On 6 May 2019, Huon Aquaculture Group Limited (ASX: HUO) provided a market update on the trading conditions during the final months of the summer harvest period, which was completed by the end of April 2019.
In the 1H FY2019 results announcement, the company had highlighted that the current year’s performance of the company was being impacted unfavourably by the three events. Out of the three events, two of them would have a greater impact on 2H FY2019 as follows:
Temperature: During the month of March and April, generally the water temperature in southern Tasmanian growing sites falls below 16 degrees. This temperature is considered ideal for fish growth. In the east coast of Australia which also included Tasmania, warm summer conditions had continued till April.
Mortality Rate of the Fishes: In the Huon River and D’Entrecasteaux Channel in November 2018, initially a moon jellyfish bloom resulted in an increase in fish mortalities. It had also delivered serious secondary impact through the development of gill necrosis. The month of January 2019 and February 2019 reported high mortality. At present, the mortality rate has returned to its normal level with the presence of gill necrosis.
In the 1H FY2019 period, there was a decrease in the revenue of the company by 20% to $136.3 million as compared to its previous corresponding period (pcp). The Statutory NPAT declined by 4% on pcp which got supported by a 35% increase in the Fair Value of Biological Assets as compared to 2H FY2018. As a result of reduced volumes as well as a 23% increase in production costs per kg from the higher ongoing costs from the prior period and recent jellyfish bloom, there was a significant fall in the operating NPAT during the period by 53%.
In the first half of FY2019, average harvest weights improved to 4.78kg as compared to 4.27kg in the second half of FY2018. The operating EBITDA declined by 45% to $21.6 million and the working capital requirements increased. The capital expenditure of $41.4 million during the period was funded majorly through debt. As a result, the net debt of the company reached $129.4 million.
FY2019 outlook has been revised due to the slower growth rates which had influenced fish performance, with the outcome about its prediction for the existing years’ harvest tonnages being lessened from 20,000 tonnes to the current 19,000 tonnes. This result is in part was influenced by the decision of not bringing forward fish for harvest, which is planned for the FY2020 year.
As a result of the lower production volumes, the operating costs per kg have increased due to the high fixed cost nature of Huon’s business. Apart from that, the additional expenditure related to fish mortalities and managing the secondary impact of the jellyfish bloom, has resulted in the decline of the forecasted Operating EBITDA for FY2019 ranging between $50m-$55m compared which was announced in February as to range between $64m-$68m, which declined from FY2018 Operating EBITDA of $71.8m.
The outlook for FY2020 and FY2021 remains unchanged, as the biomass is being rebuilt over 2019 period. The company expects to return to the production volumes of at least 25,000 tonnes in FY2020. At present, the company has fish in production which would aid 30,000 tonnes of it in FY2021.
By the closure of the trading session (as on 6 May 2019) the company’s stock price were at A$4.340 as compared to its previous closing price.
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