Eco Investor October 2018
Tassal to Boost Australian Prawn Farming
Tassal has become one of Australia's largest prawn farmers and aims to lead the growth in Australia's prawn aquaculture industry following its acquisition of the Fortune Group. The acquisition, by subsidiary, De Costi Seafoods, includes Fortune Group's three prawn farms at Yamba in New South Wales and at Proserpine and Mission Beach in Queensland.
These farms have one of the largest prawn farming footprints in Australia, said Tassal.
The acquisition was funded through a new $75 million debt facility. The acquisition price was $31.9 million and there will be another $34 million of capital investment over the next two to three years.
Managing director and chief executive Mark Ryan said the acquisition was strategically compelling as it allows Tassal to expand its vertical integration from salmon to include Tiger prawns and to unlock further synergies in the seafood supply chain.
"We currently process and sell prawns through De Costi Seafoods and we are conscious of the fact that our customers are demanding more prawns than we can currently supply. We estimate that for FY19 we will have around 700 tonnes of prawns for sale from the inventory acquired once fully grown out. Our focus is to grow over 3,000 harvest tonnes per annum in the next three to five years."
Tassal has ambitious plans for its new prawn business and for prawn farming in Australia. Together, salmon and prawns comprise 70 per cent of Australian retail seafood sales, said Mr Ryan. But while the prawn market in Australia is circa 60,000 tonnes annually, Australian aquaculture supplies only about 10 per cent of this. In comparison, the salmon market is also about 60,000 tonnes each year but Australian aquaculture supplies around 90 per cent of this.
So there is plenty of room for growth. Even though consumer demand and pricing are high, there has been no material growth in the supply of Australian grown prawns for over 10 years. Mr Ryan said Tassal aims to modernize Australian prawn farming and increase yield and returns.
Tassal has advantages for prawn farming. Its eastern seaboard distribution capability through De Costi Seafoods puts Tassal in a position to execute a solid prawn sales growth program, he said.
Tassal plans to transfer its technology and science from salmon farming to prawn farming, so its aquaculture knowledge and experience should allow it to grow production to meet the new demand. The company is confident it can utilize its water treatment and water management know-how from the salmon industry, and its sustainability commitment and practices should further encourage market acceptance.
Tassal has assembled what it considers to be a best practice lead team in prawn aquaculture in Australia.
Mr Ryan said prawn farming is land based and gives Tassal a footprint in aquaculture beyond Tasmania, so the company now has both geographic and species diversification. Another advantage is that prawns have a shorter growth cycle of one year compared to three years for salmon.
Tassal's target is to increase annual production over the next three to five years from around 450 tonnes to over 3,000 tonnes. The Proserpine Farm is the largest prawn farm in Australia, with 192.5 hectares of pond capacity on 2,000 hectares of land. Through a $24 million capital investment program Tassal will enhance its processing and hatchery operations and pond infrastructure.
The Mission Beach and Yamba prawn farms each have around 40 hectares of operating ponds and through De Costi Seafoods provide black tiger prawns primarily for major retailers. 2018-19 output is forecast at 700 tonnes but the farms are capable of 800 to 900 tonnes per annum. A $10 million capital investment program over two years will see a new hatchery and enhance the pond infrastructure.
Tassal said the acquisition is immediately and highly earnings accretive for shareholders. The target for the three farms is an earnings (EBITDA) range of $15 million to $25 million within five years.
Above: Black tiger prawns.
Meanwhile, Tassal said it had strong results for 2017-18 with an operating net profit after tax of $50.3 million. Full year revenue rose 13 per cent to $509 million but net profit fell 1 per cent to $57 million. Earnings per share fell from 37.2 cents to 33.1 cents and the full year fully franked dividend increased from 15 to 16 cents. So the payout ratio is still conservative at below 50 per cent.
The balance sheet remained sound with total assets of $954 million and total liabilities of $368 million to give net assets of $586 million. The new $75 million debt facility will see gearing peak at an acceptable 40 per cent.
Tassal said it has a solid platform for continued growth in 2018-19 and onwards. Its operating model, investments in infrastructure, environmentally responsible programs, and its fish growth and favourable market dynamics delivered record results for key operating metrics. Looking forward, the directors said the strong demand for salmon and the supply constraints are expected to continue in the medium term and to underpin higher salmon prices.
Shareholders seem to agree with the share price having risen from a three year low of $3.44 in February to a year high of $4.67 in late August. The shares are currently around $4.40. (ASX: TGR)
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