The Clean Seas Seafood Ltd (ASX: CSS) share price is defying the market weakness and surging higher on Tuesday.
At the time of writing, the yellowtail kingfish producer's shares are up 8.5% to 83 cents.
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Why is the Clean Seas Seafood share price surging higher?
This morning Clean Seas Seafood revealed that its sales volumes have rebounded significantly thanks to the reopening of restaurants and its diversification into new channels.
According to the release, Australian sales volumes increased from 196 tonnes in the fourth quarter of FY 2020 to 294 tonnes in the first quarter of FY 2021 and then 456 tonnes in the second quarter.
This second quarter result is a 3% increase on the prior corresponding period. This is a big positive given that this prior period was before COVID-19 impacts first appeared.
Over in Europe the company's sales benefited from an easing of restrictions in the first quarter of FY 2021. Volumes normalised from 94 tonnes in the fourth quarter to 267 tonnes in the first quarter. Though, the reinstatement of COVID restrictions did lead to volumes easing to 174 tonnes in the second quarter.
In North America Clean Seas achieved sales of 157 tonnes to Hofseth North America in support of retail launches in this market. Management revealed that its Kingfish is now being sold in 80 retail stores across North America through this partnership. Further retail and home meal kit channel launches are pending for the upcoming months.
Finally, management advised that despite the ongoing disruption in the food service channel, Clean Seas achieved sales of 1,413 tonnes in the first half of FY 2021. This compares to 1,016 tonnes in the second half of FY 2020 and 1,406 tonnes in prior corresponding period. It feels this is a good outcome in a highly disrupted global market.
Production issues.
Taking some of the shine off its sales improvement was news of production issues at Boston Bay.
According to the release, the company has experienced an increase in fish mortalities within its marine leases at Boston Bay. Fortunately, Clean Seas' other farming locations on the Spencer Gulf are unaffected.
Management has identified a range of contributing factors and taken multiple steps to mitigate the risk of further mortalities. This includes removing fish from the affected location. Pleasingly, these actions have seen a decline in mortalities and an improvement in fish health.
Nevertheless, there will be a financial impact from this production issue. Management advised that the additional mortalities incurred are expected to represent ~4.5% of Clean Seas' live fish biomass. This is expected to result in a reduction in its fair value of biological assets of ~$3 million.
Pleasingly, some of this will be offset by a $1 million saving from reduced feed and operating expenses.
Clean Seas' CEO, Rob Gratton, commented: "Clean Seas has exited the challenging 2020 year in a good position, with sales volumes in Q2 FY21 slightly above pre-COVID levels, and a strong balance sheet with the recent renewal of the company's banking facilities. Sales in existing channels have rebounded strongly as restrictions ease, and importantly, the strategic relationship with Hofseth is gaining traction with sales of Kingfish into North American markets diversifying, strengthening and growing the Clean Seas business."
