INDUSTRY SNAPSHOT Aquaculture in Australia A snapshot of the key statistics and current industry performance in the aquaculture industry in Australia. November 2016
Revenue Profit KEY STATISTICS Annual growth (2011-2016) $1.0b $122.5m 0.8% INDUSTRY SNAPSHOT AQUACULTURE IN AUSTRALIA The Aquaculture industry in Australia consists of operators who fish, trowel, breed and farm fish, molluscs and crustaceans. The industry is in the mature phase of its life cycle, with revenue growth slowing and becoming less volatile. Despite the mature phase of the industry, demand for seafood is expected to grow due to the ongoing health consciousness among consumers and higher disposable incomes in Australia. However, the increased pressures from imports will weaken the demand for local producers in Australia. Australia s signing of free-trade agreements, particularly in Asia, has increased the amount of imported seafood in Australia further. Exports have decreased as a result of high supply in overseas markets. CURRENT INDUSTRY PERFORMANCE The aquaculture industry has grown at a slower rate than expected over the last five years. Projected growth (2016-2021) 1.7% 1. Domestic demand for seafood has increased over the past five years. This is primarily due to the rise in disposable incomes allowing consumers to continue purchasing seafood products despite increasing prices of seafood. The ongoing health consciousness of consumers has also supported the consumption of seafood in Australia. 2. Although domestic consumption has increased, imports from Asia, particularly from China and Indonesia have negatively affected demand from key downstream markets such as seafood processing and retail markets. Exports Number of businesses $28.3m 1,134 3. A higher Australian dollar over much of the past five years has made exports less competitive in the global market. This has constrained the export earnings potential for the industry. 4. The aquaculture industry is expected to grow at a faster rate over the next five years despite the increased pressures from importers. The domestic demand for seafood will continue due to rising disposable incomes and health drivers of Australian consumers. 5. The pressures from imports are expected to continue over the next five years. Source: IBISWorld 2
RSM Industry Snapshot Aquaculture in Australia TRANSACTIONS The key industry players have been involved in the following recent transactions: In 2013, Western Australian Resources Limited (now Seafarm Operations Limited and a subsidiary of Seafarms Group Limited) which is involved in farming of prawn and fish, acquired Seafarm Pty Ltd, an Australian based producer and distributor of seafood. In 2013, Western Australian Resources Limited also acquired Marine Farms Ltd, an Australian company involved in commercial aquaculture of mahi mahi fish. In 2014, Seafarms Group Limited acquired Coral Sea Farms Australia Pty Ltd, a company operating a saltwater prawn farm in Queensland, Australia. In 2015, Tassal Group Limited acquired De Costi Seafoods (Holdings) Pty Ltd, an Australian company engaged in the wholesale and retail of frozen seafood. A number of other industry payers have been active in merging and acquiring new aquaculture businesses, including: In 2014, Craig Mostyn & Co Limited acquired Great Southern Waters Pty Ltd, a company involved in producing farmed abalone. In 2015, Mareterram Limited acquired 100% of Australian based fishery business Nor-West Seafood. In 2016, Sea Harvest (Pty) Limited, a South African based company acquired a further 40.05% of Mareterram Limited to increase its share holding to 55.89%. Acquisitions Announcement date Target Acquirer Stake acquired % Implied EV $m (AUD) EV/EBIT EV/EBITDA 09-Sep-13 Marine Farms Ltd Western Australian Resources Limited 100% 0.25 NA NA 20-Dec-13 Seafarms Pty Ltd Western Australian Resources Limited 100% 11.20 NA NA 30-Jun-14 Great Southern Waters Pty Ltd Craig Mostyn & Co. Pty Ltd 100% NA NA NA 10-Sep-14 Coral Sea Farms Australia Pty Ltd Seafarms Group Limited 100% 4.20 NA NA 01-Jul-15 De Costi Seafoods (Holdings) Pty Ltd Tassal Operations Pty Ltd 100% 50.00 NA NA 09-Jun-16 Nor-West Seafoods Pty Ltd Mareterram Limited 100% 20.00 NA NA 08-Apr-16 Mareterram Limited Sea Harvest (Pty) Limited 40.05% 51.31 29.1x 21.3x N/A = not available ASX ACTIVITY In