inancially and operationally, it was a strong year with the number of pearls harvested exceeding 598k, up from 548k in FY23. Improved profits, with EBITDA at $22.6M, up from $9.8M in FY23 was a result of the strong market demand, where average pearl prices increased, especially in H1, to levels not seen for several years. 

Total revenue for FY24 was $41.7M vs FY23 $27.2M, and pearls sold in FY24 were 477k, down from 584k in FY23. We had a large number of pearls harvested in late May and June that could not be graded ready for sale in FY24. Due to the timing of these late harvests, Atlas Pearls will carry closing stock of 224k pearls into FY25 (FY23: 100k). Net profit after tax for the year was $31.5M, compared to $9.1M in FY23.

The quality of pearls produced in the year improved from the prevailing levels observed in FY23, though remains below historic norms. Most of the improvement in FY24 occurred in H1 FY24, with harvest results in H2 being similar or marginally below the improved levels seen in H1. Based on positive results for a small number of pearls recently harvested and graded from certain genetic groups, and for which large volumes remain to be harvested in the coming months, we anticipate an upward trend in overall pearl quality in FY25.  

As stated in last year’s report we saw pricing increasing over the year and for FY24 we had prices achieved in H1 that were the highest seen for a number of years, driving the profit and cash results for the Company. In H2 we saw prices decline, from those in H1, but were still at levels that we would consider very good based on our current operating model. 

With the strong profit result we concluded the year in a strong financial position, with cash in the bank of $17.6M. We still have an overdraft facility to $2.5M to provide us with working capital flexibility to better manage our sales cycles and to maximise opportunities, however we have not had to call on this overdraft in FY24.

In view of the EBITDA result and associated cash position for FY24, the Board has resolved to declare a special dividend of one cent per share (franked to 100%) and payable on 27 September 2024. 

Atlas Pearls’ performance over the year is attributable to the ongoing work and dedication of the entire team across all facets of the business. Their collective efforts were instrumental in executing the initiatives that we identified from an operational and sales perspective. We again held two impactful workshops in Sanur, convening senior leaders from operations, sales, and finance. These sessions were pivotal in engaging the leadership within the business and determining the strategic focal points essential for realising our operational budget goals. They also aligned with our longer-term growth strategy, which aims to amortise fixed overhead costs by increasing pearl production in the coming years.

SALES INITIATIVES

Atlas Pearls is committed to building and executing a strategy that positions us as a multi-channel distribution company that looks to maximise the value of every pearl that we grow and harvest. We have continued to sell pearls through our traditional channels of hybrid auctions in Kobe, Japan, loose pearls available online through our wholesale portal, and finished jewellery available online to wholesale and retail customers. 

We have spent the past 24 months reconnecting with our wholesale customers, primarily within Australia, but also into Asia and Europe. Now that these relationships have been reinvigorated, we are focusing our efforts on the products we offer within these markets, particularly strands and pairs, where we can add significant value outside of the traditional auction channels. We are focused on growing this sales channel by extending our reach, developing new customer relationships, and developing product offerings that appeal to the market.

In FY24, we continued to re-open our farm retail showrooms with North Bali, Pungu Island, and Alyui now completed. Plans are underway to upgrade the North Bali showroom to deliver a flagship retail and pearling experience that will tell the Atlas Pearls story and take people on the sustainable journey of pearling. We have launched a new retail-focused website and have established new manufacturing partnerships to support moving forward with new designs and collections.

OPERATIONS INITIATIVES

Over the year, progress has been made in a series of pivotal refinements and strategic initiatives aimed at achieving improvement and consistency in pearl quality, and improving operational efficiency and productivity. They align with our long-term growth strategy and include: 

HR AND SAFETY

During the year we reviewed our HR support services and completely revamped this area of the business by bringing in new leadership and additional support. The multi-year HR plan that has been developed is being executed. The plan elevates our responsiveness and support for the business, putting into place critical policies and procedures, and improving important areas such as succession planning, development and training, recruitment, and providing specialist support to our operational managers and staff across all sites.

We also conducted a safety review and accelerated our plans by hiring both external and internal candidates to ensure that safety receives the necessary day-to-day focus. We have greater capability in the business. Additional resources that were promoted from within the business, received first aid and specialised health and safety training (K3 modified course to get all new on-site safety officers to the same minimum level of knowledge and competency before we embark on a series of additional training courses and certifications), conducted further audits and ran additional simulations and training exercises, reviewed safety equipment, and upgraded and standardised our systems and processes. 

We did, unfortunately, have a fatality by drowning on one of our farms late last year. An investigation was conducted by the Labour Department and the Police, as is standard practice in these circumstances, and the incident was declared an accident. The Company was found not to have been at fault, as we had provided training to those involved and they had the necessary PPE with them.  We subsequently carried out a comprehensive review of the incident and, based on the findings, we have implemented targeted refresher training, and reinforced standard operating procedures related to water safety. We continue to support the affected family through scholarships and other forms of assistance, and are also providing ongoing support to staff at the location where the incident occurred.

