Challenging market conditions add to Tasmanian salmon farmers’ woes. Expects full-year EBITDA to be substantially lower.
Huon Aquaculture posted a market update ahead of its half year financial report on the Australian Stock Exchange.
It mentioned the November/early December events involving damage to pens resulting in fish loss. The first resulted from a fire on one of the Company’s fish pens located in the D’Entrecasteaux Channel. The electrical fire melted the pen infrastructure resulting in around 50,000 x 4kg fish escaping. Investigations into the cause of the fire have been inconclusive.
On the 3rd of December an entire pen of around 130,000 much smaller salmon, weighing 0.5kg, escaped through a “significant tear” in a fortress pen net in Storm Bay. Investigations into the damaged net indicate it was most likely caused during net cleaning operations.
“It is always regrettable when fish are lost; every farmer wants to protect their livestock as well as the environment in which they farm. Combined, these losses have been estimated at AUD 1.8m for the first half,” wrote Huon.
The salmon farmer said that the fish loss won’t impact the overall harvest volumes for FY2021.
A fish loss was also sustained at the company’s Ingleburn processing plant as a result of suspected coordinated criminal conduct by employees at the facility. The book value of inventory and gross margins have been estimated to be AUD 2.1 million lower than would otherwise be the case for the first half.
Combined with the escapes, this comes to AUD 3.9 million.
Huon estimates its operating earnings this FY2020 will be “substantially lower” than the AUD 47.3 million recorded last financial year amid a fall in salmon prices.
“Production costs, excluding freight, are tracking in line with our target of under CAD 9.50/HOG kg, however, distribution costs continue at elevated levels driven by the low availability of international air freight, resulting in higher export costs,” it wrote.
It added that recent trade tensions with China has prompted the company to shift its exports to other economies. “The recent escalation in trade tensions between China and Australia confirmed a decision early in 2020 to start reducing Huon’s exposure to this market,” the company said.
“Increased diversification into new markets, including the US, has resulted in spot exports to China declining to around a third of total export tonnage with further reductions expected.”
Lower-priced export spot market
“This together with continued high freight costs, the ongoing uncertainty around the performance of the global economy in the second half and forecast expansion in global supply of salmon by 0.5-2 per-cent in 2021 has resulted in a revision to our internal projections for operating earnings (EBITDA) for FY2021,” wrote Huon.
Huon’s sales volumes for the 1H2021 were 19,290 tonnes which is consistent with its stated target for FY2021 of at least 36,000 tonnes. The increase in production has, as anticipated, resulted in an increased weighting to exports in the channel mix, with around 40 per-cent of volume being sold into the lower-priced export spot market.
Huon will release its six months results on the 25th of February.