East 33 Limited (ASX: E33) is an aquaculture company specialising in oyster production and supply. The company is aiming to get listed on the ASX (indicative date 3 December 2020) and opened its IPO on 23 October. It is setting out to raise $32 million through the issue of 160 million new shares at 20 cents per share.
A closer look at East 33
East 33 was formed to acquire and operate a portfolio of long-existing oyster farms and distributors, with the goal of creating Australia's largest vertically integrated group of Sydney rock oyster producers, suppliers and exporters. According to East 33's prospectus, it will control approximately 9% of Sydney rock oyster production and 25% of industry distribution.
There are two stages to East 33's acquisition strategy. The first stage was completed in December 2019, with 4 assets acquired. The second stage is the acquisition of another 6 assets, which will be carried out as a condition to the company listing on the ASX.
A key feature of its acquisition model is the continued participation of the oysterfarm operators in the new company. Many of these operators are families that have been involved in the industry for generations.
It also aims to create an 'iconic' Australian export by taking the Sydney rock oyster to the world. In a press release announcing the IPO, East 33's co-founder and executive chair James Garton said:
We are proud to be part of the transformation of the Sydney Rock Oyster industry. This unique oyster has been enjoyed in Australia for more than 150 years and we look forward to deploying the skills of our farmers to showcase it to the world. The Sydney Rock Oyster should be our native version of French Champagne or Beluga Caviar.
East 33's financial performance
Let's look at East 33's profit as of June 2020:
|
|
FY18 Audited ($m) |
Change in % |
FY19 Audited ($m) |
Change in % |
FY20 Audited ($m) |
|
Gross revenue |
18.96 |
34.39% |
25.48 |
5.18% |
26.80 |
|
Cost of Sales |
-10.40 |
34.52% |
-13.99 |
-8.90% |
-12.84 |
|
Gross Profit |
8.56 |
34.23% |
11.49 |
21.49% |
13.96 |
Table: author's own. Data Source: East 33 Prospectus
East 33's cost of sales dropped 8.9% in 2020. Management attributes this cost reduction to the aggregation of oyster farms, which has reduced production and transportation costs.
At the same time, East 33 is looking to increase its sales. Amongst all sales channels, distributing to local restaurants and international exports (to Japan, China and Singapore) took up 15% of the company's profit in 2020. The two segments also had the highest mark up price of 376% and 3.25%, respectively, compared to other parts of the value chain, according to the company's prospectus.
East 33's financing strategy
In conjunction with the equity raised, East 33 will receive debt financing to a value of $10 million. The company has advised the proceeds will be used for the following:
- $27.1 million to fund the cash component of the consideration for acquisitions
- $4.4 million to fund its growth capital expenditure
- $1.6 million to fund its marketing and branding activities
- $5.7 million to fund its administrative costs and working capital
- $3.2 million to pay costs and expenses arising in connection with the offer and the other related transaction costs
East 33 will use more than 60% of the funds raised to fund acquisitions of oyster farms and distributors.
In addition to the funding strategy, East 33 will appoint two directors who have international brand experience gained through luxury goods group LVMH and China's largest privately-owned integrated aquatic port. The company expects these new hires to help increase East 33's capability to penetrate the high-end consumer market in Asia.
East 33's IPO is due to close on 16 November, in view of a 3 December listing under the ticker E33.
