Clean Seas (ASX: $CSS) Operational Review and Placement Update

Clean Seas Seafood Limited (ASX: $CSS) has successfully completed a ~A$9.5 million non-underwritten two-tranche placement to drive operational efficiencies and financial resilience. The placement will settle in two tranches: ~A$6.7 million on 1 December 2023 and ~$A$2.8 million on 17 January 2024 following an EGM (if approved). The Company seeks to drive operational efficiencies by offsetting input cost pressures currently being faced in the global environment and to create a more stable and resilient business. The funding will be used for working capital to facilitate the right sizing of the business operations and to execute on other key focus areas of the operational review. Tranche 2 of the placement is subject to shareholder approval. As part of Tranche 2, Clean Seas' largest shareholder Bonafide Wealth Management, has subscribed for A$1.0 million and directors & management have committed to subscribe for a further ~A$0.1 million.

Executive Commentary on Operational Review and Placement

Clean Seas Chairman Travis Dillon stated, '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.' CEO Rob Gratton added, '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.'

Operational Review Outcomes and Future Outlook

Clean Seas (ASX: $CSS) has completed a ~A$9.5 million non-underwritten two-tranche placement to drive operational efficiencies and financial resilience. The Company seeks to drive operational efficiencies by offsetting input cost pressures currently being faced in the global environment and to create a more stable and resilient business. The focus of the Operational Review, which will be implemented over the next 3 to 6 months, will be on workstreams associated with biomass levels, consolidation and maximisation of farming activities, and right sizing the business to maximise profitability and cash flow. The decision to undertake the Operational Review is a response to constrained supply of fish meal and fish oil, increase in competitive pressures, and a shift in general market conditions. The initiatives adopted as part of the Operational Review will result in repositioning CSS as a stable and more resilient business for the current market environment that is expected to drive stronger free cash flows by dramatically reducing working capital and leveraging the existing infrastructure already in place. The Company expects a non-cash SGARA impairment to inventory of between $13.5 and $14.5 million in FY24 due to the reduction in biomass. The consolidation of farming activities and a reduction in the business' operational footprint is estimated to result in a reduction in capital spend of approximately A$8.0 million per annum. The rightsizing of the business is expected to maximize profitability and cash flow at approximately 3,000 tonnes per annum with a targeted reduction in fixed and variable operating costs of up to A$5.0 million per annum across contractors, labour, and other input costs. The soon to be commissioned feed barge will play an important part in increasing automation under the consolidated structure and reducing production costs. The financial results for the first quarter ended 30 September 2023 and those expected for the second quarter ending 31 December 2023 support the need for the implementation of the Operational Review outcomes. The completion of the Placement will provide funding headroom to support working capital and costs related to the Operational Review. Clean Seas aims to create a more secure platform that is resilient at its optimal production output, adequately manages operating costs, and drives free cash flows.