Why is the Seafarms (ASX:SFG) share price sinking 5% today?

The Seafarms (ASX: SFG) share price fell 5.6% today as the company announced a market update and half-year report. We take a closer look.

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The Seafarms Group Ltd (ASX: SFG) share price is falling sharply today as the company announced its half-year report late on Friday. The aquaculture company also released a market update.

The Seafarms share price was trading down 5.68% at 8.3 cents at the close of market today.

Why is the Seafarms share price sinking?

In its release, management said that the overall financial performance for the period reflected the company's investment in pursuing its expansion in aquaculture operations. As such, Seafarms reported a large decline in revenue, and its net loss widened.

For the six months ending 31 December 2020, Seafarms reported revenue of approximately $14.937 million (down 30.7%) and a net loss of $12.8 million. The results reflect the cash contributions of Queensland operations while fully expensing all Project Sea Dragon (PSD) development costs.

The loss was also affected by a significantly reduced pond stocking in response to market uncertainty and COVID-19. In regards to PSD, the high level of required investment to develop the plant and train staff is proving expensive, with total costs coming in at more than $138 million to date.

As a result of the reduced pond stocking, total production for the period was down 47% from 1H FY20. Coming in at 321 tonnes. This reduction in stocking drove structural change across Queensland operations.

The company advised its cash balance reduced from $6.466 to $5.523 million across the two periods.

Project Sea Dragon

Seafarms is seeking to transform itself from Australia's largest prawn producer into a low-cost global producer. In doing this, it is continuing to progress Project Sea Dragon in Northern Australia.

While not providing specific details on PSD, Seafarms stated that the project was 'shovel ready':

PSD is a world-class industrial-scale Tier 1 project with an operating life of 90 years which will be developed and constructed in stages with production ponds located at Legune Station in the Northern Territory. 

Once completed, the company said PSD would target high-quality year-round volumes for export markets and have a production capacity of up to 150,000 tonnes of prawns.

Looking ahead

Seafarms provided an outlook in its report, outlining its expectations for 900 tonnes of production this year. This is in line with the reduced stocking strategy for FY2021.

Furthermore, the company will look to Japan and Europe for investment in its sea dragon project.

Motley Fool contributor Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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