The Arnott’s Group will buy the Cereals and Snacks business from Freedom Foods Group for $20 million in cash. The sale is set to be completed by 1 March 2021.
The sale includes brands Freedom Foods, Messy Monkeys, Heritage Mill, Arnold’s Farm and Barley+, as well as manufacturing facilities in Leeton and Darlington Point in New South Wales and Dandenong in Victoria.
FFG said the sale was part of its program of simplifying its business structure and product range while trying to restore profitability and prioritise portfolios showing growth.
Following the sale of the Freedom Foods cereal brands, FFG will change its corporate name.
The company’s FY20 financial results showed Cereal and Snacks revenue fell 14 per cent to $70 million, with the adjusted EBITDA pre-AASB16 loss rising slightly to $32.1 million. Unrealistic operational costing budgets and ineffective trade spend in the retail channel were to blame, as were numerous poor outcomes from NPD.
Interim CEO Michael Perich said the divestment of cereals and Snacks and its underperforming Specialty Seafood business was on the cards.
With the sale of Cereal and Snacks, FFG will now focus on rebuilding the business with the two remaining profitable portfolios. In FY20, its Dairy and Nutritionals business saw revenue up 37 per cent ($362.9 million), despite the company wrestling with operational issues that resulted in high waste, lower lactoferrin yields and surplus milk traded at a loss.
Plant-based Beverages up 30 per cent to $132.3 million, largely due to the strong performance of MILKLAB, with sales growing 73 per cent and a contract with McCafé for its MILKLAB almond.
FFG estimates net cash proceeds will be around $11 million after deducting the costs associated with the transaction and equipment leases.
The Arnott’s Group CEO George Zoghbi said the acquisition would bring new capabilities in portable snacks and allergen-free products, including gluten-free foods and muesli bars to the group.
“It will accelerate our strategy of entering new product categories and unlock innovation to benefit customers and consumers. It will add three Australian manufacturing sites to our already well-invested domestic supply chain.”
FFG announced earlier this week (16 December) it was postponing the announcement of its recapitalisation plans to January and extending its trading halt, which has been in place since July.
In its FY20 results, FFG said it was in “exclusive, advanced discussions” with a new investor. Interim CEO Michael Perich said it needed to raise $280 million. The company intends to raise the funds via an ASX-listed secured convertible note, underwritten by the new investor.
“The plan is to refinance existing senior debt facilities to rest the company's balance sheet and provide a more flexible funding structure (covenant lite, increased tenor) to provide runway for the turnaround and future growth,” Perich said.
Slater & Gordon filed a class action against the group and Deloitte on behalf of shareholders in the Victorian Supreme Court on 7 December.
Arnott’s just announced an $8 million upgrade to its Shepparton Campbell’s Soup plant as it moves all soup and stock production for the APAC region to the facility. It will see its export volume grow by 400 per cent.
Freedom Foods Group is #46 and The Arnott’s Group #29 on Food & Drink Business’ Australia’s Top 100 Food & Drink Companies 2020 report.
