ASX / MEDIA RELEASE4 July 2008Chairman’s OutlookAs the new...

ASX / MEDIA RELEASE
4 July 2008
Chairman’s Outlook
As the new Chairman of Australis Aquaculture Limited, I would like to take this opportunity
to record my initial thoughts on the Company and to identify and elaborate on where I
believe the opportunities for Australis exist.
It is clear to me that Australis has entered a significant and exciting growth phase of
expanding sales which we expect will support a transition to profitability in FY09. This sales
growth is a direct result of both supply creation activities initiated during the past year and
increasing sales experience that diminish the challenges of forecasting market demand.
Rising food prices and diminishing supplies of wild‐caught seafood are important trends that
I expect to benefit the Company over the short and long term. The Company has established
baseline Barramundi production capacity of 1,000 metric tonnes per year in Massachusetts,
established scalable proprietary global sourcing and contract production relationships and
most recently received approval to build a large facility in Vietnam with annual production
capacity of 10,000 metric tons, which could contribute approximately USD$50 million in
annual revenue at capacity.
These factors together allow Australis to bring increasing confidence and stability of supply
to a rapidly growing customer base.
During the prior three years, Australis has experienced delays in achieving some of its major
objectives due to the inherent uncertainties in developing supply and forecasting uptake for
a new species as it pioneered large‐scale Barramundi farming and introduced its products to
new markets. These delays have disappointed some shareholders and have caused what I
expect will be a temporary reduction in investor confidence. This situation has contributed
to the depressed Australis share price.
I believe that these production and sales issues are now largely resolved. The combination
of production success, increasing product availability, unchallenged market leadership in the
United States and excellent product acceptance position the Company to reliably achieve its
growth targets and to build substantial shareholder value. With the resolution of
production and sales challenges, the Company begins an important transition from
developmental‐stage to one of broad commercial expansion.
Entering the Expansion Phase
As Australis begins broad commercial expansion, it brings with it:
• Significant progress at the Turners Falls facility towards reaching output at the maximum
design capacity of 1,000 metric tonnes per annum (TPA). Current biomass creation is
running above 850 TPA and sales commitments are growing rapidly to match the
expanded supply. Past fingerling stocking and fish growth issues appear to be fully
resolved. The Company anticipates that output will continue to increase reaching
capacity during the current fiscal year. Product produced in Turners Falls will be
exclusively targeted at the high‐value markets for fresh seafood. With the facility’s
capacity capped, the substantial growth opportunities that the Company has identified
will be realized through additional product produced or obtained from offshore sources.
• Approvals to develop Company‐owned production farms in Vietnam on a 205 ha. (500+
acre) site in Central Vietnam. Following one year of intensive negotiation, in June 2008
Australis received licenses to build Barramundi hatchery, nursery and marine growout
facilities with a capacity to produce 10,000 TPA. Vietnam is one of the world’s largest,
fastest growing and most cost‐effective places to produce seafood. Early work on the
Company‐owned facility has already started and fish are in the water. Major
construction will begin in the near future.
• Reliable supply of Barramundi and other species to serve Australis’ expanding markets.
Exclusive contract relationships are now producing increasing volumes of high‐quality
output. World‐class quality assurance systems have been developed and are imposed
on all suppliers ensuring consistent quality and food safety for resellers and end users.
Availability of product from these channels has allowed Australis to open many new
volume‐oriented relationships with major North American retailers.
• Well qualified and experienced senior managers, supported by talented and enthusiastic
staff;
• Internal management processes that have strengthened and improved controls and
direction during periods of considerable change;
• A deep understanding of the worldwide farmed Barramundi industry;
• A professional direct sales group which has produced notable successes after a very
short exposure to a modest sector of the available market.
• Australis’ The Better Fish brand® is at the forefront of the emerging health and
sustainability sector of the US seafood market. The company’s brand assets can be
leveraged to build a leading position for other products and markets as resources allow;
• Established Distribution Network including over 150 wholesalers in both fresh and
frozen forms and an increasing number of the leading retailers and chain restaurants.
• Still largely untapped markets that offer Australis numerous opportunities for early
expansion of the business in readily accessible markets at relatively low costs.
Together, the combination of key business components and opportunities outlined above, I
believe, offer present and future shareholders high potential returns with relatively low risk.
FY09 Outlook
Australis is ending its FY08 year with strong momentum. Sales in Q4 are expanding rapidly
as product availability increases. Full year FY ’08 revenues are expected to be in excess of
USD$5.0 million with Q4 being at a more than USD$8.0 million run rate.
Looking at FY09, the Company believes that it will achieve total revenues of between
USD$14 and USD$20 million dollars in the coming fiscal year. In addition, the Company has
set the following principal objectives:
Fresh Sales – Full year sales from the Company’s Turners Falls’ facility (and the resulting
sales of fresh product) will total 850 TPA. By the end of the fiscal year, output and sales are
anticipated to reach the 1,000 TPA capacity level. At 850 TPA and with the expected sales
mix, revenue from the Turners Falls facility is expected to generate approximately USD$7.0
million in revenue, allowing the Company to fully cover its US production, selling and
overhead costs. As the Company approaches capacity, annualized revenues increase to
approximately USD$8.0 million, generating an expected USD$1.0 million in contribution
margin from the facility’s operation.
Contract Production – The Company has developed relationships with more than 300 farms
in Vietnam and with other producers throughout Southeast Asia. With product availability
increasing and growing market acceptance among US and Canadian supermarket retailers,
Australis believes that it will generate revenue of between USD$4 and USD$10.0 million
from this sector in FY09. We believe that the key factors in this range are the timing of
decisions by major retailers and the time that it will take to physically get increased volumes
of products onto retail shelves and menus. Based on available information regarding supply
and demand, the Company believes that these revenues could double in the subsequent
FY10 year. This product will be supplied primarily in frozen fillet form to the Company’s
customers in North America and Europe.
