TasFoods Limited Set to buy Betta Milk for $11.5m; Stock Zooms up 8%

TasFoods Limited (ASX: TFL) is a player in the food business. It was established in 2015. It focusses on the natural elements of agricultural products of Tasmania. The company provides food products for sale to Australian and export customers. TFL is committed to bring the finest produces of Tasmania to the world’s notice. It has a strong customer base in Tasmania.

On May 13th, 2019, the company announced that it had made a transformational acquisition of The Betta Milk Co-Operative Society Limited. The agreement is to buy the milk processing assets and brands of The Betta Milk.

The Betta Milk Cooperative was formed in 1956, when a group of dairy farmers in Tasmania wished to have pricing control and aimed at the distribution of their high-quality product. Currently, The Betta Milk buys and further works on over 12 million litres of liquid milk. This is sourced from Tasmanian dairy farms and distributed across the state. Based in Burnie, the company has depots in Launceston and Hobart. Talking about financials, the company has market shares of 17% of Tasmanian fresh milk sales and 37% of branded milk sales. The business’ net revenue was $16.422 million, in FY18.

The cost of acquisition is around $11.5 million in cash, to be funded from internal and external sources. It would include an $8 million non-renounceable rights issue which has been fully underwritten at $0.12 per share. This agreement to underwrite has been signed with the Wentworth Global Capital Partners. The transaction is expected to be sealed in July 2019. The agreement is awaiting and subject to pass the final due diligence and approval of Betta Milk’s shareholders.

TFL projects the deal to add on and strengthen its existing dairy business, mainly the – Pyengana Dairy, Meander Valley Dairy and Robur Farm, through this agreement. It would yield new revenue opportunities and contribute towards a positive EBITDA in FY2019.

Betta Milk had upgraded its export-accredited processing facility in Burnie. TFL’s agreement is inclusive of this acquisition along with the distribution centres in Launceston and Hobart.

Optimistic about the deal, Executive Chairman, Shane Noble stated this deal to be a transformational acquisition which opens the path to further support the existing resources and facilities. The excess production capacity of Betta Milk will generate diverse avenues for growth within Tasmania and other states and markets. Even though TasFoods would be the premium dairy name in the Australian market, it would continue to aid the strong market hold of Betta Milk in its home, Tasmania. He also confirmed that the company is on track to report positive EBITDA from current operations for the year ending 31 December 2019.

Besides the acquisition, Opportunities in mainland and Asian markets would be tapped to leverage TFL’s recently registered Van Diemen’s Land Dairy brand.

The company’s Q1 2019 report, announced in April 2019, depicted a positive financial picture for the company. Sales revenue amounted to $10,348k, 11% up compared to pcp where it was $9,287k. The gross profit was $2,639k, which was 7% up pcp ($2,474k). The operating EBITDA improved by 21% from negative $237k in pcp to negative $187k in Q119.

TFL shares closed the day’s trade at A$0.135 (as on 13 May 2019), up 8% as compared to its previous day’s close.


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