Warrnambool Cheese and Butter seeking alternative financing for Nat Foods joint venture, CEO resigns

Posted by Daniel Palmer on 14th April 2009

Warrnambool Cheese and Butter has today announced plans to continue with the proposed cheese joint venture with National Foods – Australian Cheese Company Pty Ltd (ACC) – despite deciding not to proceed with a rights issue last week.

The rights issue was cancelled following a decision to reinstate the milk price paid to farmers, after suppliers staged a mass exodus.

“Following the decision to cut milk prices from 1 April 2009, a number of milk suppliers representing a significant amount of WCB’s total milk supply moved to other competitors and there were indications that further suppliers may also move,” the dairy company advised in a statement. “Given this situation, WCB made the decision on 8 April 2009 to reinstate milk prices for milk supplied from 1 April 2009 to 30 June 2009 to levels consistent with prices announced in January this year.”

“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,” they reported.

Some suppliers had been calling for the resignations of Chairman David Karpin and CEO Neil Kearney after a tumultuous few weeks for the company, which has seen farmers lose confidence after the price cut was linked to funding for the cheese joint venture – announced after National Foods acquired Dairy Farmers.

Mr Kearney has today tendered his resignation as Managing Director and CEO of the company, effective immediately, which was accepted by the Board of WCB.

The company said that they will appoint an executive recruitment firm to assist in identifying a long-term successor, with John McLean, their Managing Director from 1975 to 2007, to take charge in the interim.

The publicly-listed Company also reported that, due to the price reinstatement, they have revised their FY2009 forecasts down from a net profit of $6m to a net loss of $10-$12 million. The forecast excludes acquisition and capital raising expenses, which will be capitalised should the acquisition of 50% of ACC proceed.

The Board stated a continued commitment to completing the acquisition of 50% of ACC, with the recent downward impact on dairy commodity prices highlighting the need for WCB to diversify towards more stable income streams.

Funding options for ACC will be discussed with its advisors, brokers and bankers over the coming weeks, WCB added, while discussions with National Foods continue regarding an extension to the completion date.

The news has not been well received by the market, with the company’s shares plummeting almost 18 per cent in early trade. Their shares had been in a trading halt since Wednesday.