An Australian company that has been growing and wholesaling flowers since 1915 has officially started trading on the ASX today, following a successful $206 million IPO as it aims for new inflorescence in domestic and Chinese markets.
The offering gives Brisbane-based Lynch Group (ASX: LGL) a market capitalisation of $439.6 million with part of the new funds going towards acquiring the remaining 80 per cent of Van den Berg (VDB) Asia Holding Limited, a premium rose grower in China.
The Lynch family has cashed in on half its holding through the offer but still holds close to 15 per cent of the group, which in Australia supplies flowers, bouquets, floral arrangements and potted plants to clients such as leading supermarkets, Bunnings and David Jones.
LGL has also been in China since 2004, where in 2015 it took a 20 per cent stake in VDB Asia with backing from institutional investor Next Capital, supplying roses and tulips to major retailers including Walmart subsidiary Sam's Club, Olé, and Alibaba's fresh food-focused chain Hema.
Lynch Group is acquiring the rest of VDB Asia through a mix of $33.4 million in cash and 13 per cent of shares in the newly listed enterprise, and post-acquisition it will have 101 hectares of production capacity across four farms in China's Yunnan province.
The prospectus highlights Lynch Group has the largest area of flower-growing land secured under lease in the province, with its farms located near transport hubs and including advanced greenhouse infrastructure with sophisticated, automated control systems.
Most of the remaining $172.6 million raised will be split fairly evenly between paying down debt and paying existing shareholders, as well as $19.5 million in IPO-related costs.
"Over our 100-year history, Lynch Group has established itself as a pioneer in the Australian floral industry becoming the number one wholesaler and partner to supermarkets in the floral category," says Lynch Group CEO Hugh Toll.
"Our know-how, systems and expertise are proving highly transferable into the significantly larger and fast-growing Chinese market, where we are replicating the success of our vertically integrated Australian model."
Toll believes Lynch Group, with its highly experienced management team and board, is poised to benefit from the ongoing structural shift to supermarket channels in the Australian market. The company aims to drive growth by improving consumer perceptions around the freshness and quality of floral products in supermarkets
"There are also compelling opportunities in the developing Chinese market to continue to increase our production capacity, and partner with more retailers to grow our direct-to-consumer channel as we build out additional processing capacity in China," Toll says, with plans also including the roll-out of processing facilities across China's major cities.
LGL's pro forma EBITDA grew 31 per cent in FY20, and its prospectus forecast is for a 72 per cent lift to $52.4 million.
NPATA is expected to more than double to $28.7 million, from a significantly higher revenue of $316.1 million in the current financial year.
"In Australia, the supermarket channel penetration of approximately 19 per cent is relatively low compared to the structurally similar UK market of approximately 55 per cent, demonstrating the meaningful upside for the Lynch Group as the only scaled supplier to Australian supermarkets," chairman Patrick Elliott said in the prospectus.
"The Lynch Group will continue to contribute towards this structural shift by improving consumer perceptions of floral quality through continued product innovation and expanded merchandising efforts."
Elliott said China was a fast-growing floral market in an earlier stage relative to other markets in other developed economies.
"Currently, there are no vertically scaled integrated players in China that are able to provide high quality, stable, year round and scaled volume to retail partners.
"Management believe that the Lynch Group is well positioned to capture the opportunities in China through its own high quality, low cost floral production farms in the Yunnan Province, combined with leveraging expertise from its Australian operations in areas such as cool chain management and large scale, value added processing.
"The Lynch Group will continue to increase its production capacity through developing secured land, enhancing yields at existing farms and expanding its penetration into mass market sales channels for floral products.
"The Lynch Group navigated through various COVID 19 challenges in 2020 and achieved EBITDA growth despite largely flat revenue in FY20."Never miss a news update, subscribe here. Follow us on LinkedIn, Instagram and Twitter.
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