Australis Aquaculture (fka AUQCF)

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Transcript of wallstreetreporter.com interview with Goldman and Daen, AUQCF co executives

http://www.wallstreetreporter.com/page.php?page=featured&tab=2&id=27797#aTranscript

WSR: Welcome to The Wall Street Reporter, I'm Rick Grubbs. We're speaking today with Josh Goldman, Chief Executive Officer of Australis Aquaculture. Joining Josh is Jonathan Daen, Chief Financial Officer. Australis trades on the Australian Stock Exchange under the ticker symbol AAQ and Australis is at the forefront of providing sustainable healthy seafood. Gentlemen, thanks for joining us.



GOLDMAN: Great to be here.



DAEN: Thanks Rick.



WSR: Let's start with the market opportunity for your barramundi, which is Australian sea bass. Is the worldwide demand for this type of product on the rise?



GOLDMAN: It's really growing dramatically around the world due to a couple of significant trends. The first of course is overfishing and most of the major fisheries around the world have reached maximum sustainable yield levels. So, buyers that are responsible for providing seafood to both food service and retail markets have increasingly recognized the need to shift their buying patterns and this has really started to take effect in the last 18 months and we're benefiting from this trend. The second is that there is a worldwide sustainable seafood movement that's really gaining significant momentum both again with institutional seafood buyers and with the public at large. The markets around the world are really a lot more discriminating in terms of the seafood that they are looking for and attempting to assure that it's healthful sustainably produced.



DAEN: What's really happening is that many of the species that we've all grown up with have become overfished and the supplies are quickly diminishing and the seafood retailers and seafood consumers are looking for products that are sustainably raised and really looking for what the next big fish are going to be in the future to replace what's an increasingly less supply.



WSR: It seems like you guys have given a lot of thought and a lot of strategic thinking to providing that supply and sustainability is certainly a key factor in the production of seafood going forward. I'm thinking about the global demand and the growth in global demand. It seems like the production in the United States and combined with the plant or the farm I guess you bought in Southeast Asia or are building I guess in Vietnam and is meant to address demand in different parts of the world. How do you the see the farm looking in Southeast Asia? Is that designed to fill the demand in that part of the country?



GOLDMAN: The US really is our flagship plant, it's the largest indoor aquaculture facility operating anywhere in the world, it produces about 1,000 tons or 40,000 tons of product a week and it's strategically located right here in the heart of the Northeast in Western Massachusetts outside of Boston, which is the historical hub of the seafood industry in the US. So, it's a great place to be and this plant is really designed to serve the premium fresh markets throughout the country. As we started to introduce the barramundi, we were very happy to get the kind of traction with the chefs, with the retailers that we had hoped for and so we began to look at approaches that might quickly allow us to address that market and add volume. We conducted a worldwide search and settled on Vietnam as really having the ideal set of conditions in terms of the natural environment, a lot of experience growing fish, and a lot of excess fish processing capacity that we could tap into. All of that has allowed us to begin to ramp up volume both through a series of contract farming relationships and then today with our own farming operations, which will begin to produce product for us over the course of the next year. Increasingly, people are consuming fish in frozen formats with the consolidation of a lot of the major retailers around the country. Retailers want frozen product, consumers also want it because we love those bags where we can take out that individually vacuum packed fillet and use just what we're going to need tonight to have that level of convenience. So, those are really the key drivers. I think when you put all of those factors together, we think it's really clear that we are in a very special position. I think when you look at the seafood industry, it's really only every 15 or 20 years that a new fish comes around that really is able to substantiate a major position in the market. In the '80s and '90s, it was farmed shrimp and salmon; in the last decade, we've seen the tremendous rise of tilapia; and each of these products has been able to substantiate a multi-billion dollar position in the market because of the inherent advantages of controlled supply, controlled cost. The drivers today for Barramundi have only accelerated, and we are uniquely positioned with both large scale, knowledge about how to produce the fish, first to market positioning, and we think a really powerful brand message.



WSR: Now you mentioned your production capacity? Let's go over that again. Can you quantify the production that you think you'll have at the end of the year on the US plant in Massachusetts, maybe factoring in your new production capacity primarily online in terms of pounds, your weighted price that production in terms of pounds for fish in the marketplace?



DAEN: Sure Rick. When you look at our production facility here in the US, we have the capacity to produce about 1,000 metric tons per year from this facility, that's about 2.2 million pounds. We released an announcement to the ASX actually earlier this week that showed that we were producing quantities at this facility at about that rate, about 90% of that rate more on track for achievement of full capacity we believe by the end of this calendar year. Now 2.2 million pounds really is not a lot of product to service the US market and so as Josh alluded to, we began looking for alternative sources of high quality supply from overseas and we've begun -- we have proprietary sourcing operations now in Southeast Asia that are delivering product to the US markets and that infrastructure is delivering increasing quantities every day to our retail customers. Our Vietnam operation is moving forward. We are working with the government in Vietnam to get approvals to build a production farm there. We believe that within five to seven years that operation has the capacity to produce 10,000 tons of fish on an annual basis and we believe that our sourcing operations in Southeast Asia will deliver quantities comparable to that 10,000 tons every 12 months.



WSR: And when you think about that kind of production, it seems like they are roughly gets equal 2,000 pounds per ton or something. What are you getting now I guess in the wholesale market for each pound that you sell?



