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King Salmon invests as climate change heats fish farms

Thursday 29th August 2019

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Rising summer sea temperatures are forcing New Zealand King Salmon to invest in new techniques to reduce farmed fish deaths that are holding back profitability even as demand for its products surges.

The aquaculture operator reported the average price per kilogram for its salmon across domestic and export markets was up 9.6 percent in the year to June 30, driving an 8 percent increase in total revenue to $172.6 million.

That was in spite of a 1 percent fall in the total harvest for the year to 7,931 metric tonnes. High mortality rates and a higher accounting value on the firm's fish biomass harvested saw net profit after tax fall by 30 percent on the previous year to $11.4 million.

Operating earnings before interest, tax, depreciation and amortisation were down 4 percent at $25.2 million.

“A challenging year has tested our resilience, and yet we have still achieved a robust result and revenue growth," chairman John Ryder said in a statement to the NZX. "We achieved our second-most profitable year, despite sustained high-water temperatures during summer impacting fish survival."

The firm will also adopt a new rotational approach at its sites in the Marlborough Sounds. Managing director Grant Rosewarne told BusinessDesk that is likely to produce a "sawtooth" profile for annual harvest volumes if warmer summers continue to cause higher than historic mortality at its Pelorus Sound farm sites, in particular.

Those sites have low tidal flows and so heat up more in summer. Rosewarne gave no hope the company would receive ministerial approval to move those farms to higher flow sites anytime soon.

Despite new sites being identified prior to the last election, Rosewarne said he did not expect a ministerial decision until after the 2020 election and was more hopeful the company would receive consents to build a farm in the open ocean, in the western approaches to Cook Strait, more quickly. Hearings on the application were now expected in January next year, Rosewarne said in an interview.

Changing to a 'single year class' approach will also see the same group of fish remain in the same fish-pen until harvest, improving bio-security and reducing fish handling. That, along with a new regime for net-cleaning at the end of each season, should improve fish health.

The company will also invest around $4.8 million in extra pens and equipment to create "upwelling" of cooler, deeper water at warmer sites. That will take capital expenditure in the year ahead to an estimated $20 million, compared with $16.9 million this year.

"Implementation of the new production model limits volume growth in the short term," the company said in slides accompanying its announcement. It forecasts a flat 8,000 tonnes for the current and following financial years, depending on summer survival rates.

Operating earnings of $25-28.5 million are expected in the current financial year and the company's final dividend of 3 cents per share takes total payout to 5 cents per share for the year, unchanged from the previous year. The dividend will be paid on Sept. 20.

Export and domestic demand continued to exceed supply in the last financial year. Ongoing "optimisation of sales mix into branded premium markets" drove a 9 percent increase in sales to the company's largest export market, the US, which has experienced a compound average growth rate of 30 percent over the past five years and accounts for 33 percent of total revenue.

New Zealand is the largest market at 46 percent of the total.

King Salmon shares opened this morning 2.5 percent higher than yesterday's close, and were recently up 5.5 percent at $2.10. The shares have fallen 25 percent in value in the past 12 months.


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