Organic dairy company Bellamy's has announced plans to purchase the Camperdown Powder canning facility and has renegotiated its supply agreement with Fonterra.
Bellamy's Organic announced several initiatives to underpin its turnaround plan, including the purchase of its own CNCA (Certification and Accreditation Administration of the People's Republic of China) licensed canning facility.
The company's plan to acquire Camperdown Powder, a powder products blending and canning line in Braeside, Victoria will cost $28.5 million.
Bellamy's board said that the acquisition provides an opportunity to reduce key regulatory risks, by securing the element of the supply-chain responsible for controlling the CFDA registration submission.
The move will also strengthen Bellamy’s competitive position, by addressing trade and consumer concerns regarding CFDA registration and a contract manufacturing model, and add a high-potential manufacturing asset.
Bellamy's said the acquisition will also leverage its volumes and existing and new customers, including a major Chinese dairy and infant formula business, and bring a highly capable management team with deep Chinese regulatory expertise.
Bellamy's CEO Andrew Cohen said: “The acquisition of Camperdown strengthens our strategic position by increasing control of our supply chain and the CFDA registration process.
"The acquisition will help build our brand credibility with trade partners and consumers. We believe this is an attractive commercial investment.”
The company has also announced “further reset” of the supply agreement with its current powder provider, Fonterra, at a of $27.5 million.
The agreement reset will remove anticipated shortfall payments over the life of the contract, increase operating flexibility to direct canning to Camperdown, introduce volume based rebates and a modified bulk formula price, and additionally secure R&D investment to improve Bellamy’s formulations.
The agreement still includes minimum annual volume commitments that are subject to shortfall payments, however, the level of these commitments is now aligned with growth and production forecasts, according to the company.
“This a strategic and economic reset,” Cohen said. “It supports the Camperdown acquisition and investment rationale and fundamentally realigns incentives with Fonterra for future growth.”
To this end, the company has announced a fully underwritten $60.4 million entitlement offer, and it also revised its 2H17 reported EBIT guidance from a profit of $9.0-13.0 million to a loss of $9.5-14.0 million, due to additional one-off costs associated with the acquisition and revision to the Fonterra agreement.