THE business plan of Cervantes Seafood Limited appears to have come unstuck just five months after listing on the Australian Stock Exchange.
The company successfully raised $5 million and listed in November last year. By December 31 it had reported a $999,000 loss while its cash in hand had dwindled to just $809,000.
In addition, the company was straddled with current payables of $2.5 million.
Cervantes Seafood Limited earlier this month secured a $1.7 million credit facility to “improve its working capital position”.
At the same time it moved sideways – from its flagship lobster business on which the company prospectus was floated – and moved into other fisheries, with the sale to Chinese buyers of 125 tonnes of ribbonfish sourced from India.
In its quarterly report announcement the company says it expects to continue this revenue activity in the coming months.
Meanwhile, managing director Chen Hao has warned investors that “the combination of difficult trading and operational conditions is likely to adversely affect the company’s forecasted revenue and trading results”.
In its prospectus Cervantes Seafood Limited says it hopes to hold around 5 per cent of the lobster market, with a targeted catch of 552 tonnes, which was expected to generate sales of approximately $24 million in 2002-03 and earnings before interest and tax of $1.27 million.
At the 20-cent offer price the company had a market capitalisation of approximately $12 million. Earlier this week it had been reduced to $8.58 million as the share price hovers at around half of its listing price.
Cervantes Seafood, which is chaired by Barry MacKinnon, was set up to purchase the assets of Tarana Corporation Pty Ltd, a company associated with two of Cervantes’ directors, Chen Hao and Lawrence West.
Cervantes agreed to pay $2.1 million for the plant and equipment and included $600,000 in goodwill from the IPO funds. The payment was a mixture of $1.6 million in cash as well as shares and options.
In addition, Chen Hao and Lawrence West were contracted to provide management services to the company for $120,000 and $100,000 respectively.
Yet the directors have their work cut out in the second half of the financial year if they are to receive these fees.
According to the prospectus, “no payment will be made under the contracts in respect of the year ended June 30 2003 until and unless an EBIT of $1.5 million is exceeded”.
The company has also entered an agreement to lease the Cervantes property for $270,000 a year from Tarana with an option to buy the land and buildings for $3 million.
While Cervantes has purchased the plant and equipment from Tarana, Tarana has continued as exclusive operator and manager of the company’s processing facility for a monthly fee of $8,333 in arrears plus an amount of 10 per cent of the total employment costs of the processing personnel.
The plant is currently significantly under-utilised, providing room for additional expansion. The plant is capable of processing approximately 1,500 tonnes a season and is presently operating at 40 per cent capacity. Tarana has been operating for more than five years. In 1999-2000 Tarana’s lobster sales were approximately $22 million, representing over 590 tonnes.