HUON AQUACULTURE GROUP LIMITED ABN 79 114 456 781 PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 APPENDIX 4E – GIVEN TO ASX UNDER LISTING RULE 4.3A 1. DETAILS OF THE REPORTING PERIOD Reporting period: For the year ended 30 June 2016 Previous corresponding period: For the year ended 30 June 2015 2. RESULTS FOR ANNOUNCEMENT TO THE MARKET Up/(down) Amount $’000 % change $’000 Revenue from ordinary activities 42,013 21.91% 233,743 Profit from ordinary activities after tax for the period attributable to members (13,176) (79.36)% 3,427 Net Profit for the period attributable to members (13,176) (79.36)% 3,427 3. DIVIDENDS AND DISTRIBUTIONS Amount Franked amount Dividends per security per security per security Final dividend None nil Interim dividend None nil Record date for determining entitlements to dividends • Final dividend Not applicable • Interim dividend Not applicable Dividend payment date • Final dividend Not applicable • Interim dividend Not applicable Brief explanation of any of the figures reported above necessary to enable the figures to be understood: Refer to the Directors’ Report within the attached Financial Report 4. NET TANGIBLE ASSETS PER SECURITY 2016 2015 Net tangible assets per security $2.84 $3.09 5. OTHER INFORMATION This report is based on, and should be read in conjunction with the attached audited Financial Report. Details of entities over which control has been gained or lost during the period: None Details of associates and joint venture entities: None Details of any dividend or distribution reinvestment plans in operation: None Any other information required pursuant to ASX Listing Rule 4.3A not contained in this Appendix 4E is found in the attached Financial Report. Attachement A HUON AQUACULTURE GROUP LIMITED ABN 79 114 456 781 ANNUAL REPORT 30 JUNE 2016 MANAGING SUSTAINABLE GROWTH HUON AQUACULTURE GROUP LIMITED ANNUAL REPORT 2016 HUON IS A VERTICALLY INTEGRATED AUSTRALIAN AQUACULTURE COMPANY. ACTIVE RISK MANAGEMENT, TOGETHER WITH A COMMITMENT TO SHAREHOLDER VALUE WILL DRIVE SUSTAINABLE LONG-TERM GROWTH. Contents 02 Chairman’s Message 10 Managing Director’s Review 15 Financial Summary 18 Board of Directors 21 Directors’ Report 37 Corporate Governance Statement 44 Financial Statements Annual General Meeting 49 Notes to the Financial Statements 94 Director’s Declaration The 2016 Annual General Meeting 95 Independent Auditor’s Report of Huon Aquaculture Group Limited 97 Shareholder Information will be held at The Henry Jones Art Hotel 99 Glossary 25 Hunter St, Hobart, 101 Corporate Directory November 30, 2016. WE PROUDLY PRODUCE THE WORLD’S MOST LOVED TASMANIAN SALMON 1 Huon Aquaculture Group Limited Annual Report 2016 CHAIRMAN’S MESSAGE – Actively managing risk – Delivering on our commitment to invest in the business – Driving sustainable, long term growth Since listing on the ASX in 2014, Huon Aquaculture Group Limited (Huon) has been implementing a program of transformational change, with the dual objectives of securing our long-term sustainable profitability and of actively managing risk. Business Performance lower margin export market which, together with increased costs associated with freight, In late 2015/early 2016 we experienced one of adversely impacted margins. the most severe El Niño events on record. Huon was well prepared, having taken the decision The fair value adjustment of biological assets to bring forward the salmon harvest to avoid declined by $1.50 million as a result of reduced the negative impacts on fish health and growth fish biomass, but reflects the improved pricing that arise from leaving large salmon in rapidly conditions and channel mix. warming waters. This adversely impacted Huon’s Importantly, during FY2016 the Company profitability for the 2016 Financial Year (FY2016) continued to invest in its capital assets as part of but was necessary in order to provide a solid its Controlled Growth Strategy (CGS) including platform for the future – one that is underpinned a state of the art hatchery at Forest Home Peter Margin by an unrelenting focus on fish husbandry, (Judbury, Tasmania), patented seal proof pens, Chairman product quality and a robust risk management feed barges and mooring systems. This recognises framework. that operational efficiency, along with product Creating a safer working environment for our quality and security, will be the key drivers of people makes safety the top priority at all our sites. this Company’s future competitive advantage. The “Safety First” culture at Huon has been pivotal The balance sheet remains strong at the end in achieving a significant improvement in our of FY2016 and while gearing increased due to safety record over the past year. During that time the implementation of the CGS and associated the Lost Time Injury Frequency Rate (LTIFR) fell by capital expenditure commitments, it remains 74% from 27 to 7. comfortable at 24.8% (net debt/net assets). As we look ahead, both Board and Management are very confident that the Company is well placed Strategy to improve its profitability this year and beyond. Over the past three years we have significantly The strategic focus for Huon during the past two strengthened the business through a major capital years has been the implementation of the CGS. expenditure programme and in 2016 the market I am pleased to report this had been completed fundamentals for salmon sales globally have by the end of FY2016 and is expected to improve moved from one of over to under supply for the efficiency, reduce earnings volatility and lower the first time