Bellamy’s has found a unique way to get sales growth in China back on track — buy a business which already has overcome regulatory hurdles, creating a fast track to infant formula buyers there.
The organic infant formula makers, whose sales to China last year hit a regulatory speed bump, today announced a series a deals and a major purchase designed to restart strong sales growth.
The company announced a $60.4 million capital raising to help buy a milk power processing business, Camperdown Powder Pty Ltd, for $28.5 million.
Bellamy’s will also pay Fonterra a one-off fee of $27.5 million to eliminate future shortfall payments the company would have had to make because of lower volumes under a long term processing contract.
However, the additional one-off costs associated with the acquisition and revision of the Fonterra agreement means the company will make a loss this year instead of a profit.
Bellamy’s is now forecasting a 2017 EBIT (earnings before interest and taxes) loss of $9.5 million to $14 million from a profit of $9 million to $13 million.
The acquisition, Camperdown Powder, has a CNCA (Certification and Accreditation Administration of the People’s Republic of China) licensed powder products blending and canning line in Braeside, Victoria.
This essentially gives Bellamy’s a China label, shelf ready with all the paperwork needed to go straight to mainland China consumers.
Here’s how the deal is structured:
Bellamy’s says it believes the deal provides an opportunity to reduce key regulatory risks, strengthens the company’s competitive position and add a high-potential manufacturing asset at a fair price.
The $28.5 million price gives Bellamy’s a 90% interest in a newly formed entity that will hold the issued capital of Camperdown.
Camperdown Powder will be paid $10.5 million cash and 3.2 million ordinary shares in Bellamy’s valued at $18 million.
“The acquisition will help build our brand,” says CEO Andrew Cohen.
Bellamy’s plans to spend $8.5 million upgrading Camperdown Powder.
The $60.4 million institutional capital raising at $4.75 a share is at a substantial discount to the current share price of $5.76.
Here’s an overview of the capital raising and where the funds will go: