The Annual General Meeting of Huon Aquaculture Group Limited will be held online as a Virtual AGM on 29 October 2021.
Details on how to participate will be included in the Notice of Meeting.
Huon Aquaculture Group Limited
Annual Report 2021
This has been a turbulent year for Huon. On the one hand operational performance has continued to meet or exceed expectations with overall volumes boosted by strong fish performance including a record average weight of 5.77/HOG kg for the harvest in the first half. Offsetting this there were significant challenges in relation to the functioning of the global salmon market due to COVID-19 induced disruptions to traditional market segments. This was reflected in an 10% decline in the average salmon price received by Huon in FY2021 compared to the previous year.
The arrival of COVID-19 in early 2020 coincided with a significant increase in Huon's production, the groundwork for which had been laid two years earlier. 2020 was also the culmination of a five year capital investment programme designed to modernise Huon's infrastructure and increase its production capacity
to meet the expected growth in demand for at least the next five years. The impact on demand in the last quarter of FY2020 and throughout most of FY2021, particularly on the food service sector globally, has meant that alternative markets have had to be found with the excess supply creating significant downward pressure on the salmon price. Around half of Huon's increased production in FY2021 was destined for the international market.
Huon's ability to access new markets offshore was also constrained by the closing of many international borders including the imposition of tight restrictions on air travel by the Australian government. With limited access to commercial flights the government provided industry support via the International Freight Assistance Mechanism. Despite this, Huon's cost of freight for export markets more than doubled over the past year with serious implications for profitability. These restrictions remain in place and are unlikely to be lifted or return to more 'normal' pre-COVID levels until FY2023.
The domestic market recovered during FY2021 from the initial shock of the lockdown in March 2020. Huon's strong focus on increased sales and volumes into the domestic market succeeded in capturing the majority of volume growth in the market including increasing its share of the retail segment. As hospitality and food service businesses progressively re-opened, particularly in the second half of the year, the Company experienced a steady increase
in demand from the domestic wholesale market. By the end of the financial year wholesale volumes were close to matching the previous record achieved in FY2017.
Huon's record production volumes for FY2021 shifted the Company's strategic focus to growing the market and locking in contracted sales to the domestic retail channel and internationally. Early expectations of an annual harvest of at least 36,000 tonnes were revised down to 35,000 tonnes following a decision to manage the number of fish in the water to a more consistent harvest profile across the year. Nevertheless this harvest represents a 39% increase on FY2020 and is a record for the Company.
The strong performance of Huon's farming operations in FY2020 was replicated in FY2021 as good growing conditions, combined with further productivity gains from the infrastructure delivered through the investment program, produced excellent fish performance. However the COVID related disruption to the global salmon market, in the form of reduced demand from the food service sector, higher freight costs and a lower salmon price, persisted throughout the year.
Huon delivered revenues of $426.4 million, an increase of 25% on the previous year largely due to the 39% increase in harvest volumes from 25,566 tonnes to
35,611 tonnes. Revenues were impacted by an average 10% fall in salmon prices to $11.97/HOG kg due to the increased volumes sold through the lower priced export market and lower domestic wholesale pricing.
Huon's statutory net result after tax (NPAT) recorded a loss of $128.1 million, including a $79.9 million after-taxnon-cash impairment charge, a decline on the $4.9 million profit in FY2020. This was influenced by a $16.0 million decrease in the Fair Value Adjustment (FVA) due to the reduction in the value of biological assets over the year. The lower pricing environment resulted in a 65% fall in Operating EBITDA from $47.3 million to $16.7 million.
The decrease in the FVA reflects the 17% decline in the overall fair value of biological assets during FY2021 from $264.0 million to $218.3 million. Huon continues to manage its harvest in response to the disruption being caused by the pandemic and as a result it expects the harvest for FY2022 to stabilise around 34,000 tonnes.
During the year net debt fell from $167.3 million to $133.3 million as a result of the capital raising. Gearing levels were maintained at 54.3% as a consequence of the reduction in total equity arising from the $79.9 million after-tax impairment charge.
Huon's long term strategy remains unchanged with its growth path guided by its commitment to grow the market; increase production and improve operational efficiency; and to operate safely and sustainably. Nevertheless the spread of the coronavirus across the globe since February 2020 and the containment measures put in place by the Australian government to restrict international air travel put a halt to the momentum that had been building in the business.