in many years. Company’s risk profile over time. Huon recorded strong sales revenue for FY2016 The CGS improves and strengthens each stage of 233.74 million, up 22% on the previous of our production process including our ability to comparable period (pcp). However Operating respond quickly to extreme weather events and EBITDA reduced from $40.45 million to other risks. The full benefits of our CGS investment $26.45 million. The Company recorded a statutory should accrue from FY2018. net profit after tax of $3.43 million, a decline from Earlier this year our Managing Director Peter the $16.60 million profit reported for the pcp. Bender delivered an investor presentation While the accelerated harvest program resulted entitled ‘Making Your Own Luck’. As Peter noted, in a record increase in annual revenue, the chance does not drive success in the aquaculture increased tonnages of fish that had to be sold business. Huon is ‘making its own luck’ by into the market in the first half of FY2016 created getting the production basics right and creating downward pressure on average pricing. This opportunities through technical and market was accentuated by the fact that the majority innovation, including strategic geographical and of this additional stock was sold through the species diversification. 2 The Huon three pillar business strategy Growing Growing production and Growing safety the market operational efficiency and sustainability The Asia Pacific region is a market that offers International prices rose sharply through the considerable potential for our products, particularly first half of calendar 2016 as the available supply now that there is a world-wide shortage of supply of high quality salmon products fell short of the and Australia has a competitive advantage in steady growth in demand. While Huon’s FY2017 terms of its geographic location. We will continue profitability will benefit significantly from this to take advantage of the growing demand for improvement in pricing, the impact of El Niño high quality fish products from China and other will continue to be felt through the business until Asian economies. Concurrently, management is the 2015 Year Class concludes harvest in early investigating opportunities for diversification into calendar 2017. We anticipate further growth in other fish species such as Kingfish. profit in FY2018, the first year in which Huon’s production will reflect a full cycle, from egg to Both of these initiatives are consistent with Huon’s harvest, on the platform created by the CGS. stated objectives of producing sustainable earnings growth with reduced year-on-year fluctuation. Longer term Huon is pursuing initiatives to take maximum advantage of the growing demand for The Company is well-placed to take advantage of salmon, including increasing our retail presence rising demand for high quality salmon products, and continuing to focus on our key wholesale estimated to be around 5-7% p.a. globally if the markets and product innovation to increase market market wasn’t supply constrained. The Australian share domestically. salmon market is predicted to grow at around 10% p.a. over the next five years. Conclusion In summary, the Company’s business strategy continues to be supported by three pillars: I have been privileged to lead the Board in the first – Grow the market through increased two years as a listed company and I acknowledge consumption, better channel mix and my fellow Directors for the extensive business enhancement of sales and brand value; and financial management skills that they have – Build production and enhance operational brought to all our deliberations during that time. efficiency as a result of investment made On 30 August 2016 I will retire from the Huon via the CGS program and marine lease Board to take up a full-time Executive Chairman optimisation; and role at a regional beverage company. Neil Kearney, – Safely and sustainably developing our who has served on the Huon Board since listing in people, including the universal adoption 2014, will take over as Chairman. Mr Tony Dynon of the Company’s Safety First program will fill the casual vacancy created by my retirement, and the adoption of a culture of continuous bringing valuable expertise in marketing, stock improvement. feed management, finance and strategy to the Board from his senior management roles in the food and beverage sector. Capital Management On behalf of the Board I wish to thank The challenging operating environment our customers, suppliers, employees, local experienced over the past year combined with communities and our shareholders for their our commitment to complete the final stage support. Your Directors are confident that Huon’s of implementation of the CGS has required business strategy is sound and that the Company’s increased focus on retaining cash within the approach to risk management, together with a business. As a result the Board has determined long-term commitment to building sustainable not to declare a dividend for FY2016. revenue and earnings, can secure the Company’s future and reward shareholders’ confidence Outlook and Strategic Focus in Huon. The Board is confident that the successful implementation of the CGS program, on time and on budget, has enhanced Huon’s competitive position and placed the Company on a surer footing both to execute its business strategy and to continually improve its environmental performance. Peter Margin, Chairman 3 Huon Aquaculture Group Limited Annual Report 2016 THE LIFECYCLE OF A HUON SALMON IS TWO TO THREE YEARS AND AT EACH STAGE THE COMPANY’S OPERATIONS ARE UNDERPINNED BY A COMMITMENT TO THE HIGHEST LEVEL OF ANIMAL HUSBANDRY, ENVIRONMENTAL MANAGEMENT AND QUALITY. Hatcheries Marine Farms Harvesting Processing Market Selective Feeding Fallowing Value Added Breeding Processing Program Maintenance Fish Lighting Husbandry Net Bathing Predator Management Control Huon’s Controlled Growth Strategy drives innovation and improvement at each stage of the production process, supported by our experienced and highly trained workforce. 