Vietnam Production – With the recent approvals in Vietnam, Australis is commencing
construction of the first phase of infrastructure for its production farm in Van Phong Bay. By
the end of June, the Company had 230,000 fish in the water and anticipates having fish
stocks and biomass by the end of the FY09 fiscal year sufficient to support 1,500 TPA of
annual output, reaching 2‐3,000 TPA by June 2010. Harvest and delivery of product
produced on Company‐owned farms are expected to begin in June 2009. Revenues
recognized from the increase in the value of fish stock inventory are expected to be
approximately USD$4.0 million during FY09, offsetting the direct costs of production
incurred during the year on a book basis and comparable to inventory values at the
Company’s US operation.
Gross Margin – Pricing has been stable for Australis’ products in spite of increasing
quantities, and the Company anticipates overall gross margins in FY09 in the 26‐30% range.
Increasing prices for a number of inputs – primarily feed, energy and transport – are of
concern given the volatile nature of these items on the world markets. To date, the
Company has successfully absorbed cost changes without significant impact but it is unclear
as to the extent that this will continue in the future.
Operating Margin – During FY08, Australis invested in the expansion of its operating
infrastructure in advance of higher sales. Increases in FY09 operating costs will be offset by
improved sales and marketing initiatives that support broader product and brand
recognition to broad market segments, with total selling, marketing and administrative
spending expected to be in the range of 20‐22% of revenue.
Cash Flow & Requirements – Australis remains firmly in a growth mode, having previously
promoted long‐term goals of USD$100 million in revenue and leadership in the sustainable
seafood category. We continue to feel that these goals are achievable if proven
management practices and adequate resources are applied to the tasks ahead. Growing fish
in commercial quantities requires significant amounts of capital to build physical
infrastructure and to invest in fish growth prior to maturity and harvest. The Company
expects to employ a balanced approach to Company‐owned production and contract
production that allows the Company to benefit from the less capital‐intensive, faster‐turn
nature of third‐party sourcing while also leveraging the control that comes from the more
capital‐intensive nature of owned production. The Company expects to seek additional
external capital in early FY09 to support growth and intends to reinvest all future profits in
support of growth initiatives for the foreseeable future.
Summary Comments
As Australis moves into FY09, I believe that the Company is firmly positioned to attain
significant increases in fresh and frozen product sales in the near term. For the first time in
its history, the Company now has sufficient product availability to support expected nearterm
sales goals.
Australis operates in large markets where it is generally seen as the market leader with
minimal and highly fragmented direct competition. Recent sales efforts by the Company’s
small sales team have given the Company access to many of North America’s largest and
most respected retailers. During the current year, the Company plans to substantially
expand its sales effort to obtain new customers and penetrate new markets. Finally, with
the recent approvals in Vietnam, the Company has gained an extremely valuable long‐term
asset that holds the promise for significant cost advantage and control over product supply
and quality.
World economic trends and sentiment will be a concern for Australis, as they are for most
businesses today. We are under constant vigilance against cost increases, seeking
alternatives that maintain our cost structures without sacrificing quality. There is concern
that the economic downturn will impact progressively on the domestic spend forcing
families to search for cheaper food alternatives. Nonetheless, the challenges of world
seafood supply – declining availability, rapidly rising costs of ocean fishing operations, and
concerns over product quality, will continue to make Australis Barramundi a key choice for
consumers demanding a healthy, sustainably produced, excellent tasting seafood product.
For shareholders, we believe this will translate into Company profitability and a significant
opportunity for long term value creation.
Ian Mitton
Chairman
July 2008
‐ENDS ‐
General Advice warning:
The contents of this document have been prepared following an in depth examination of Australis Aquaculture Limited by
the newly appointed Chairman who is also an investor in the Company. Prospective investors should consult their own
investment advisor to establish whether investment in Australis Aquaculture Limited is appropriate and consider their own
objectives, financial situation and needs. The information provided in this document is believed to be reliable. Its accuracy
and completeness are not guaranteed and no warranty of accuracy or reliability is given or implied and no responsibility for
any loss or damage arising in any way for any representation, act or omission is accepted by Australis Aquaculture Limited
or its representatives.
About Australis Aquaculture Limited
Australis Aquaculture, Ltd. (ASX: AAQ) is an award-winning provider of healthy, sustainable
seafood, marketed under the banner of The Better Fish®, Better Tasting, Better For You, Better For
Our Environment. The Company is North America’s first and only significant producer of Australian
Barramundi. It owns and operates one of the world’s largest indoor aquaculture facilities, located in
Turners Falls, Massachusetts. In 2008, the company extended its Better Fish® brand by launching a
retail line consisting of frozen Barramundi, Basa and other species. In addition to producing
Barramundi in its Massachusetts facility, the Company is rapidly increasing supply through proprietary
overseas sourcing and the establishment of overseas production operations with an initial focus in
Vietnam.
For more information, go to: www.TheBetterFish.com.
Investor Contacts:
USA Australia
Josh Goldman, Managing Director Ian Mitton, Chairman
Office: +1‐413‐863‐2040 ext. 112 Office: +61‐ 0‐488 007 994
Home Office: +1‐413‐367‐9234 Registered Office: Level 9, The Quadrant
Email: [email protected] 1 William St., Perth WA 6000
ACN: 098 236 938
Investor Relations
Rod North, Executive Director
Bourse Communications Pty Ltd
Office: +61‐3‐9510‐8309
Mobile: + 61‐0‐408 670 706