What: Clean Seas Tuna Limited (ASX: CSS) shares plunged 9% on Tuesday morning after the company announced a fall in consolidated after tax profit for the six months to 31 December 2014 (H1FY15) to $3.46m from $4m over the same period last year. These values include R&D tax incentive refunds of $4.167m and $6.156m respectively.
So What: Clean Seas, Australia's only commercial producer of Hiramasa Yellowtail Kingfish, recorded a loss before tax for the current half-year of $711k, compared to a loss of $1.933m during the same period last financial year.
The group's Kingfish is primarily sold to Australian, European and Japanese consumers at the high end of the sashimi market, but the share price response indicates that investors were disappointed with the result.
Highlights from the result were:
- Sales volumes increased from 215 tonnes in H1FY14 and 356 tonnes in H2FY14 to 511 tonnes in H1FY15 versus a full-year target of 1350 tonnes.
- Earnings per share were 0.31 cents, down from 0.47 cents a year earlier.
- Inventories increased from $0.9m at December 2013 and $0.8m at June 2014, to $3.5m at December 2014, primarily as a result of increased investment in pellet feed.
- Cash flow from operations is anticipated to become positive in Q4FY15.
- Research and development expenditure on the Southern Bluefin Tuna project remains minimised until a funding partner has been found.
What Now: Clean Seas' management considers that the company is on track to achieve 1,350 tonnes of sales in 2014/15, increasing to 3,000 tonnes per annum sales by 2018/19. Investors should remember that while it doesn't appear that Clean Seas is on target to hit its full-year target of sales, fish production is heavily weighted towards the second half when most fish are harvested.
The group's biggest opportunity, and perhaps the reason for the fall in the share price, is the Southern Bluefin Tuna project. The company's breeding program was suspended in 2010 after suffering massive losses without major success, however the proof of concept is enough for some investors to hold on for the long term.
The project's problems stem from the inability to grow the tuna beyond half a kilogram (note that a fish can weigh over 150kg), but it is believed that using a breeding tank in warmer waters would fix this issue. Only time will tell, but the big money will be made if Clean Seas can find a funding partner for the project.
