A funny bit of timing from Freedom Foods yesterday. It revealed plans for $130 million capital raising, and at the same time slipped out a small downgrade its full-year sales guidance.
Most of the $130 million will be used to fund the expansion its capacity to process dairy-based nutritional ingredients business in northern Victoria.
It’s the second issue in a year after $200 million was raised in 2018 to expand parts of the business.
Buried in the announcement yesterday was news that projected revenue for 2018-19 will fall short of the previous guidance.
“Based on current sales performance and with the Company prioritising sales to domestic demand in recent months, the Company projects FY 2019 Net Sales Revenues to be in the range of $480 million to $490 million, an increase of $127 million to $137 million or 36-39% on FY 2018 sales revenue,” the company said in the announcement of the equity raising.
That $480 million to $490 million is short of the forecast given in the February 28 announcement of the interim results, when the company forecast that it expects “the Group expects net sales revenue in FY 2019 to be in the lower end of the range of $500 million – $530 million advised in July 2018, a substantial increase on FY 2018 sales revenue of $353 million.”
As Freedom said in February, 2018-19 sales will be well ahead of the 2017-18 figure, but yesterday’s trim means the margin just won’t be a large – more $140 million or so rather than the projected $170 million-plus last August.
The still solid revenue growth is why the raising will be supported by investors, but some big holders might ask about the $30 million of the issue going to day to day working capital.
Freedom told the ASX on Thursday that plans to raise $65 million through a placement to institutional investors at $4.80 a share and another $65 million through a one-for-18 entitlement offer at the same price.
The offer price is in line with Freedom’s close on Wednesday, before the stock went into a trading halt, but represents a 5.5% discount to the volume-weighted price over the past 20 days. The shares are down around 8% so far in May
The Perich family company Arrowvest Pty Limited — which owns 54.86% of Freedom — would take up its full entitlement of shares in the 1:18 offering.
CEO Rory Macleod said yesterday $100 million of the capital raised would be used to accelerate its nutritional ingredients production, mostly at its Shepparton plant in Victoria, while the other $30 million would be used for support its day-to-day trading operations (in other words, working capital).
Freedom Foods began production of nutritional ingredients micellar casein, native whey protein isolate and lactoferrin at the Shepparton plant earlier this year.
Mr. Macleod said the company was experiencing strong customer demand for these proteins, with prices at or above what was articulated in its initial business plan.
In 2018 the Company raised $200 million to accelerate capital expenditure programs. Works completed in the last 12 months include; UHT processing upgrade to more than 500 million litres capacity in Shepparton, the Stage 1 protein fractionation and drying, with production commencing in February this year; Yoghurt processing capabilities in Ingleburn, increasing the capacity of the group to more than 690 million litres.