A2 Milk’s capital raising

milkA2 Milk is seeking to raise $40 million of new equity through a fully-underwritten placement to eligible investors of fully paid new ordinary shares in the company to support its planned expansion in China, the UK and US.

It is launching its $43 million capital raising today .

A2 has appointed Goldman Sachs New Zealand to act as sole arranger, book runner and underwriter for the placement.

The company’s shares, valued at 65 cents on the ASX at Wednesday’s close, have been placed in a trading halt ahead of the placement of new ordinary shares, with a floor price of 67 cents each.

A2 rejected a takeover offer from Australia’s Freedom Foods and US dairy giant Dean Foods in July.

It is intended that the placement shares will be offered to institutional investors in NZ, Australia and other selected international jurisdictions.

The placement will be followed by a share purchase plan (SPP) offer to eligible shareholders in NZ and Australia of up to $15,000 per shareholder to raise up to $3 million. Accordingly, individual subscriptions will be subject to pro rata scale back if total demand exceeds $3 million. The SPP is not underwritten. The price payable for shares under the SPP will be the same as the price paid by investors participating in the placement.

The new capital raised will be applied primarily to fund increasing working capital associated with the significant growth in infant formula in ANZ and China. In order to provide additional working capital flexibility, the company also recently increased its debtor finance facility from A$3 million to A$10 million and is negotiating a further bank guarantee facility of NZ$10 million.

In addition to raising capital A2 is seeking to use the placement to strengthen and broaden its institutional share register.

The company provided a trading update on July 20 in relation to the performance of the business to that date and the outlook for the year ending June 30.

A2’s growth initiatives are progressing encouragingly and the board remains comfortable that the company’s most recent earnings guidance and outlook commentary contained in the 2015 annual report are achievable and appropriate.

The performance of the ANZ and China and other Asia businesses during the first two months of financial year 2016 was ahead of budget and the most recent guidance and outlook commentary. As recently advised, infant formula is emerging as a more significant and meaningful growth driver for the company than expected, with a current focus on sales, including direct and indirect sales into China.

In addition to the growth in infant formula, the prospects for growth of A2 branded whole milk powder are also encouraging.

The UK and US businesses, combined with corporate, performed consistent with earnings expectations for the first two months of financial year 2016. Forecast revenue growth for the UK and US businesses assumes growth in distribution and sales velocity for key products, primarily in the second half of financial year 2016.

Commenting on the equity raising, MD and CEO, Geoffrey Babidge, said: “The equity raising is expected to raise our capital markets profile and enhance opportunities for investor participation whilst maintaining a conservative capital structure. Together these factors are expected to provide financial flexibility to allow A2 to execute on growth opportunities that are consistent with the company’s stated strategy and business plan.”


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