Huon's production volumes in FY2021 reflected decisions made in FY2019 to increase harvest capacity from around 20,000 tonnes that year to 40,000 tonnes. At that time market dynamics locally and
internationally pointed to the increasing demand for salmon outstripping the rate of growth in supply. While this position remains fundamentally unchanged over the medium to long term, it is clear that the short term disruption to the market due to COVID-19 has required a reset to the pace at which we pursue this growth.
The record volumes produced over the past year also saw the successful implementation of a marketing strategy focused on increasing Huon's market share domestically and accelerating its push to develop new markets offshore. Certainty of supply has also provided the first opportunity in many years for Huon to address its long term goal of delivering a better balance to the mix of channels through which it sells salmon. As a result Huon will, over the next two years, deliver a significant reduction in risk to the business from price fluctuations, particularly from the export channel.
The outlook for FY2022 currently remains one of continued restrictions globally in the face of emerging COVID variants. A return to 'normal' domestically
is also dependent on the completion of a national vaccination program, the freeing up of supply chain blockages globally and the return of international travel which is not expected until at least March 2022. As a consequence the strategic focus is likely to remain similar to the past twelve months.
The onset of COVID-19 in late FY2020 was followed by a second wave in Melbourne which led to a four month lockdown from July to the end of October. This heightened the level of uncertainty surrounding the outlook for both the domestic and global economies over the following 12-18 months. The Board took the view that decisive action was needed to ensure the company remained well capitalised during the period in which the negative impacts of COVID-19 on the salmon industry were likely to remain in effect. In September 2020 Huon raised $66 million in equity through a placement and Share Purchase Plan (SPP), enabling the business to focus on its core strategy, pay down debt and meet the capital requirements of the Group through 2021.
The Board also indicated that the dividend remains suspended until the business returns to profitability with cash flow prioritised for operational requirements and the repayment of debt.
Downward revisions to the outlook for production volumes have eased capital expenditure requirements in the short term. This, together with the significant investment in new infrastructure over recent years, resulted in annual capex of $9 million in FY2021 reflecting maintenance expenditure.
As Huon expanded production capacity and increased its marketing efforts during the year, the number
of employees increased by 10% to 797. With the pandemic remaining an ever present potential threat throughout the year, COVID-19 safe workplace practices were embedded across the business enabling both operational and office-based employees to continue working in a COVID-safe way. A review was also undertaken of all existing training practices, embedding new approaches to ensure training was not impacted.
The business continued to operate 'as normal' with no disruptions to the ongoing operations of the business.
It is particularly pleasing that this focus on constantly updating and developing the health and safety programs within the business translated into a significant improvement in safety performance during FY2021.
There is no question that the business has faced some of the most significant challenges in its history over the last eighteen months. The temporary closure of markets due to the coronavirus pandemic, together with the ongoing disruption to international trade and the grounding of international flights have been costly.
Huon has however also delivered some milestone achievements during this time as it rose to the challenge. A national advertising campaign, directed at growing per capita consumption in the domestic market, was launched in late 2020. As a result we saw growth in demand for salmon in the second half return to its pre COVID growth rate of 10%pa. Huon also increased its capability to supply fresh salmon to outlets in Western Australia following the opening of the Forrestdale processing facility. It was also successful in winning tenders to supply the national supermarket chains, with supply contracts commencing in April and May 2021.
Over the next two years however the business will be managed to meet the growth in domestic market demand and our growing share of the retail and wholesale channels. To do that our production volumes will be maintained at current levels with a continued focus on driving further production efficiencies.
While your board is confident that the investments made in recent years will support the growth of the business over the long term, the financial impact on the business from COVID-19 led to a number of unsolicited approaches from third parties earlier during the year. As a result a strategic review was initiated in February to assess the potential for corporate level transactions. On 6 August 2021 Huon announced that it had entered into a Scheme Implementation Deed with JBS, a global producer of land based proteins with significant operations in Australia, to acquire 100% of Huon shares by way of two alternative Schemes of Arrangement (Schemes). On 13 August 2021 Huon entered a process agreement with JBS to provide for the making of a recommended takeover bid (Offer). The Offer will be in parallel but not in substitution to the Scheme and will be subject to the Schemes not becoming effective (among other conditions). Huon shareholders are expected to have the opportunity to vote on the Scheme in October 2021.
On behalf of the Board I wish to extend our appreciation to all Huon employees for their efforts and commitment shown during the current pandemic. Our thanks also go to our customers, suppliers, local communities, and our shareholders for their support over the past year.
Managing Director and
Chief Executive Officer
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Huon Aquaculture Group Ltd. published this content on 26 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 August 2021 00:20:08 UTC.