No scent of profit in Ecoya's short term future

It'll take a few years to turn a profit, but the founders of 42 Below are confident Ecoya will find a willing market for its luxury candles. The $10 million IPO for the high-end home fragrance company – which has been expected for some time – opens today, with the proceeds to be used to fund expansion plans around the world.

It’ll take a few years to turn a profit, but the founders of 42 Below are confident Ecoya will find a willing market for its luxury candles.

The $10 million IPO for the high-end home fragrance company – which has been expected for some time – opens today, with the proceeds to be used to fund expansion plans around the world.

The faces behind 42 below – Geoff Ross, Grant Baker and Stephen Sinclair – are shepherding the new venture, with American television producer Rich Frank, Air NZ head Rob Fyfe and Australian-based fashion designer Collette Dinnigan also on the board.

Mr Ross, who is also the company chairman, told NBR Ecoya was another opportunity to build a global brand after taking its vodka name out into the world.

Craig Schweighoffer, the former head of 42 Below Australia and chief executive of the listing company, launched Ecoya across the Tasman.

Mr Ross said the brand had its biggest presence there, but that the company was looking to take the company’s fragrance and bath products to the large luxury market in the United States with the help of Mr Frank.

Raising for growth

Taking that next step out on to the global stage will be expensive for the company, with the prospectus for the IPO revealing it expects a loss of $2.2 million in the 12 months ending March, ballooning out to a $5.2 million loss over the next year.

But during that time revenue is expected to double from $3.9 million to $7.9 million and with a projected gross sales margin of 49%, the company’s executive team are anticipating strong demand for shares in the company’s IPO.

Mr Ross said the company was looking to raise $10 million to add to its $33 million pre-float valuation, with room for another $3 million in oversubscriptions.

“A lot of New Zealand companies have been rasing capital solely for growth, but this is not about strengthening the balance sheet. This company has no debt and is ready to build.”

The IPO includes two warrants - giving investors the right to buy one $1 warrant for every two shares allotted - expiring in December 2011 and June 2013, which could potentially raise another $7.3 million.

Competitive market

Ecoya’s products include scented candles, travel candles, diffusers, hand wash, lotions and soaps, with plans to add products such as outdoor candles, room spritzers, shower gel and body butter to the range.

Mr Ross told NBR the company had a longer history of revenue growth than 42 Below did when they took the vodka business public in September 2003 with a market value of $60 million.

The brand was sold to Bacardi for $138 million in late 2006, with the company then delisting from the NZX.

Ecoya has no immediate plans to list on the ASX and will have its head office based in New Zealand, but Mr Ross said manufacturing would remain at its plant at Botany Bay.

He said that the overall luxury home fragrances market had held up reasonably well during the recent recession, despite the squeeze on discretionary spending.

Ecoya’s quarterly sales did see a dip through early 2009 as that global recession started to bite, according to the company’s prospectus.

But Mr Ross said Australian sales had held up reasonably well, with a growing market for environmentally friendly luxury products

“Ecoya’s products cover both the environmental aspects and the luxury angle. That’s a market that is growing bigger every year and there is nobody local who is really getting in that space. There are few new world fragrances like this, just like we weren’t known for our vodka until we got out there and told our story.”