The Tale of Blackmores: Completes $92 million placement, focuses on Asian markets

  • May 28, 2020 AEST
  • Team Kalkine
The Tale of Blackmores: Completes $92 million placement, focuses on Asian markets

Summary

  • Blackmores raises $92 million via institutional placement; intends to raise ~$25 million through SPP.
  • The Proceeds via the placement would be utilised to fund expansion plans in Asia and to strengthen the balance sheet.
  • The institutional placement was supported by Mr Marcus Blackmore and other institutional shareholders and investors.
  • The Company also highlighted that growth in immunity products demand was negated by a decline in other products; underlying profit consistent with expectations and 1H FY2020 guidance.

Blackmores Limited (ASX:BKL) is a leading natural health company. BKL is known for its quality range of vitamin, minerals, herbal & nutritional supplements, and continuous assistance of the community & environment.

BKL intends to expand its presence in Asia while focusing on funding efficiency programs and bolstering its balance sheet. The Company went for the placement and SPP to raise funds for the activities mentioned above.

Let us get into the details of the institutional placement and look at the Company’s trading update and recent financials.

Capital Raising:

On 28 May 2020, Blackmores announced the completion of its institutional placement announced a day earlier.

 

 

On 27 May 2020, the Company had announced its initiatives to raise capital to strengthen its balance sheet and get additional flexibility to look for growth opportunities. Under the placement, the Company intended to raise ~$92 million. Approximately 1.3 million new shares were anticipated to be issued, which is equivalent to 7.3% of the current shares on issue.

The new share would be offered at $72.50, which is available at a discount of 8.1% to the closing price of the shares on 26 May 2020.

The shares issued under the institutional placement would rank proportionately to the existing shares and will likely settle on 1 June 2020. Goldman Sachs Australia Pty Ltd fully underwrites the placement.

Following the completion of the placement, the Company would offer all the qualified shareholders in Australia and New Zealand with an opportunity to apply for new shares for up to $30,000 without any brokerage, commission, and transaction cost. The Company intends to raise ~$25 million.

 

Source: BKL's report

 

Balance Sheet Strength and Flexibility to Accelerate Strategic Priorities:

As highlighted above, the proceeds through the placement would strengthen the Company’s balance sheet and provide additional flexibility to look for growth opportunities. On that note, let us know about the Company’s capital management initiatives and the areas where the proceeds would be used.

Blackmores, in its announcement, highlighted on the capital management initiatives taken up by the Company to be in a position of strength to accelerate its strategic priorities. In addition to the equity raising, the Company has received strong support from its lender group, which agreed to increase the Senior Leverage Ratio covenant through to June 2021.

The proceeds via equity raising would be used for:

  • Accelerating growth in Asia: For Blackmores, China has been its key focus region. The Company would be using the fund to increase its organisational capabilities, drive innovation in a new “Modern Parenting” product line & discover prospects for local alliances. The Company would also focus on improving support for the fast-growing SE Asian market to secure health and nutrition demand and will start a computed entrance into India in FY2021.
  • Investment in Efficiency program: The Company would be commencing targeted investment in supply and IT so that its manufacturing and business processes. The Company’s efficiency program targets $50 million of annualised gross EBITDA benefits by FY2023 from COGS improvements & operating cost efficiencies. 50% of these benefits would be reinvested in the focus area, which incorporates Asia.
  • Provide balance sheet strength: The Pro Forma Net Leverage would be 0.7x and added flexibility with Pro Forma liquidity of $236 million.

 

Image source: BKL's report

 

BKL’s Trading Update and 1H FY2020 Results:

Because of COVID-19, the Company noted a material increase in demand for the BKL’s immunity products. However, immunity products form a tiny portion of its portfolio benefits which got offset by a gap in non-immunity products slightly because of lower shopping traffic.

During this time, the Company responded to the COVID-19 impact and maintained business continuity and took initiatives to seize opportunities coming out of this. These include the provision of continuing workforce flexibility, capability enhancements and the commitment of cross-functional teams to implement near term opportunities.

In the 1H FY2020 results for the period ended 31 December 2019, the Company’s revenue was $303 million, and it registered a net profit of $18 million. Other than that, the Company focused on its four strategic priorities which were:

  • Rejuvenate Australia.
  • Leverage exclusive manufacturing & partnership abilities to drive new growth in countries like India and Indonesia.
  • Design for the Modern Career Woman in China.
  • Develop a first-class organisation.

 

FY2020 Outlook:

In FY2020, the Company projects its underlying NPAT of $17 million to $21 million (Excluding extraordinary items like the cost incurred as a part of capital raising). The values provided by the Company is in line with the guidance provided with the 1HFY2020 results.

Presently, the Company is in progress related to the divestment of non-core brands, and it is in advanced discussion with a potential buyer for the sale of surplus land which the Company is looking to sell.

BKL is also in discussion with a foreign authority related to export classification codes & associated exclusions claimed under free trade agreements from 2009 to 2014.

Shareholders supporting Capital Raising:

Mr Marcus Blackmore, who is the executive director in the Company, stated that he, along with his Charitable Foundation, is pleased to support the capital raising. However, at present would be able to participate in the equity raising.

 

 

Stock Performance: BKL shares were trading at $81.780 on 28 May 2020 (at 2:30 PM AEST), an increase of 3.716% compared to its previous closing price. The Company has a market cap of $1.37 and has ~17.41 million shares outstanding.

NOTE: $ denotes Australian Dollar, unless stated otherwise.

 


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