looks good to me., page-5

re: doc/looks good to me. G'day again Doc,
Let me tell you that was one hell of a learning curve trying to get this on to HC....LOL
As I mentioned earlier, it hails from Terrain Securities.
Cheers,
Carl.

Cervantes Seafood Limited January 2003
Update since listing
Capital Information
ASX Code: CVS
Sector: Food, Beverage and Tobacco
Shares on Issue: 63,583,334
Options on Issue after IPO: 40,486,111
Company Management
Chairman: Mr Barry McKinnon
Managing Director: Mr Chen Hao
Executive Director: Mr Lawrence West
Company Secretary: Mr Anthony Ho
Financial Information
Current Share Pirce $0.15Market Capitalisation $9.54 millionForecast Revenue $24.7 millionForecast EBITDA $1.60 millionForecast EBIT $1.27 millionPrice/EBIT ratio 7.5 times
Key Points:
• CVS has an exclusive agreement to sources its product from Tarana Corporation, a WA processor, and includes live lobster, frozen raw and cooked lobsters and lobster tails.
• Operates in a restricted industry providing barriers to entry.
• Forecast catch of 552 tonnes or approx 8% of the Zone C catch.
• Seeking to diversify product lines to increase margins and profitability.
• Review acquisition opportunities within the WA rock lobster industry to increase tonnage and achieve greater economies of scale.
• Aim is to reduce seasonality and build a seafood business with turnover in excess of $40 million within 2 years.
Seeking to expand capacity
Following the IPO being oversubscribed, Cervantes Seafood listed on the ASX on November 6th.
While initially focusing on it’s core business of exporting lobsters to markets in Hong Kong, China, Japan, Taiwan, Europe and the United States, moving forward, management is looking to expand the product range to other seafood lines.
The initial step towards such expansion was completed on 12th November 2002, with the first shipment of fresh fish into China. Additional shipments will continue throughout the year.
The readily accessible buyers network already established, allows new product lines to be supplied to China, with many buyers in China keen to purchase seafood renowned for its quality.
Page 2 Senior management anticipates that the fish shipments will contribute additional revenue of approximately 15% above the 2002/2003 projections.
In 2003, Cervantes is seeking to expand its share of the WA lobster industry.
INDUSTRY OVERVIEW
Seafood is one of Australia’s most rapidly growing industries, with the gross value of Australian fisheries production rising 13% to $2.3 billion in 1999/2000 following a 9% increase in the previous year.
The Western Australian Rock Lobster Fishery represents approximately 20 per cent of the total value of Australia’s fisheries, and in excess of 70% of Australia’s lobster exports.
The fishery was declared limited entry in March 1963 when processing licences (26) and pot numbers (69,247) were frozen, resulting in high barriers to entry for potential new industry participants.
The WA lobster fishery is divided into three zones (A, B and C) with CVS operating in Zone C. Fisheries WA, the WA Government regulator, provides accurate forecasts of the seasons rock lobster catch 3 years ahead. The forecasts undertaken by Fisheries WA over the last ten years have had a variance of only 2.32%, enabling processors to accurately forecast the coming seasons catch.
The forecast catch for the 2002/2003 season is approximately 12,000 tonnes, with Zone C forecast to catch approximately 7,000 tonnes or 58% of this years catch. Figure 1 shows the accuracy of the forecasts for Zone C over the last 10 years.
Figure 1
ROCK LOBSTER CATCHES AND PREDICTIONS FOR ZONE C4,0004,5005,0005,5006,0006,5007,0007,5008,0008,50092/9393/9494/9595/9696/9797/9898/9999/0000/0101/0202/0303/04SeasonCatch in TonnesEstimated CatchActual Catch
Source: Fisheries WA
Page 3 THE GROWTH STRATEGY
An ASX listing allows the Company to have ready access to ‘public’ money. Many of the other exporters such as Blue-wave Seafood, formerly known as Fremantle Fishermen’s Co-op, continue to rely on individual members to contribute to the company’s cash requirements. However, with no ready market to trade their shares, many members are contributing less each year.
Industry sources believe that the fishery will continue to move towards consolidation in the coming seasons. In the event of any consolidation, Cervantes has an added advantage of an ASX listing, that allows the Company to expand significantly by offering listed scrip to acquire other seafood industry participants.
The Cervantes plant has a capacity of 1,500 tonnes, and is currently operating at approx 40%, so any increased throughput can be processed with little additional capital expenditure required. This increased throughput would result in significantly lower processing costs per kilo, ensuring higher margins.
Management not only recognizes the vast opportunities to expand their catch within the industry, but also to acquire new product lines to reduce seasonality. While the shipment of fish into China is a first step, moving forward, the Company is seeking to export high margin product from regions such as Darwin in the near future.
THE 2002-2003 SEASON
The period December to March will see operators in Zone C catch approximately 50% of their seasonal total.
The start of the 2002-2003 rock lobster season saw the beach price set at $36/kg, with the processors in Zone A setting the higher prices as they caught little for the first few weeks. However, with Zone A and B now catching larger quantities of lobster, the beach price has fallen to $30/kg, within the beach price limits set for the Cervantes 2002/2003 season forecasts.
With China and Taiwan having several ‘lucky’ days during the last 2 months, a time where there are mass weddings, it is customary to have a lobster for each guest. The more lobsters you have, the more highly regarded you are, and so people are prepared to pay higher prices to ensure supply. During this period, Cervantes has been able to sell all it’s product into these markets at higher prices.
Despite the beach price falling to $30/kg, Cervantes has continued to sell product at the same price, ensuring greater margins on their product.
To date, the Company has caught approximately 20% of its forecast catch, and is on target to reach its forecast season catch of 552 tonnes.
CONCLUSION
Cervantes continues to maintain a first mover advantage by being the sole WA lobster exporter to be listed. The listing has put the Company in a strong financial position as the industry moves towards consolidation. The $5.75 million raising is a major development in the WA lobster fishery, following the failure by Blue-wave Seafood to raise $5 million in during 2002.
With strong growth through new product lines and planned acquisitions within the seafood industry, the Company should quickly achieve its aim of becoming a global seafood supplier, reducing any seasonality volatility.