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After a few difficult years and the erosion of shareholder value, Murray River Organics (ASX: MRG) will further dilute its ownership in a bid to meet funding targets.
The dried fruit company expects to reach positive cash flow in FY21 amidst improvements in higher-margin offerings and a 17 per cent cut to operating costs, but first it needs to pay off debts and fees associated with exiting a lease in Colignan, Victoria.
MRG has been in a trading suspension since November when shares last traded at five cents each, but now the company is issuing new shares at just 1.5 cents each to raise approximately $25 million.
The funds raised from the entitlement offer - involving 3.843 new shares for every one held in the company - will also go towards vineyard and new product development, equipment, working capital for product launches and sales and marketing.
Of the $25 million, $4 million will be used to pay off a short-term loan with National Australia Bank (ASX: NAB) and $1.32 million will be paid as a surrender fee Arrow Funds Management for pulling out of the Colignan farm lease.
Eligible shareholders will be able to apply on the record date of 10 February.
The group highlights its turnaround strategy has involved initiatives including restructuring the management group and teams at the processing facilities, improving operating efficiencies, reviewing product growth opportunities and brand development, and investing in farm remediation.
Managing director Valentina Tripp, who is now 20-months into her appointment and faced unexpected challenges due to drought last year, says the new team has made significant progress in transforming the business.
"We have broadened our supply chain, allowing us to secure supply, diversify offerings, launch new products and continue to maintain our high-quality standards," she says.
"The launch of our Murray River Organics branded range of products this year has been a particularly significant milestone.
"The Company's turnaround is occurring in an environment where there is continued strong demand for organic dried vine fruit and organic products generally."
She emphasises Australians want healthy, organic, 'better-for-you' food options at affordable prices.
"Our goal is to provide that for our customers through our competitive advantage of vertical supply from our own core farms and our strategic sourcing relationships," she says.
Growing and remediation costs have been higher than forecast on some of MRG's 11 farms, an example being Colignan where underperformance prompted a departure in December. Now it looks like other operations might also be on the chopping block.
"We are focused on growing our retail and export business and while select core farms will support these initiatives, we will exit those properties which are considered to be non-core to the strategy," says Tripp.
"The past year has seen the delivery of transformative restructuring of the Company, along with hard and necessary decisions being made to right size the Company and its strategy to build longer term value creation with a clear and realisable path to net earnings growth," adds chairman Andrew Monk.
"The structure of this fully underwritten entitlement offer today means that all shareholders have the ability to participate in this capital raising and retain their percentage holding. With capital now secured, we are confident this next phase in our transformation and refined strategy will deliver a positive impact for the Company, our people, our growers, our supply partners and our customers," he says.
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