GOLDMAN: Generally the prices on a retail basis are comparable to other fish that are at the high middle market price points at retail. Generally we are targeting our fresh product to be in the range of $9.99 to $12.99 in the supermarkets and the frozen product coming in from overseas we expect will be priced somewhat lower, but still at probably around $8.99 or $9.99 a pound. Now, that's retail prices, those are not our wholesale prices. The wholesale prices really are driven by the market that we're able to support, but we anticipate margins between 25% to 35% on our product lines.



WSR: Alright and let's talk for a moment about your distribution channels. Tell us where we can find your products under which brand's name, I think you're in Whole Foods and several other outlets?



GOLDMAN: We are indeed. We've really begun with a focus on the white tablecloth sector and we partnered with many of the best chefs that are really passionate about the sustainable seafood industry and today you will find our product in many of the best restaurants throughout the country. That white tablecloth business is served by a network of approximately 100 wholesale seafood distributors across the country. Increasingly, we have moved into the retail sector, we're currently in chains like Whole Foods, Giant, Stop & Shop, Big Y, Wakefern, and increasingly you're going to see this product really move from a specialty item to something that's in a lot of the seafood cases around the country as these retailers begin to reposition the seafood case in response to the rapidly increasing prices of wild fish. We've all been hearing a lot about what's happening in food prices and as you can imagine, the cost of petroleum is a major factor driving the price of wild fish typically at about 50% of the cost and so we are having a lot of success out there with retailers who want to take this on at a large scale across the country.



DAEN: At this point, the pre-eminent retailer carrying our product is Costco and we've been working with Costco now for close to a year and our product was introduced there in November of last year and it's proven to be very, very successful. What's interesting is that Costco demographic very much mirrors many of our customers who are experiencing our product at the white tablecloth restaurants and we've been able to expand our distribution through various regions of Costco and various numbers of stores within each of those regions as we've built the supply to be able to deliver product to those stores on a regular and consistent basis.



WSR: Let's switch over to revenues just for a moment. It sounds like you've got your distribution channels in place, demand is growing, while seafood is becoming more and more scarce. So, you think that you are well positioned and ready for some significant revenue growth given your production capacity. Last year, you had around short of $3 million in revenue, maybe $3.8 million or so in Australian dollars. Given the new production that you're bringing online, what can we expect the revenue is possibly for 2008?



DAEN: Our fiscal year ends on June 30, 2008 and we expect revenues of around $6 million for the fiscal year and as available supply increases entering into fiscal year '09, we are anticipating significant continued growth in the coming fiscal year.



WSR: How could we quantify significant in the 25%, 30%, 50% range or more?



DAEN: I think it's fair to say that we would anticipate revenues to double in the coming year.



GOLDMAN: In the company's history, the major constraint has not been the distribution network or demand, it's really been supply and starting with the fish for which there really was a very limited base of production. Over the past 12 months, we have had a range of initiatives both in Vietnam and a few other countries to build supply and it's really only now that those initiatives are bearing fruit and there's starting to be ample supply to go out and really execute and meet the demand that we have created. So, we are sitting in a very exciting place from a growth standpoint.



WSR: Thanks. Let's talk for a moment about your last financial quarter. Just looking at the numbers, you had somewhere around $1.5 million Australian in debt but also $5 million or $6 million in cash. Thinking about your growth plans and delivering an increased quantity of sustainable fish, do you anticipate having the capital today that you need or is there possibly a capital raising transaction somewhere in the future this year or next?



DAEN: There is no question that growing companies need cash to grow and we anticipate being back in the market to raise capital again during this calendar year.



WSR: Let's move on to valuation. Stock trades around $0.26 Australian, that gives you a market cap of around $24 million or so and thinking about the enterprise value, it's a little lower, it's been a back out in the cash that you have; it's a little around $18 million or $19 million enterprise value and that gives you a multiple on the last year's revenues of around 12.8 times. How do you view the valuation of your company today given your growth prospects and your balance sheet?



DAEN: That's a difficult question for us to answer Rick because really we end up having to let the market drive our valuation. We look at the prospects for the future and believe that Australis is a company that will provide consistent growth over the next five years and that as a growth company we will deliver significant shareholder returns over the next several years. Valuation is a hard one for us to determine at this point. We are basically operating at a breakeven or better level now and anticipate that we will begin to deliver profits in the next fiscal year and continue to demonstrate long-term opportunities for growth as we move forward.



WSR: Let's close with one last question. I always like to get into the CEO's mind a vision of the future. I am just curious as to in your opinion what might be the next near-term catalyst or milestone that the company could reach, what should we be looking for going forward?



GOLDMAN: Our objective within five years is to hit $100 million of revenue. The thing that is really driving that today is the fact that the investments we have made over the past several years in building awareness for a previously unknown product have really reached that proverbial tipping point. All of the retailers out there know about this product, they think highly of it, it has a great reputation and it's really the unlocking of the supply that has occurred that is going to allow us to really put some runs on the board and begin to increase our sales in a very significant way over the next 12 months. So, we're really excited about where we are sitting and the opportunity and the ability to realize that opportunity over the relatively near term.



WSR: That's about all we have time for today. But gentlemen, now we want to thank you for your time and best of luck.



GOLDMAN: It's our pleasure. Thank you.



DAEN: Thank you Rick.