Clean Seas Sustainable Seafood has launched a capital raise in conjunction with an operation review looking to offset input cost pressures and right size the company.
Clean Seas Seafood (CSS) is the largest producer of Kingfish outside of Japan. It encompasses full cycle breeding, farming, processing, and marketing of its ocean-reared Spencer Gulf Kingfish.
The review is also aiming to create a more stable and resilient business with a faster pathway to financial sustainability. Its focus is on biomass levels, operating costs, farming activities, and optimising the production process to deliver strong-margin, high-quality products to the market.
The company is looking to raise around $9.5 million via a placement. It will be in two tranches - around $6.7 million on 1 December, and $2.8 million on 17 January 2024.
CSS’s largest shareholder, Bonafide Wealth Management AG, some company directors, and management have agreed to participate in Tranche 2.
All shares would be 27cents, a 23.9 per cent discount on the closing price of 35.5 cents on 21 November.
Chair Travis Dillon said, “The board and management team have given considerable thought and focus to the optimal future structure for the Clean Seas business. While achieving the right balance of growth and profitability is a sensitive one in an aquaculture business that has significant operational risk, it is clear that the Clean Seas business model requires change to navigate the current challenges.
“The issues facing the Company have driven us to reassess our strategy to create a more secure platform that is resilient at its optimal production output, adequately manages operating costs and drives free cash flows. In pursuing our growth strategy, our cost base has become disproportionate to our earnings profile and the continued pursuit of this strategy would require significant levels of infrastructure and working capital investment.”
For FY23, CSS recorded $69.4 million in revenue, a five per cent increase on FY22.
The trading environment was highly competitive due to the global economic downturn, increased competition, and excess supply across all markets from cheaper proteins. Feed prices have also been elevated due to inflationary pressures and raw material shortages.
CSS said its current strategy focus on sales volume growth requires significant infrastructure and working capital investment and has increased risk due to volatile capital markets, shift in market conditions, increase in fish feed prices (it has risen from $2.45/kg to $3.22/kg in the last two years), and competitive pressure.
It said it is looking to a consolidation strategy where it consolidates its sales and production at current levels of roughly 3000 tonnes and focuses on premium markets to maintain premium prices. This would reduce operating costs, infrastructure requirements, and working capital, it said.
By eliminating the need to fund future growth, EBITA to operating cash flow conversion would improve to approximately 90 per cent, compared to 41 per cent in FY23, CSS said.
CEO Rob Gratton said, “While we successfully achieved many of the goals that we set ourselves over the last three years, including transitioning the business to profitability and positive cash flows last year, the emergence of more challenging market conditions and higher input costs has put further progress at risk.
“Our focus in restructuring Clean Seas is to deliver a high performing, efficient and stable business, that manages operating and financial risk while continuing to leverage our high-quality Kingfish and unique provenance that can only come from growing a native fish in its natural waters of the Spencer Gulf.
“In playing to our strengths, we have the opportunity to continue towards our goal of creating a financially resilient business.”