Australian Dairy Nutritionals will this month permanently cease production of fresh milk at its Camperdown facility under a new strategic business focus.

The Victoria-based firm has opted to hone resources on infant formula and other dairy nutritionals such as milk powders in light of what the group described as a “disappointing performance” last year for its fresh dairy manufacturing segment. Following a review, the company had terminated a licensing agreement for yogurt with The Collective brand in Australia and ceased production of yogurt at the Manifold site.

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A further review of the fresh dairy operations has culminated in a decision to also end fresh milk processing at Manifold in Victoria, effective from the end of August.

“The board’s strategic review identified several issues with the group’s fresh dairy operations which will continue to adversely impact the group’s financial performance, including resourcing and logistics disruptions from Covid-19, increasing production costs and ongoing competition from fully automated, low-cost competitors,” the company said in a stock-exchange filing today (9 August).

Australian Dairy Nutritionals’ (AHF) Manifold site is home to its Camperdown Dairy Company business, a brand that will be retained as a buyer is sought for the plant. AHF said it has “been approached by third parties interested in purchasing the processing equipment and/or taking over the site – these opportunities will be progressed in the coming months”.

AHF added: “Whilst sales of Camperdown Dairy milks in Woolworths stores have shown good year-on-year growth, the highly inflationary environment has significantly increased production costs, eroding the already slim margins in this category in the major supermarkets.

“In 2022, nearly all of Camperdown Dairy’s materials suppliers have increased prices by more than 10% and, logistics costs have nearly doubled. On top of this, the FY-23 conventional milk price finished up 26% higher than FY-22’s record high prices.”

AHF plans to shift “most [of the] permanent staff” from Manifold to its new infant-formula facility given difficulties in finding skilled dairy employees amid a generally tight Australian labour market.

“The closure will reduce operational complexity by allowing the group to run a single operational, quality and compliance system for nutritional products rather than a dual site system covering both fresh milk and nutritionals,” the company said, adding the move will result in an estimated AUD1m (US$697,350) in EBITDA savings.

However, AHF envisages the plant’s closure will amount to a AUD4m loss in revenue in the “short term”.

“In the medium to long term, revenue is expected to increase as infant formula and nutritional product sales build, both domestically and internationally,” the company said. “We have also identified other product development opportunities in the nutritional category which are being progressed.”

AHF added: “After five years of significant investment in the group’s transformation strategy, from the farms and the infant-formula plant to our brands, the infant formula and dairy nutritionals segment is the group’s future. Closure of the fresh milk operations will allow AHF’s management team to completely focus on delivering this strategy and capitalising on the opportunities it presents.”

In an update in February, AHF confirmed the business sold its Ecklin South farm last year for AUD5.5m, bringing its “farm portfolio in line with its future milk production requirements”.

AHF now has three farms, two in Brucknell and its Yaringa farm in Nirranda South, Victoria.

Approached by Just Food, an AHF spokesperson confirmed the new infant-formula plant, located at Depot Road in Camperdown, also includes raw milk processing equipment.

“Our three remaining farms, which are all located about 20 minutes from the infant-formula plant, will supply all of the organic A2 milk required to produce the formula,” the spokesperson said. “There is sufficient volume from just two of the farms but we have retained the Brucknell North farm via a lease to provide us with additional flexibility.

“The Camperdown Dairy fresh milk products will no longer be supplied and we have been working with our customers to transition these arrangements.”

The transition from a sole producer of fresh dairy products – milk, cream and yogurt – into a producer of dairy nutritionals began in the first half of AHF’s current fiscal year. For those six months to 31 December, total income amounted to AUD11.3m, a decline of 14%.

Net profit after tax was AUD86,313, compared to a loss of AUD3.3m in the corresponding period.