Warrnambool Cheese stares down the global milk glut with a $142 million equity raising

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Warrnambool Cheese and Butter Factory Company, whose profits have been hit by the global milk glut, is re-tooling its business so to produce more value-added dairy products.

The company also announced an equity capital raising up to $142 million through a three-for-eight rights offer at $6.75 a share. The cash will be used to repay debt.

The price is an 18.2% discount to yesterday’s closing price of $8.25.

“This will strengthen the balance sheet and provide greater financial flexibility to invest in strategic capital investment initiatives,” the company says.

“This includes a planned capital project to expand capacity to manufacture cheese and other dairy products.”

This project will is expected to be completed in the 2018 financial year and cost $40 million.

The company currently has net debt of $213.1 million.

Last month the company announced a 87.8% fall in full year profit to $4.2 million and says international dairy prices are expected to remain weak.

Slower economic growth in China, a major dairy export market, has weakened demand. And in Europe, Russian import restrictions have closed a major market.

Milk processors in Australia and New Zealand have slashed the price they pay to farmers.

However, value added dairy producers have managed to dodge much of the impact from the global glut.

Bega Cheese posted a 139.5% rise in half year profit to $14.499 million on a 1.6% rise in revenue to $561.37 million.

This was achieved via an increase in infant and nutritional formula sales and a rise in the value of its canned goods.

Strong infant formula sales at Bellamy’s and a2 Milk are being driven by increasing demand from China’s middle class for guaranteed clean and safe products.

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