Salmon farmer Tassal (TGR) is looking to raise up to $100 million to expand its Tasmanian operations as it moves away from a strong retail bias towards developing a bigger presence in the more profitable wholesale markets (food service businesses). The fund raising comes after the company has self-financed a $135 million spending spree on acquisitions and new facilities since 2015.
Now it needs to boost capital and get shareholders to make a contribution to a further expansion which will lessen its dependance on the volatile retail market and the impact of buying from aggressive chains such as Coles and Woolworths demanding suppliers do ’special’ deals.
As well the company wants to cut back on retail which needs smaller sized fish and grow its stock to around 5 kgs in weight and push the end products (and the fish into the wholesale markets via De Costi Seafoods).
The shares, which last sold at $4.90 (and are up 18% year to date), went into a trading halt yesterday to allow a major fund raising to take place.
Tassal is looking to raise $80 million via a fully-underwritten institutional share placement, and up to $20 million through a non-underwritten share purchase plan.
The company said it had also established new credit lines, which it says "are expected to further strengthen the company’s balance sheet and lower Tassal’s risk profile".
The company expects the investment to boost revenue and operational earnings from the 2018 financial year.
Tassal said it expects to invest $270 million in capital expenditure over next five years, and that its planned initiatives are expected to deliver an additional 2500 to 3000 “hog” tonnes of harvested salmon each year to FY21.
The company also said its plans to invest $53 million over 3 years to establish new salmon farming operations in Okehampton and oceanic sites in Storm Bay in Tasmania.
The company last month revealed a 6.2% rise in interim profit to $20.5 million.
"Reflecting the rebalancing of sales away from retail to higher margin wholesale markets, together with leaving the salmon in the water longer to optimise growth”, Tassal’s said first half revenue was down 3.3% to $219.3 million (from $226.8 million).
"Harvesting and sales were held back in 1H17 to optimise fish biomass, with 11,761 hog tonnes sold in 1H17 compared (1H16: 13,508 hog tonnes). Tassal’s biomass at 31 December 2016 was 24,573 tonnes, compared to 15,164 tonnes at 30 June 2016 and 19,596 tonnes at 31 December 2015,“ the company said.
Operational earnings before interest, tax, depreciation and amortisation was up 4.4% to $43.1 million (from $41.3 million) "reflecting an increasing proportion of sales to higher margin channels, continued stability in earnings from De Costi Seafoods, and the benefits from key operational efficiencies flowing through,“ the company said.
The 18% rise in the share price (and 24% in the past three months) tells us the company and investors are not that worried about tighter controls on Tasmanian salmon farming after a nasty story on Four Corners late last year.
The owner of the Tassal, Superior Gold, Tasmania Smokehouse and De Costi Seafood brands recently announced it would almost halve the number of fish put into Macquarie Harbour in Tasmania to around one million over the medium term.
The decision comes after Tasmania’s environmental regulator in January ordered Tassal destock its Franklin lease in Macquarie Harbour, after finding 14 non-compliance issues.
In November, Tasmania’s Environmental Protection Agency told salmon leaseholders in Macquarie Harbour that it would reduce the number of salmon allowed in the harbour, after a report showed marine fauna in the vicinity of the salmon farms had declined.
Tassal said on Thursday that it plans to invest around $95 million to accelerate the rollout of improved technologies and new feeding barges to improve fish survival rates and the amount of food required to reach growth targets.
The group has also will spend another $53 million to establish salmon farming operations at Tasmania’s Okehampton and oceanic sites in Storm Bay, and an additional $38 million to accelerate fish growth towards its target of five kilograms a fish.
The company has spent about $130 million on new salmon production capacity and the De Costi Seafoods acquisition since July 2015, which was funded from operating cash flow and debt.