Freedom Foods Group Limited

FNP Details

EGM Results and Release of Chair’s Address: Freedom Foods Group Limited (ASX: FNP) is a branded consumer beverage and food group. As of 25 May 2021, the market capitalisation of FNP stood at ~$123.31 million. FNP conducted an Extraordinary General Meeting (EGM) on 25 May 2021. It informed that all the thirteen resolutions presented to the shareholders at the EGM were duly passed by conducting polls. The passing of the resolutions now allows the conversion of Notes to shares. These Notes are slated to be issued to Arrovest and the Directors (former and current) and Eligible Investors under the Wholesale Investor offer on 27 May 2021. FNP can now issue ~40.8 million quoted options to the Eligible Shareholders. It will release the options’ details in a prospectus, scheduled to be submitted to ASIC and ASX on 1 June 2021. The Chair briefed the shareholders of the company’s turnaround plan, its portfolio review of brands and products, an overhaul of the Board and Executive team, improved governance, and processes, and raise of $265 million to support the turnaround and recapitalisation. 

Raise of $265 Million Completed:  On 25 May 2021, it declared a raise of $265 million via its wholesale investor offer and notes placement. FNP raised $138.9 million under the wholesale investor offer via issuance of secured and subordinated convertible notes (unlisted Notes) to Arrovest Pty Limited (Arrovest) and other sophisticated investors (Eligible Investors). Arrovest agreed to lower its minimum commitment under the placement from $135 million to $126.1 million to place $8.9 million of oversubscriptions under the offer. The offer was closed on 19 May 2021. The notes are expected to be issued to Arrovest and Eligible Investors on 27 May 2021. FNP also notified of a Second Supplementary Prospectus submission on 24 May 2021 with the Australian Securities and Investments Commission (ASIC).

FNP raised $265 million in a move to bring financial, operational turnaround and recapitalise the business. It has decided to use ~$231 million, excluding interest, to repay its current senior term, revolving debt, and subordinated facility. The remaining will be used for working capital needs, payment of fees and expenses related to FNP’s wider recapitalisation.

Key Takeaways for March Quarter (Q3FY21): FNP reported $141.6 million of revenue, down by 10.7% QoQ due to seasonality in the quarter as expected and previously indicated. The revenue from Dairy & Nutritionals and Specialty Seafoods was down by 15.4% QoQ and up by 13.7% QoQ as expected.  The revenue from plant-based Beverages was up by 7% QoQ in Q3FY21.

On 19 March 2021, FNP declared its recapitalisation plan via capital raise and restructuring its current senior debt facilities with NAB and HSBC. As of 31 March 2021, FNP reported the completion of the sale of Cereal & Snacks business to the Arnott’s Group. It collected cash receipts of $131.45 million from customers in Q3FY21. FNP held $20.6 million as of 31 March 2021.

Cash Flow from Operations, Q3FY21 (Source: Company Reports)

Key Risks: The company faces the risk of supply chain disruptions in stock procurement for some of its brands, changes in the cost and prices, and reduction in the higher-margin out-of-home market. It witnessed an adverse impact on the demand for cream and butter during COVID-19 lockdowns.

Outlook: The company continues to implement its transformation and operational turnaround strategy. It focuses on reducing wastage and unprofitable products, improving production efficiencies, maximizing milk supply, and stopping losses from the surplus milk sales. FNP looks forward to continuing growing sales given the higher penetration of MILKLAB in the out-of-home market, growth of Vital Strength and other consumer nutritional brands and increasing exports to Asian markets. It anticipates the revenue from China and South-East Asian markets will be lower in 2HFY21 due to seasonal factors related to the Lunar New Year.

Stock Details: The stock of FNP gave a negative return of 84.88% in the past three months and a negative return of 84.88% in the past six months. The stock of FNP has a support level of ~$0.282 and a resistance level of ~$0.679. The Group has reported total borrowings of $326.90 million, up by 12% YoY as of 31 December 2020 due to increased finance and restructuring costs. The company has raised $265 million for recapitalisation and decided to use ~$231 million (excluding interest) to pay off its current senior term, revolving debt, and subordinated facility. FNP closed the capital raising on 19 May 2021 and Notes are scheduled to be issued to Arrovest and Eligible Investors on 27 May 2021. FNP conducted an Extraordinary General Meeting (EGM) on 25 May 2021 and sought shareholder approval for the issue of ~40.8 million quoted options to the Eligible Shareholders. It will publish the options’ details in a Prospectus and submit to ASX and ASIC as of 1 June 2021. The stock closed at $0.455, up by 2.247% on 25 May 2021.

FNP Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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