Huon Aquaculture Group Ltd (ASX: HUO) reported a 28% increase in revenue for the first half of FY2018, compared with the previous corresponding period (pcp), due to higher sales volumes and continued strength in domestic salmon prices. Other key figures from the announcement include:
- Production volumes up 35% on the pcp and in-line with previous guidance
- Revenue of $170.5 million, up 28% compared with the pcp
- Earnings before interest, tax, depreciation and amortisation (EBITDA) of $51.5 million, down 11% compared with the pcp
- Net profit after tax (NPAT) of $27.6 million, down 12% compared with the pcp
- Operating NPAT of $19.0 million, up 102% compared with the pcp
A fantastic improvement in revenue from Huon, though the earnings figures appear less promising. Statutory profit includes the fair value adjustment of biological assets, which was a positive adjustment of $12.3 million for the first half of FY2018. For the corresponding period in FY2017, the fair value adjustment was $31.6 million and is a major difference in the earnings numbers.
Using operating NPAT, which is statutory NPAT less the fair value adjustment and related tax impact, earnings rose 102%. That's not to say investors should simply ignore the change in statutory earnings, but agriculture companies are subject to volatility of this nature.
In particular, Huon stated "unseasonably warm weather in November put unplanned pressure on operational resources" and this "affected biological outcomes and increased fish losses".
The warmer weather also brought about heightened risk of disease and further reduced volume availability. Unfortunately, such risks are unavoidably part of doing business in the agricultural industry.
Cash flow from operations improved upon the previous corresponding period, though the company's cash position fell and borrowings rose as Huon increased capital expenditure for expansion and efficiency programs.
Huon has so far made good on its efforts to increase sales to Asia, with exports for the period rising to 24% of sales. Contracted sales for the second half of FY2018 are forecast to rise significantly, due to demand from premium buyers in Taiwan, Japan and China.
Huon expects domestic demand for salmon will continue to grow at a healthy 10%, supporting the current price level through 2018 as supply issues remain. As such, Huon expects a modest increase in operating EBITDA for the second half of FY2018, compared with the strong performance of the corresponding period in FY2017.
Foolish takeaway
This is a good result from a company whose shares are trading at just 10x trailing earnings, though performance has been hampered by unfavourable growing conditions. Early signs appear promising for increasing sales in Asia, however future share price performance may largely be determined by the weather.
