With the bulk of its profits achieved in the first half and a high-cost environment amidst COVID-19 putting the bottom line under pressure, vitamin vendor Blackmores (ASX: BKL) has put out a call for cash.
The Sydney-based company plans to raise up to $117 million, offering new shares at an 8.1 per cent discount in a bid to shore up reserves to ride out the crisis, invest in Asian market capabilities and improve business efficiency.
The move comes on top of Blackmores' suspension of dividends announced in March in order to conserve funds for operations, while the group is also in advanced discussions with a potential buyer to sell surplus land.
Comprising a $92 million institutional placement and a share purchase plan (SPP) of up to $25 million, the $72.50 per share raise is the first at the company for CEO Alastair Symington as well as CFO and former Treasury Wine Estates (ASX: TWE) exec Gunther Burghardt.
Major shareholder Marcus Blackmore, his related entities and the Blackmore Foundation will not participate in the equity raise, but he has underscored his commitment to the company.
The placement is expected to represent around 7.3 per cent of the current Blackmores shares on issue.
At the end of the first half - a period when profit fell 46.9 per cent to $18.2 million - the company had cash and cash equivalents of $33.7 million and undrawn facilities of $136 million.
Blackmores shares plunge as coronavirus taints outlook
Blackmores has maintained its FY20 profit guidance of between $17-21 million, and expects to have pro forma liquidity of $236 million following the raising.
"The equity raise will strengthen Blackmores' balance sheet and liquidity position and provide the flexibility to pursue our key strategic priorities," says Symington.
"It will enable us to accelerate our growth initiatives in Asia and invest in our efficiency program which will help us to achieve our objective of returning Blackmores to sustainable, profitable growth.
"At Blackmores, we are building off 87 years of history and a key priority for us continues to be building a world-class organisation. We are a purpose-led company with a performance driven culture focused on growing and stepping up our investments to achieve this."
China will remain a key focus for Blackmores, which plans to expand its organisational capabilities in the country and drive innovation in a new "Modern Parenting" product line and explore opportunities for local partnerships.
The group also plans to capitalise on health and nutrition demand in South East Asia, and will start a measured entry into India in FY21.
An efficiency program involving targeted investment in supply and IT to improve manufacturing and operations is projected to save $50 million in annualised gross EBITDA benefits by FY23 due to cost of goods sold improvements and operating cost efficiencies.
Half of these benefits will be reinvested in Blackmores' key areas of focus including Asia.
In a trading update today, Blackmores explained COVID-19 was driving a material increase in demand for its immunity products, however these only make up a small portion of the portfolio and the benefits of increased sales have been offset by a lag in non-immunity products, partly driven by lower shopping traffic.
From a supply standpoint, Blackmores' Braeside facility helped prioritise production and quickly address the demand shift, but access to some overseas sourced materials and capacity constraints at some contract manufacturers have impacted the company's ability to meet demand in some products.
Marcus Blackmore has emphasised his support for the capital raising despite not participating in it.
"Along with my Charitable Foundation I am personally pleased to support Blackmores announced capital raising," he says.
"This initiative will strengthen our balance sheet, accelerate our planned Asian expansion and will allow us to continue to make our manufacturing and business processes more efficient.
"Unfortunately I am unable to participate in the equity raising at this time, however Blackmores has been an integral part of my family since 1932 and needless to say I am absolutely committed to being a long term shareholder."
He applauds CEO Alastair Symington's outstanding leadership since joining the company in October last year, surrounding himself with an equally impressive executive team that gives Blackmore more confidence than he's had in two years.
"This almost entirely new team will place the company in an excellent position to capitalise on the significant growth opportunities that face the company as we witness the taking of supplements becoming mainstream in our community," he says.
"My good friend the late Paul Ramsay provided us with a wonderful example of estate planning.
"To ensure the Blackmores legacy from my late father will continue, my wife and I have donated from our Charitable Foundation considerable monies to Australian Universities to further the research and education of Naturopathic medicine and practice.
"To continue the Foundation's charitable endeavours I will transfer 355,000 shares from my personal holding to our Foundation."
BLK shares entered a trading halt before the announcement was made today, and at close yesterday they were trading 20 per cent below their 52-week high of $99; a figure that is well short of the $217.98 level at the close of 2015, or the $164.36 they reached in August 2018.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
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