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Retail pivot for Clean Seas as kingfish sales dive

Business

Global kingfish producer Clean Seas Seafood has reported a 14 per cent fall in March quarter sales revenue as it begins to pivot its business towards retail.

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The company announced its Q3 figures to the ASX this morning and although it is still reporting financial year-to-date sales revenues as 4 per cent up on FY19, it acknowledges that April has seen an effective shutdown in sales to Europe, North America and Asia.

The South Australian company with farms in Spencer Gulf and a processing plant in Adelaide has traditionally sold the bulk of its yellowtail kingfish fresh to high-end restaurants around the world.

Sales in the month of March were down 43 per cent and the company says it expects April sales to be down 70 per cent on last year, “which is a positive result relative to internal expectations given most in-restaurant dining has been closed for the past six weeks”.

“While it remains too early to predict when the global in-restaurant dining market is likely to return, there are signs that the relaxation of Government social distancing regulations in a number of markets around the world may lead to the reopening of some restaurants in the coming weeks,” the company said in its statement to the ASX.

“Australia’s COVID-19 infection curve has flattened more than in most other developed markets which is a positive sign for the reopening of Clean Seas largest and most profitable market.”

Clean Seas is the largest farmed kingfish producer outside of Japan, and the global leader in full cycle breeding and farming. It claims its Spencer Gulf Hiramasa Kingfish is “arguably the best raw fish in the world”.

The development of new liquid nitrogen freezing technology at its Royal Park plant has allowed it to explore new market segments including retail.

On April 6 the company announced major Norwegian Atlantic Salmon processor Hofseth Group had invested $5 million by purchasing 10 million Clean Seas shares at $0.50 cents apiece.

Clean Seas plans to leverage the relationship to fast track development and supply of new product formats for global retail markets and reduce its reliance on restaurants.

Hofseth North America has agreed to an initial 116 tonne purchase of frozen kingfish and is finalising product trials with one of North America’s largest retail chains.

North America and Asia represent the largest and fastest growing markets globally for kingfish, the vast majority of which is supplied frozen.

“These markets currently represent less than 10 per cent of Clean Seas global sales but are where the Hofseth Group has their strongest retail distributor networks,” the statement to the ASX said.

“The opportunity for Clean Seas to leverage the Hofseth Group’s relationships with retailers and their distribution infrastructure in these markets is significant, and is mutually beneficial for the Hofseth Group as it diversifies their seafood offering with Clean Seas’ premium kingfish product.”

Clean Seas is also in the process of planning an upgrade to its Adelaide Processing facilities with the aim of having the equipment and accreditation required to supply retail products by the end of 2020.

The company said it had identified operating costs savings of more than $5 million over the remainder of 2020 and had the balance sheet to manage this transition with cash and facilities of $48.2 million at March 31, up from $23.5 million at Dec 2019.

Clean Seas reported its 4853 tonnes of live kingfish were in excellent health. The company’s total live biomass is 18 per cent higher than 12 months ago, reflecting lower harvest volumes as a result of COVID-19 disruptions.

The current kingfish stock levels are the highest in the company’s history. Last year Clean Seas announced plans to expand sales volumes by 50 per cent to 4000 tonnes a year by 2022 and 6000 tonnes by 2025.

In 2009, Clean Seas had a live biomass inventory of about 4000 tonnes of kingfish before the fish started mysteriously dying.

By 2012 the mortality rate had increased from around 15 per cent to more than 80 per cent, reducing its live fish inventory to less than 500 tonnes.

In mid-2012 the company discovered a taurine deficiency in the feed was responsible for the soaring mortality rate, sparking a long legal battle.

The legal action was settled via mediation in December 2019 and the $15m settlement sum was received by the Company in January. The legal settlement has helped Clean Seas enter the COVID-19 crisis with the strongest liquidity position in many years.

“The company understands that whilst the COVID-19 disruption may reshape the timing of achieving its growth strategy, the recently announced Strategic Relationship with the Hofseth Group and the planned entry into retail product distribution is expected to deliver growth from new channels that will complement Clean Seas’ existing wholesale restaurant and premium food service business,” today’s statement said.

Clean Seas shares were up 9 per cent to $0.71 cents this morning in early trading following the announcement.

Clean Seas Seafood was ranked No.60 in InDaily’s 2019 South Australian Business Index of the state’s top 100 companies.  

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