4 SUSTAINABILITY THROUGH INNOVATION Huon has a reputation for leading innovation across all areas of our operations, supported by a highly skilled workforce. Continued innovation in technology and farming practices strengthens our competitive advantage. Hatcheries Marine Farms Hatcheries allow Huon to mimic the Huon has been the first salmon The pens provide enhanced protection natural life cycle of salmon, synchronising producer to roll out 168m and 240m from predators, particularly seals, batches of salmon to go to sea at circumference Fortress Pens to all through a unique design that prevents different times of the year, enabling the its sites, making a safer, healthier them from entering the pens and supply of fresh healthy fish all year round. environment for fish and a safer working becoming trapped. Located throughout Tasmania, they allow environment for Huon employees. Innovative net cleaning technology has Huon to take advantage of different Fortress Pens are allowing Huon to been an essential part of the rollout and water and environmental conditions and move farming to offshore sites such as the pens have won two safety awards. maintain high standards of biosecurity. Storm Bay, where water flow is higher The new Huon owned Forest Home and temperature fluctuations lower. hatchery produces larger smolt, meaning less grow out time at sea. Feeding Fish Husbandry Processing High tech feed barges feed fish more Huon’s well-boat now conducts all The Parramatta Creek processing efficiently, using pellet recognition freshwater bathing of salmon, doing facility is one of the most advanced in software and a Huon designed away with the need to bathe fish in the World, ensuring the fish are as fresh spreader, ensuring fish are fed to liners, reducing the stress on the salmon as possible when they go to market. appetite and substantially reducing and reducing the impact on nearby With the addition of the Product waste. The barges carry up to communities. Highly efficient, it recycles Innovation Centre and Smokehouse, 320 tonnes of feed to feed all pens fresh water and is also used to transport in 2015, the Company is able to on a grid at the same time. smolt to sea, and fish to harvest. achieve new standards in quality in its value added range. 5 Huon Aquaculture Group Limited Annual Report 2016 MANAGING SUSTAINABLE ENVIRONMENTS Huon Aquaculture is building sustainable long term revenues by actively and expertly managing the risks inherent in aquaculture. The Huon Method promotes healthy fish, keeps the impact on the surrounding environment and local communities to a minimum and ensures that the business remains strong. Agricultural Risk Wildlife Reducing the threat of disease Reducing interactions with seals and birds The Huon Method: Careful site management, strong biosecurity and good The Huon Method: Fortress Pens substantially husbandry practices throughout the salmon reduce the risk to the fish from seals and birds lifecycle keeps disease to a minimum. and protect wildlife by preventing them gaining Huon’s low stocking densities and offshore access both above and below the water line. pens maintain water quality and allow Huon’s environmental management team works the fish to thrive and grow more quickly. closely with the Tasmanian Department of Freshwater bathing of the fish on site with Primary Industries, Parks, Water and Environment the well-boat keeps amoebic gill disease to monitor and record seal interactions. (AGD) at bay and reduces fish stress. Industry Partnerships: Huon maximises Safety Risk salmon growth efficiencies by participating in the Salmon Industry’s ‘Selective Breeding Keeping our people safe Program’, this delivers reduced bathing, is Huon’s highest priority lower feed conversion ratios and improved fish growth due to more resistance to AGD. The Huon Method: Huon’s dedicated safety team manages and monitors all aspects of employee’s safety at work. The Company has Environmental Risk elected health and safety representatives at all sites. All staff, including Board members, Managing the business for have undertaken safety culture training. weather variations and Huon’s Fortress pens and the well-boat provide a impact on the surrounding safer working platform. environment and communities The Huon Method: Carefully managing Market Risk the harvest schedule in response to environmental conditions minimises the Staying on top of the competition risk to the harvest and ensures earnings and consumer preferences The new Fortress Pens are maximised in given market conditions. in Hideaway Bay. The Huon Method: The cutting edge The move to offshore pens reduces the risk Parramatta Creek Smokehouse and Product to the local environment and reduces noise Innovation Centre in Northern Tasmania and visual impact on local communities. promotes our retail capability and capacity. Technologically advanced feed barges New products are targeted at import deliver feed efficiently and reduce waste. replacement. 6
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