Tassal Group nets a bigger profit

Salmon prices set to rise from higher demand and lower supply.

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Australia’s provider of Atlantic Salmon, Tassal Group (ASX: TGR), reported a 19.2% profit increase to $33.46 million on top of a 3.9% revenue increase to $272.81 million. The greater profit increase came from the hot summer of 2012-2013, leading to an improved supply/demand mix, in that demand outstripped supply, and causing moderate price increases. The company expects this dynamic to continue over the next few years.

To offset this, it plans to use marketing and promotions to grow Australian per capita salmon consumption to increase revenues and shareholder wealth. The domestic market has been penetrated more, increasing existing sales to existing customers.

It has secured two to three year agreements with major customers for fresh and smoked salmon, and retailers are taking on new Tassal products. It has reduced export market sales to only $750,000, compared to last year’s $14.76 million, which has eliminated its previous reliance on volatile export markets. There is no forecast for material export market sales in the near future.

Tassal has experienced strong growth in its wholesale market sales and revenue is up 11.9%. Debt has been paid down to $58.1 million, resulting in its net gearing ratio to become 18.4%, which is about half of what it was in 2010. Return on equity has returned to 10.6%..

The company cultivates salmon in enclosed aquacultural areas, one of them being in Macquarie Harbour in Tasmania. The environmental impact of maintaining a fish farm places restrictions on the size of fish population. This year approval was received to raise the population from 1.4 million fish to 2.1 million, greatly increasing the amount of fish that can be harvested in the future.

Foolish takeaway

Basic supply and demand imbalances can make for big profits, but they can also attract competitors. It you are interested in this story, you should do research on what other businesses may also want to take profits and market share.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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