A closer look at Atlas Pearls and its trading update

The Claremont, Australia-based Atlas Pearls Ltd (ASX: ATP), established in 1987, is a world-leading producer and supplier of south sea pearls, especially the high quality white and silver pearls, primarily across Australia and Indonesia. Some of the other products include rings, earrings, bracelets, strands, necklaces, pendants and many more. Its former name was Atlas Pearls and Perfumes Limited until December 2017.

Atlas has a thoroughly homogenised business comprising hatchery, seeding, harvesting, grading, trading, design, manufacturing and finally selling directly to consumers via wholesale distributors and retail outlets in Perth and Bali. For this, it owns and operates farms spanning across the Indonesian archipelago, including Bali, Flores, and West Papua. Besides, the company is also engaged in the production and transformation of essential oils, extraction of other plant grown active ingredients and value adding through its half-owned Tasmania-based subsidiary Essential Oils of Tasmania (EOT).  

Additionally, Atlas Pearls has always put in active efforts in managing its community relationships across Indonesia in terms of environmental safety, education and alternative livelihood programs.

According to the trading update for the half year ending December 2018, subject to audit review, the global trade has strengthened through the period while the demand remained lean in the domestic retail and wholesale sector. As reported, the like-for-like sales grew by 3.3% while the total sales rose to approximately $ 6.6 million. During this period, the company directed focus on a consistent and reliable approach towards all cycles of pearl farming which is a complex 5-year process as well as improve the lustre and shape of the pearls. Going further, it aims to work on the pearl size.

The minor security incident at a pearl farm has left the company upgrading its security protocols and conducting investigations with no impact on the business. By end-February 2019, the company is expected to release the final December 2018 Half Year results.

Before that, the financial year 2017-18 (FY 2017-18) was a mixed year for the company encompassing achievements in operating performance being overshadowed by unfortunate harvest outcomes towards the end. The positive developments include sanction of improved survival rates which will ultimately result in fewer resources being employed to produce the same number of pearls, a rise in seeded pearls numbers and lastly fixed pearl prices in the second half of the year.

However, the company faced losses after income tax valued at $ 2,034,099 from continuing operations indicating a substantial decline relative to profits accumulated in the previous FY.

EOT reported growing sales and returned a promising profit of $ 78,000 while the authorities continue to explore potential paths in the medicinal cannabis industry to capitalise on the Company’s relevant expertise. Besides, the company secured a $ 3.5 million debt facility in FY2017 and was also successful in the traditional bank lending market achieving an increase in the existing overdraft facility to $ 1.5 million to compensate for slow cash flows in the first half.

During the FY 2017-18, there were massive cash outflows from operating activities at $ 701,080 arising from payments to suppliers, employees along with Income tax and Interest paid. Investing activities also led to cash burns of $ 675,794 while financing activities contributed to cash inflows at $ 427,789. Overall, the cash and cash equivalents at the end of the financial year stood at $ 1.28 million, which is a year-on-year decline from $ 2.18 million.

On the ASX, ATP has a market cap of AUD6.85 million. The stock last traded at a market price of AUD 0.016 on 11 February 2019.


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