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Strong exports push record King Salmon earnings

Wednesday 29th August 2018

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Strong export growth in its lead North American market and in Asia pushed New Zealand King Salmon to record operating earnings in the year to June 30.

The result would have been stronger had the company not experienced high mortality among its salmon stocks because of high Marlborough Sounds water temperatures.

Earnings before interest, tax, depreciation and amortisation - the benchmark measure the company used for forecasts in its prospectus before listing on the NZX in 2016 - came in at $26.2 million, a 21 percent increase on the previous financial year and 17 percent ahead of prospectus forecasts.

On a net profit after tax basis, excluding the valuation impact of changes in the value of its salmon stocks, the aquaculture firm reported earnings of $16.1 million, 14 percent higher than forecast in the 2016 prospectus.

However, an extended period of higher than average water temperatures at its Marlborough Sounds operations over the summer months saw fish deaths increase to 20.4 percent of total biomass for the year, compared with 8 percent a year earlier and 11 percent forecast in the listing prospectus.

The company is working on new heat mitigation methods and breeding for heat resistance, and waiting for ministerial decisions stalled since the term of the last government to allow it to move some of its operations to higher-flow, deeper locations in the Sounds, where the impact of higher water temperatures would be reduced. 

In the meantime, "higher mortality has resulted in a reduction in our closing biomass (down 13 percent from 2017), which will limit volume growth in FY19", the company said. Reflecting this, the company is forecasting ebitda in a range similar to this year's result, at between $25 million and $28.5 million, with gains from a weaker New Zealand dollar against the US dollar muted by hedging already in place.

“Whilst the year was impacted by an extended summer period of higher water temperatures, our strong H1 performance coupled with product and pricing mix strategies helped us maintain the highest possible value," said managing director Grant Rosewarne in a statement to the NZX.

The total fish harvest in the last financial year was 7,779 tonnes, with around 8,000 tonnes expected in the current financial year and slow growth to around 9,500 tonnes in the 2021 financial year.

However, the value of its fish is expected to continue climbing, supported by the company's premium branding strategy, which has seen the establishment of 'Ora King'' as a differentiated salmon brand in key markets, notably the US. Total revenue for the year, at $160.3 million, was 18 percent ahead of the previous year despite the higher mortality rates.

"We saw continued sales momentum in our lead international market, North America," said Rosewarne. "Total sales to this market were up 27 percent on FY17, with corresponding volumes of 2,175 tonnes, or 28 percent of all sales. We also recorded excellent sales growth to markets in China and South East Asia, up 43 percent on FY17, as well as solid performance in export generally. Domestic sales remained relatively flat during FY18, as premium branded opportunities were prioritised.”

Demand growth continued to exceed available supply, the company said.  

Slides accompanying the profit announcement say Ora King salmon, sold through foodservice channels rather than retail, is now on the menu of more than 1,200 restaurants worldwide. North America accounted for 65 percent of total Ora King sales. NZKS also launched its lower-cost Regal Salmon brand in the North American retail market during the year and established a subsidiary there to assist distribution.

Longer term, NZKS is examining deep water salmon farming in sheltered parts of Cook Strait and announced it has lodged "ïnitial consents for a trial farm in the ocean open near Marlborough", which could be operational by 2022, but would be unlikely to be producing commercial fish volumes before 2028. It is also "continuing to explore water space options in other regions of New Zealand".

Rosewarne told BusinessDesk earlier this year that it had no interest in trying to establish salmon farming in Fiordland because of its protected park status, but that it continued to assess potential sites off Stewart Island. NZKS is closely monitoring the development of new deep water, offshore salmon farming technology by the Norwegian industry.

Directors declared a fully imputed 3 cents per share final dividend, payable on Sept. 21, making total dividends of 5 cents last year.

NZKS shares have risen 65 percent to $2.86 over the last year.

(BusinessDesk)

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