annual report, page-4

If you are trying to understand this company you ahve to step back from the raw results.

My analysis was done originally on the numbers and I couldn't understand the SP movements.

Someone on this forum suggested that Aquaculture has its own climatic risks and that there are some issues that this brings to the table. His view was that this is an agri investment and that is not linear. The weather the market place the exchange rate affect the outcomes far more dramatically than a business which doesn't have these risks.

Currently there was a report on high sea temperatures off Tasmania in August. Does this have an effect? Yes they say the fish dont grow as much if the water is warmer but the company has been involved in trying to select its breeding stock and I would presume that part of that breeding program would be to mitigate this.

Then there is the fact that the company is right in the middle of a strategic development phase. Look at the cash flow over the past 2 years and you will see they have very focused investments meant to improve the business. These have shown signs of improvement but no-where near those expected as yet. This strategic plan is now delicately poised. The investment requirement continues. This is seen clearly because even the dividends are fully underwritten. When you see the need to do that than its all about control over these initiatives. The company has consumed 100m over the past two years. This creates uncertainty and whilst we should all have known about this as it was clearly outlined to us, I think some of the investors have been a bit spooked by the sudden rise in gearing. It will get worse as well before it gets better. Also people have long memories and Tassal in a previous life failed as it ran out of money.

Risk - The new hatchery, the automatic feeders the new harvesting methodology and generally within this quest to become an efficient producer against other world leadership producers all create an inherent risk. They have done their homework, they have detailed all this to us but we are dealing in living organisms and until we reach the other side of this investment phase there must be an increase in risk as we make these changes.

Currency risk. Tassal is not yet producing at world best prcatice pricing. So the movement of the A$ towards US$ parity makes everything more expensive as they have to recover export pricing in US$ and on top of this makes it easier to import.

World best practice: If you look at some of their previous presentations you will note that Tassal produces at wharf at around $5.00 per kg (they dont state whether A$ or US$) yet Norway produces at $3.50 per kg. thats a big difference not made easier if your currency strengthens. Tassal is weak (or was ) in marine labour costs and depreciation. The depreciation would probably have got worse as the ratchet up has cost a lot. The marine labour may well have improved as a result of the automatic feeders and getting this area sorted out. They have not updated this but I suspect that its only at the end of 2010 that these should be sorted as there is still a lot of work going on.

As they are leaving the fish in longer to get better growth there is a once off cost of lowering profitablity whilst this works through. The benefit is growth and essentially that converts to turnover but when you take this step it costs. They refer to taking the strategic view of lower profits now for increased profits in the future. Thats always going to be brave if you do it in a tightening capital expenditure cycle.

Tassal are only now going into borrowings so essentially as banking margins have increased substantially they are paying full price for debt and it will increase with interest rate movements.

The increased move into retail and the longer financing of debtors and having to increase marketing expenditure to build your brand all puts more capital at risk.

Add to this a weak cornerstone investor (WBA)whose own operations are losing money. That creates a perception of an overhang.

Then you have 1 broker that has listed TGR as a sell. A few others have downgraded their targets and this has an effect as well.

In addition to all of this they haven't as yet been paying taxes and only this year did a small liability to the ATO pop up. So there must be an expectation that they will soon have the additional cash flow cost of taxes to pay.

However now to the positives:

They communicate well to the market and investment public. We just don't always listen and I think we see good growth in EPS and we expect that to continue. The Brokers consensus is for it to be flat in 2010. Some dont like that. However at least I can understand the business fully and can see and buy into the future.

Chile has a biological problem that is affecting their operations so that reduces the supply side and gives us opportunities to grow.

OZ biosecurity is much better than most countries so Tassal has support for its assets.

The end goal is worth the risk so in fact you could end up with a very significantly improved business and a real winner if you are patient.

They are starting to be noticed as players and more analysts are reviewing them. Note link below:

http://www.pr-inside.com/sadif-analytics-releases-new-summary-due-r1500273.htm

So this is not a free ride but to date well communicated strategy and clear measurement against those objectives.

Clever investors seem to be accumulating over a long period that suits my personal investment profile.

So I am an investor for the long haul but understand that this will probably be a bumpy ride.

Hope this adds to the banter on this forum.