the last five years, there was only one Initial Public Offering (IPO) on the Australian Securities Exchange (ASX) as the majority of the activity within the industry was related to acquisitions and other capital raisings. Huon Aquaculture Limited listed on the ASX on 23 August 2014 with a $4.75 share price at IPO date. We note that Mareterram listed on the ASX on 6 January 2016 via a backdoor listing. Recent IPO activity Company Listing date Proceeds raised $m Huon Aquaculture Group Limited Market cap at listing $m EV at listing $m Implied EV/ EBITDA at listing EV/EBITDA current Price Date at 13 Oct 16 $ Current price $ Share price movement since listing 23-Aug-14 124.66 415.00 390.00 7.2x 11.37x 4.75 3.13 (34%) Mareterram Limited 06-Jan-16 18.00 26.97 31.45 4.84x (15.73x) 0.20 0.24 20% Source: Capital IQ Source: Capital IQ 3
RSM Industry Snapshot Aquaculture in Australia However, in the last couple of years there has been an increasing number of aquaculture companies looking to list on the ASX. There are currently two transactions in the industry whereby aquaculture businesses are looking to list on the ASX. New Zealand fish farmer New Zealand King Salmon is intending to raise approximately $30 million in new capital in an initial public offering by listing on both the New Zealand and Australian exchanges. Timpetra Resources Limited, an Australian listed company is currently looking to acquire three aquaculture business in New South Wales. In order to fund the acquisition Timpetra is undertaking a capital raising of up to $10 million. CAPITAL RAISING Recent private placements and public offerings In the last five years a number of key industry players including Seafarms, Huon and Clean Seas have raised capital through private placements and public offerings to fund existing and expanding operations. A list of the recent capital raisings in the aquaculture industry is summarised in the following table: Announcement date Target Type Number of shares (No.) Share price ($) Total ($) 23-Aug-16 Seafarms Group Limited Private Placement 122,382,079 0.09 11,014,387 07-Jul-15 Seafarms Group Limited Public Offering 85,714,286 0.07 6,000,000 07-Jul-15 Seafarms Group Limited Private Placement 146,275,666 0.07 9,507,920 02-Jun-14 Seafarms Group Limited Public Offering 201,266,922 0.05 10,063,346 04-Oct-13 Clean Seas Tuna Limited Public Offering 303,525,674 0.03 9,712,822 02-May-13 Clean Seas Tuna Limited Public Offering 50,187,745 0.01 602,253 21-May-13 Clean Seas Tuna Limited Public Offering 250,471,153 0.01 3,005,654 02-Nov-11 Clean Seas Tuna Limited Public Offering 20,268,750 0.08 1,621,500 07-Mar-11 Clean Seas Tuna Limited Private Placement 62,716,880 0.11 6,898,857 Source: Capital IQ The funds raised by Seafarms have been used to fund Project Sea Dragon, a large scale prawn farm. Project Sea Dragon is a $1.45 billion project proposed for Legune Station, on the border of the Northern Territory and Western Australia. 4
RSM Industry Snapshot Aquaculture in Australia TRADING MULTIPLES Historical FY15 industry EV/EBITDA multiples ranged from 5.8x to 22.4x with an average of 11.8x. Historical FY16 industry EV/EBITDA multiples ranged from 7.2x to 12.38x with an average of 9.8x. The average forecast multiples of 7.4x for FY17, reflects the market s expectations of earnings growth in the industry. We note that the companies with negative earnings have been excluded from the average numbers included above. Seafarms had negative earnings in both FY15 and FY16, Clean Seas had negative earnings in FY16 and neither company s had forecast earnings numbers. Industry earning multiples 25.0x 20.0x 22.4x EV/EBITDA Ave FY 2015: 11.8x Ave FY 2016: 9.9x Ave FY 2017 (forecast): 7.4x 15.0x 12.4x 10.0x 7.3x 7.1x 5.8x 7.3x 7.8x 5.0x 0.0x N/A ASX:HUO ASX:CSS ASX:TGR N/A FY2015 FY2016 FY2017 5
RSM Australia Pty Ltd is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm each of which practices in its own right. The RSM network is not itself a separate legal entity of any description in any jurisdiction. The RSM network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 50 Cannon Street, 2nd Floor, London EC4N 6JJ. The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug. RSM International Association rsm.com.au Liability limited by a scheme approved under professional standards legislation