Warrnambool Cheese and Butter Factory has decided not to proceed with its rights issue due to changes in the company’s cost base after it was forced to reverse cuts in the price it pays suppliers for raw milk.
The Australian dairy firm had announced a number of price cuts in recent months, with the latest bringing the price it paid for milk from 1 April to A$0.36 per litre.
The company claimed that this price was “in-line” with its competitors and the consequence of the deterioration of dairy prices on the global commodities market.
However, a number of the Australian dairy’s suppliers, representing a “significant amount” of the group’s total milk supply, moved to competitors and further suppliers also threatened to abandon the company.
WCB therefore decided to reverse the cut.
“Since the milk price reinstatement, a number of milk suppliers that were at risk of leaving WCB have indicated they will remain with WCB, some suppliers have returned to WCB and others are expected to return over the course of the next few weeks,” the company said in a statement today (14 April).
As a consequence of this dispute, WCB was forced to revise its outlook for fiscal 2009 from net profit of A$6m (US$4.4m) to a loss of between A$10m and A$12m.
The cancelled rights issue was to have financed its planned acquisition of a 50% stake in a venture with bigger peer National Foods.
The venture, Australian Cheese Company (ACC), will run the cheese business of Dairy Farmers, which National Foods bought last year.
“The merits of the acquisition remain unchanged, with the recent downward impact on dairy commodity prices highlighting the desire for WCB to diversify towards more stable income streams.”
WCB said that it will “continue to consider its funding options for ACC with its advisors, brokers and bankers over the coming weeks”.
The company said that it is in discussions with National Foods over extending the completion date for the acquisition.
WCB also announced that its board of directors has accepted the resignation of Neil Kearney, president and MD, effective immediately.
The company will appoint a recruitment firm to find a successor and in the interim former WCB managing director John McLean will fill the post.