Thanks for sharing that observation, and as a TGR shareholder,...

Thanks for sharing that observation, and as a TGR shareholder, good to see the pricing going up.

Seems there are a couple of factors at play. Firstly, the increasing cost of inputs (inflation) is putting downward pressure on margins and upward pressure on prices. Second, the global spot price market for salmon is at very high levels, which is driving up the prices. To the extent that Tassal can, they'll pass on the increasing costs / higher global prices to their consumers to maintain or even improve their margins.

It's important to look at the salmon business through the lens of the different markets:

• Wholesale fresh hog - This is the fish sold to restaurants, middle men, and even the South Melbourne Market. It was 19% of sales volume in FY21. Prices are flexible as they don't tend to have long term contracts, and so they can increase the prices here as the global prices increases or inflation hits. That's why you're seeing the increasing prices here, and margins will likely go up too. This is a growth area for Tassal.
• Retail - Tassal Brand MAP - This is the air tight salmon fillets you get in supermarkets branded with the blue Tassal logo. Only 5% of total sales volume, but increasing quickly as Tassal shift from private label / deli to higher margin product. There is limited pricing flexibility here as the shelf space is competitive.
• Retail - Private Label MAP - This is the supermarket-labelled air tight salmon fillets you get in supermarkets (e.g. Coles, Woolworths, Metcash, Aldi and Costco). Tassal has not competed hard for this high volume / low margin space, and has given up contracts to Petuna and maybe Huon recently. Not sure what they are left with, only Woolies? No pricing power here, and prices are re-contracted for 2-3 years most recently at the Covid-19 lows of 2021. It's now only 13% of total sales volume.
• Retail - Behind The Counter/Deli - As the name suggestions, it's the supermarket delis (Coles and Woolies) where they bag it based on your requested amount. It's been declining recently, and is now only 15.5% of total sales volume. It's expected that Coles and Woolies will get rid of this line totally, and only have MAP in future (good for Tassal Brand MAP as it will open up shelf space and less competition). Again, high volume / low margin lines with 2-3 years contracts signed at the lows of late FY21. Margins are being squeezed as inflation drives up costs which can't be passed on to the supermarkets.
• Retail - Tassal Brand Smoked - This is the smoked salmon being sold, competing with the low-cost Norwegian salmon typically. Some of the Norwegian salmon may be labelled as Danish, because it's processed/packaged in Denmark, but grown in Norway. Essentially any salmon that is too small (<4kg) or unable to be sold straight away is put into freezers. This is then eventually smoked, and can be stored for some time. The flexibility comes at a cost, because margins are actually quite low. This is 6% of total sales volume, and pricing is unlikely to get passed through.
• International Exports - The fish we send overseas as fresh salmon fillets, typically +5kg fish to get the highest prices. Margins have now become the highest because of global spot price. While it was only 23.7% of sales volume in FY21, in 1H22 it was 53% of sales volume as TGR reduced their inventory.

I think Tassal management has done really well to shift their distribution mix towards higher margin producers. Petuna and Huon took the low margin / high volume contracts because they needed more stability, while Tassal could pivot. The margins actually dropped in 1H22 (from $3.71 to $3.22) as domestic continued to be hit hard, and exports only just started ramping up in the last quarter of 2021. But we should see that turnaround quite positively in 2H22, albeit on lower volumes as inventory levels have tapered off.


Here is the slide from FY21 report:

And here is the slide from 1H22 report: