Friday 25th August 2017
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New Zealand King Salmon Investments, the world's largest aquaculture producer of king salmon, beat its forecast for annual earnings as demand for its premium product exceeded supply, underpinning values. The stock jumped to a record.
Net profit soared to $22.8 million, or 16 cents per share, in the year ended June 30, from $2.6 million, or 2 cents, a year earlier, which is up 125 percent on its prospectus forecast ahead of listing last October, the Nelson-based company said in a statement.
Pro-forma operating earnings before interest, tax, depreciation and amortisation of $21.6 million is ahead of its earnings upgrade in June of between $20.5 million and $21 million, the $19.2 million predicted in its October offer documents, and $16 million a year earlier.
The company reiterated guidance for the 2018 financial year for net profit of $14.1 million and pro-forma operating ebitda of $22.4 million, and noted that some of its capital expenditure projects which had been delayed in the 2017 year would be caught up by the end of the 2018 year.
King Salmon said today that its premium branded strategy continues to drive demand in excess of available supply, underpinning improved value. Sales of its branded ultra-premium salmon, Ora King, jumped 27 percent in the latest year and is now on the menu of more than 850 restaurants globally.
"Strong branding delivers improved value to our business," the company said, noting that average selling prices had increased in all its significant markets due to branded premiums and product mix. "Demand greater than supply creates opportunity for gradual and ongoing price increases."
The company said it had had good initial results from its new farms and volumes would continue to increase over coming years.
King Salmon will pay a final dividend of 3 cents per share on Sept. 18, including a 2 cent ordinary dividend and a 1 cent special dividend. That's ahead of its forecast for a final dividend of 1.8 cents.
The company's shares jumped 9.5 percent to $1.85, their highest level since they were sold at $1.12 in an initial public offering last October.
Revenue in the past year increased 20 percent to $136.4 million, and it sold 7,223 metric tonnes of gilled and gutted salmon, up 18 percent on the year earlier.
In the domestic New Zealand market, revenue rose 15 percent to $73.8 million, as the volume lifted 11 percent to 4,047 MT. The company said it aims to increase per capita consumption, and it recorded 24 percent growth in domestic retail volume sold, outpacing a 4.4 percent growth in total New Zealand grocery sale volumes, increasing its market share. Sales of New Zealand salmon were also supported by reduced volumes of imported salmon, it said.
Its domestic pet food range Omega Plus which was launched in September last year is now stocked in 85 supermarkets across the country and paves the way for improving returns for the whole fish by converting by-products into premium pet food, it said.
"Omega Plus is delivering good sales growth but remains in the early stages of its development," the company said.
In North America, sales jumped 31 percent to $36 million as volumes increased 38 percent to 1,718 MT. The company said North America is a key focus with its Ora King range on the menu of 800 restaurants in the US, with a high proportion branded on the menu. It has now started retail sales to the region.
In Australia, revenue rose 25 percent to $12 million as volumes increased 18 percent to 703 MT, with the company noting sales were stronger than expected due to internal market supply constraints.
"Historically, Australia has been a lower returning market which we are addressing through ongoing price rebalancing," it said. "By focusing on value, volumes to Australia may flatten or decline in future periods."
Elsewhere, the Asian market outside of Japan showed good growth through the Asian continent including China, albeit off a very low base. In Japan, sales were in line with recent periods and slightly ahead of expectations, while in Europe sales growth was impacted by a slight delay in implementing its single harvest method, the company said.
The company said its rate of fish mortality fell to 8.5 percent from its year earlier rate of 13.7 percent and its forecast of 11 percent. It attributed the change to improvements in hatchery practices and feed composition, better results from higher flow sites and a more benign summer.
King Salmon noted that the Minister for Primary Industries began consultation in January to relocate up to six of the company's salmon farms from their historic locations to higher water flow sites more suitable for fish and the environment. Should the farms be relocated, the first harvest from the new farms would be unlikely before the 2020 or 2021 financial years, it said.
"We would expect to have our farms relocated to higher flow sites which would permit an overall increase in the volume of salmon harvested in addition to improved environmental outcomes," it said.
The company expects an additional $6 million of capital expenditure would be required for each farm for new pens and barges suitable for high flow sites, with the spending supported by expected increases in production.
Should none of the farms be relocated, the 'worst case scenario' would see harvest volumes reduced by about 700-to-750 MT per annum, the company said. It said this assessment was based on an inability to renew one of its seawater consents, although historically it had successfully renewed all consents at their expiry.
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