Its good to see the Tassal (TGR) discussion centre on some real...

Its good to see the Tassal (TGR) discussion centre on some real analysis rather than the bickering and petty stuff you get with some stocks. I have a holding in TGR and Candle89’s comments were enough to get me off my backside and review again.
Most of the information is within the Annual and half yearly reports. There are two notable accounting standards (AASB’s) that have an impact on results and they are clearly stated by the company every time.
AASB 141 deal with variations in the Biological assets (fish in the water) and is generally higher in the June results and lower in the December half result.
AASB16 requires that future lease liabilities be included in the Balance Sheet. TGR leased a ‘well boat’ under an agreement on 19/10/19. The future lease payments are reflected in the Balance Sheet as Current Lease Liabilities (payable in next 12 months) or Non-Current Lease Liabilities (payable over future years under lease agreement). Balanced against these liabilities the company recognises the value of the right to use the boat for the lease period as an asset. So the net asset result is basically zero.
When calculating its level of gearing the lease liabilities can be included as a debt and the gearing ratio (net debt to equity) becomes 52.6% as at 30/6/20, or if you ignore this debt because there is an asset to offset, then the gearing ratio becomes 25.1%. In general a gearing ratio between 30 and 50% is considered ideal.
During the half year to 31/12/20 the Gearing ratio increased due to financing of the expansion into prawns. It was around 63% including lease liabilities, or 37% ignoring them. This was cause for TGR to suspend its aggressive prawn expansion in favour of a more gradual escalation.
Therefore cashflow is important in either reducing gearing or financing any further expansion of prawns than that already underway.
Operating cashflows for the 2020 financial year were $49.9m, but the repayment of the Financial Lease was shown as a non-operating expense and if you include lease of the well boat as an operating cost then operating cashflow was only positive by $2m – not enough to make any dent in borrowings. Fortunately the Dec 2020 half was better with operating cashflow of $41.4m or $15.2m after including the finance lease as an operating expense.
Little wonder that the Dec half year dividend was reduced and at 7 cents that would have cost around $15m (less any dividend taken as shares and not cash). By the way the dividend was unfranked because the company has no franking credits from tax paid to attach to the dividends. Given its heavy investment in assets and the generous write-offs currently allowed for tax purposes, the reported profits for tax purposes are much lower than for accounting purposes and little tax is being paid.
Clearly we are hoping for a further improvement in cashflow in the full year results. If that turnaround can be sustained into the Dec 2021 half year then gearing should start to decline and the share price may well rise.
Also mentioned in the Annual Report amongst ‘Key Risks’ is that from community activism. That is clearly hurting TGR at present. The TGR corporate website now leads with the Facts about salmon farming. They counter many of the criticisms but personally I don’t see any counter to the fish waste that may accumulate or disperse below pens. However I see the TGR management as sound and if anyone can find a solution beyond on-land farming (which is not economical at present) then it will be them. With wild fish stocks in decline, fish farming is not going away.