the divestment of its cereals and snacks division in March, despite the “significant impact” of the Covid-19 crisis on its Shepparton, Victoria plant staffing levels. 

Total revenue of $559.1 million from its continuing business was up 8 per cent year on year and adjusted pre-tax earnings on continuing operations surged 141 per cent to $22.4 million after the company logged a $54 million loss the previous year. However, Freedom recorded a statutory net loss after tax of $38.8 million, a 72-per-cent improvement on the prior year’s $136.4 million loss.

The sale of the cereals and snacks business included the company’s brand name, and shareholders will be asked to vote on a change of corporate identity at the upcoming annual meeting, with the proposed name to be revealed during the next few weeks. 

The name represents “a clean break with the past and the emergence of a reset and refreshed organisation with significant opportunities ahead of it as a leading Australian beverage and nutritionals company,” the company said in its results announcement.

With the company returning to profitability, the primary restructuring focus now settles on the company’s specialty seafood business, where sales fell 22 per cent to $11.8 million during the year, largely due to the disruption of global supply chains caused by Covid-19, which resulted in stock shortages and the need to cancel promotions. While the division came close to breaking even, Freedom Foods and its advisers have commenced a dual-track review of the business considering a strategy to “retain and improve” or divest it.

Meanwhile, the company’s plant-based beverages division sales increased 16 per cent to $152.9 million with adjusted operating EBITDA up 194 per cent to $25.7 million. Plant-based beverage sales were spurred by the expansion of the trans-Tasman foodservice team to strengthen relationships with distributors. Sales of Milklab rose 49 per cent and in June, the group launched Milklab Oat.

Dairy and nutritionals revenue rose by 7 per cent to $394.3 million, with lactoferrin sales up 215 per cent. Strong export growth offset stagnant domestic demand. 

“The dairy and nutritionals business is the focus of the group’s operational turnaround strategy to reduce wastage, improve production efficiencies, remove or reduce unprofitable products, optimise milk supply and curtail losses from the sale of surplus milk as experienced in previous periods,” the company said. “The initial focus has been on reducing milk wastage, increasing line efficiencies and reducing complexity, which has resulted in progress on key metrics of productivity and material wastage.”

On Covid, the company said it was continuing to closely monitor the impact of the latest lockdowns, which have had a significant impact on the Shepparton local government area, where the group’s manufacturing facilities are located. Up to one third of the population has been quarantined, reducing the available labour force.

“The group has taken a number of measures to monitor and mitigate the effects of Covid-19, such as safety and health measures for the group’s workforce and securing the supply of materials essential to our production process. To date, the impacts on the group and its performance have not been significant, with no positive [cases] among employees or their families.”

Freedom Foods said that during the lockdowns that occurred during FY21, reduced sales through out-of-home and export channels were partly offset by increases in others, such as pantry-stocking via the grocery channel. 

“Supply chain logistics were impacted, with longer lead times and increased freight costs.”

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