Takeover target Huon nets $128m loss amid ‘turbulent’ year
There were plenty of fish in the sea for salmon farmer Huon but the pandemic proved “costly”, also putting it at the centre of a takeover fight between JBS and billionaire Andrew Forrest.
Australia’s second largest salmon producer and sought-after catch Huon has blamed the pandemic for a turbulent 12 months marked by increased costs, lower global demand and price and “a number of unsolicited approaches”.
The Tasmanian salmon giant at the centre of a bitter takeover battle between Brazilian meat processor JBS and mining billionaire Andrew Forrest reported a $128m loss for the 12 months to June.
Earnings before interest, taxes, depreciation, and amortisation were down to a negative $113.2m.
Revenues increased 25 per cent to $426.4m due to a 39 per cent increase in harvest volumes to 35,611 tonnes, but were offset by lower export and domestic wholesale pricing for salmon.
“While there was some respite in the last few months of the year from the challenges faced by Huon during much of FY2021, the overall pressures placed on the business from the market related impacts from COVID-19 were significant,” Huon told investors.
“The two main contributors were the 12 per cent fall in the average international salmon price in FY2021 compared to the previous year and the significant increase in freight charges due to limited access to international flights.”
The impact was amplified with Huon’s ramp up in production as part of its five-year strategy to expand capacity to meet future growth in domestic demand.
“The shutdown of international commercial flights was a major impediment to gaining access to the markets Huon needed to sell 44 per cent of its FY2021 harvest.
“While the government stepped in to provide industry support via the International Freight Assistance Mechanism, Huon’s cost of freight to export markets doubled, further eroding margins.”
Fish pen fires and thefts from its NSW processing facility also added to operational woes.
“There is no question that the business has faced some of the most significant challenges in its history over the last eighteen months,” chairman Neil Kearney and co-founder and chief executive Peter Bender told shareholders in their joint review.
“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.
“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,” they said.
Huon’s 18.5 per cent shareholder Tattarang, controlled by mining magnate Andrew Forrest, is against preferred suitor JBS’s $425m takeover of the company.
The JBS deal has the board’s support with Mr Bender and his wife Frances expected to use their 53 per cent stake to vote in favour of the transaction.
Mr Kearney this week dismissed Mr Forrest’s efforts to scuttle the JBS deal as “noise”.
The Foreign Investment Review Board’s decision on the JBS takeover is awaited along side an independent expert’s report with shareholders set to have their say in October.
In the meantime, Huon intends to focus on growing the market at home and locking in contracted sales in the current financial year.
That will see harvest over the next two years managed at around 35,000 tonnes, given the ongoing constraints in the global market associated with the pandemic.
“Revenue will depend on pricing which, compared to the outlook at the beginning of FY2021, is currently looking much more promising for FY202,” the group said.
“While uncertainties remain regarding the pace and scale of the economic recovery globally, Huon is confident of recording an increase in both revenue and operating EBITDA given the forecast volume and improving price expectations.
“The move to a more stable production profile in the short to medium term, combined with a better balance in the channel mix, will deliver greater certainty of volume and more predictable pricing that should underpin more stable group financial performance in the future.
“Huon remains confident that the underlying fundamentals within the global salmon industry of a long term structural shortfall in supply remain in place and the business has the capacity to meet the increasing demand as the global economy emerges from the pandemic.”
Revenue: $426.4m, up 25.5 per cent
Loss: $128m
Earnings: -$113.2m