Protein, plant-based and packaging boost: Freedom Foods outlines benefits of $130m equity funding

By Cheryl Tay

- Last updated on GMT

The firm will soon complete the first stage of its specialised nutritionals platform for dairy UHT operations at its Shepparton site, facilitating protein standardisation and the manufacture of high-grade protein components.
The firm will soon complete the first stage of its specialised nutritionals platform for dairy UHT operations at its Shepparton site, facilitating protein standardisation and the manufacture of high-grade protein components.

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Australian firm Freedom Foods has completed the institutional component of its $130m equity raising, which includes $100m for capital expenditure programmes in its Nutritional Products business, and $30m to support larger working capital requirements to meet rising demand.

During a shareholder presentation, the firm elaborated that these requirements include "increased dairy milk purchases, export market sales, forward raw materials and packaging requirements for growth in dairy and plant-based beverage products"​.

It further said that it would use the funds to "increase fractionation of lactoferrin, native whey protein isolate and micellar casein, access new protein streams of α-lactalbumin, β-lactoglobulin and immunoglobulin, (install) additional protein-drying (stage 2), and expand blending and packing facility"​.

It also stated that had been experiencing growing customer demand after establishing its nutritional ingredients capability​.

Furthermore, it revealed it had commitments for the sale of its entire available capacity for native whey protein isolate powder, liquid micellar casein, and lactoferrin powder in FY 2020.

In addition, it is likely to experience "incremental revenue and profitability"​ through its access to protein streams from increased UHT dairy milk flows in excess of 400m litres in FY 2020, as well as its expansion into new proteins, such as α-lactalbumin, β-lactoglobulin and immunoglobulin.

Positioned for good prospects

Freedom Foods' MD and CEO Rory Macleod said, "The group continues to experience strong demand across its business activities in Australia, China and South East Asia.

"This growing demand in dairy, plant-based beverages, cereals and snacks reflects the positive impacts of structural change in the Australian dairy industry, the group's expanded operational footprint, and increasing brand penetration and market share in key channels and categories in these markets.

"While this requires significant capital investment and patience, we will continue to invest to achieve this outcome, compared to an Australian F&B industry that has significantly under-invested over the past 20 years.

"Our operating profits will increase through the investment cycle, balanced against a requirement to invest in people, systems and processes to manage a scaled and diversified business platform."

He added that the firm was well on its way to completing the first stage of its specialised nutritionals platform for dairy UHT operations at its Shepparton site, which will lead to protein standardisation and the capability to manufacture high-grade protein components for its branded protein products.

At the same time, the capital raising is expected to fund accelerated capacity expansion in Freedom Foods' Nutritionals business, resulting in increased sales in FY 2021 and beyond.

Based on its current sales performance and its recent decision to prioritise sales to domestic demand Freedom Foods has projected that its FY 2019 net sales revenues will fall somewhere between $480m to $490m — an increase of $127m to $137m (36% to 39%) from its FY 2018 results.

"Despite a significant capital expenditure program in progress, we expect increasing margins in the second half of FY 2019, reflecting sales mix and increasing operational leverage.

"The equity raising, along with support from our banking partners, provides strong balance sheet capability to execute our strategy," ​added Macleod.

Finances and funding

The equity raising consisted of a pro rata accelerated non-renounceable entitlement offer and a retail offer, which raised approximately $119.3m together. The balance of the equity raising consists of the entitlement offer’s retail component, which will open on May 29 and close on June 11.

Macleod said: "The placement was significantly oversubscribed, with strong demand from a broad range of high quality institutional investors.

"The institutional entitlement offer was also well supported by existing institutional shareholders, with a take-up of approximately 92%. We appreciate this continued external endorsement of Freedom Foods' ongoing performance and strategy."

The equity raising was supported by cornerstone investor, Arrovest, a private investment firm that owns Freedom Nutritional Products and belongs to Perich Group.

Veritas Securities and UBS AG had fully underwritten the equity raising, and are joint lead managers along with Citigroup Global Markets Australia.

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