We have also established an Emergency Response Team comprised of senior experienced managers. This team is on call and equipped with the guidelines and authority to respond to emergencies at any of our sites, whether they are natural (eg, earthquake, volcano, etc), environmental, or external threats.

GENETIC AUDIT

Commencing last year with the sampling and genetic sequencing of approximately 3,500 oysters, this initiative has now produced a breeding matrix to guide us in maximising the diversity of our broodstock by strategically optimising crosses on an individual basis. Since early in FY24, all production spawns will use the new breeding matrix to ensure our future shell populations retain sufficient genetic diversity, which has historically not been possible.  During FY25, we will commence phase two of this project by establishing a founder population of oysters from the breeding matrix with optimal levels of genetic diversity across our existing oyster family groups. This founder population will be used as a cohort for focused selective breeding and other genetic improvement measures, to produce oysters which are more robust to changing environmental conditions, suffer from lower mortalities, and produce higher quality pearls. This is very much a long-term strategic project, and benefits are expected to accrue over the medium to long term.

DATA CAPTURE AND IT SYSTEMS 

The data capture project to centralise, in a cloud-hosted database, almost 250 unique data fields over the four-year life cycle of each production cohort, has now been completed and we are starting to use this information to make informed decisions going forward. We are now capturing real-time data at each farm, allowing enhanced live monitoring of each remote location’s key production metrics.

During the year, we also completed the implementation of a new ERP system (Microsoft Dynamics 365 Business Central (BC)) which will integrate the finance systems for Australia and Indonesia onto one platform, enabling greater transparency and efficiency. It will also allow us to analyse sales data more effectively by having the retail stores use the system to record real-time information. This will allow us to incorporate sales data from BC, mine the information, and gain insights to make data driven decisions, thereby maximising our sales performance.

ESG/SUSTAINABILITY AND COMMUNITY ENGAGEMENT (CSR)

Atlas Pearls has a longstanding commitment to supporting the villages, local environment, and communities around our farms. Last year we embarked on the early stages of an ESG (Environmental, Social, and Governance)/sustainability initiative. In the current period, we had a project team performing significant work in this area, developing a Sustainability Roadmap and Framework for the business. The roadmap aligns all the company-wide projects and programs that we do in this area to ensure that we get maximum benefit for our employees, stakeholders, villages, and the environment in which we work. Our Sustainability Framework has been designed to be an important tool to measure what we do with achieving our environmental, social and governance visions. 

We have aligned our framework with the Global Reporting Initiative Standard (GRI) to provide transparency and tangible measurable outcomes that adheres to the United Nations Sustainability Development Goals (SDG’s) to ensure that we, as a company, are also keeping in step with global endeavours, and with the Indonesian initiatives around sustainability and environmental stewardship. We have included a small summary of the Sustainability Roadmap in the annual report and the full document can be found on our website at: www.atlaspearls.com.au/pages/sustainability.

We are very proud of our work in this area and the difference we are making, not only for our 1,200 employees in Indonesia, but also our stakeholders in the region.  

NEW OPERATIONS VESSEL

Following Board approval, and subject to permits and approvals from the Indonesian Ministry of Fisheries and Maritime Affairs, we will commence construction of a steel vessel in H1 FY25 to replace one of our two major logistics and oyster transport vessels.  As mentioned last year, this new vessel is designed to replace existing vessels used for transporting seeded shell from our hatcheries and nurseries to designated grow-out sites. In addition to transportation, the new vessel will facilitate on-board oyster harvesting and seeding activities within an enhanced operating environment. It will also provide accommodations for our technical team, who travel between sites to perform crucial harvest and seeding operations. This investment underscores our commitment to leveraging technology for increased efficiency, operational excellence, and an enhanced working environment. Furthermore, it will reduce the capital intensity at new sites, as the mobile infrastructure can service multiple locations due to our staggered harvesting schedules. The new vessel will also feature a materially larger transport capacity than the vessel it replaces, to meet the growing shipment demands of our expansion plan.

NEW SITE DISCUSSIONS AND GROWTH PLAN

This new initiative was raised in last year’s report, and we now have 25,000 oysters on lines in Sumba, with plans to increase to 50,000 oysters soon and over 100,000 oysters by the end of FY25. We anticipate conducting our first trial harvests of pearls in FY26 and, subject to results, we will continue to expand the site and the facilities over the next two years. Should the results from the trial in Sumba be unsatisfactory, the allotted expansion capital will be redirected to other existing sites with capacity for further growth.

Our medium-term growth plan includes expanding several of our existing sites. While the Sumba trial is an exciting opportunity, it is one component in a broader portfolio of growth initiatives and is not essential for us achieving our medium-term growth aspirations. 

Additionally, we have recently completed the construction of a trial hatchery at our West Lembata site. This new hatchery aims to enhance geographic diversification of our hatchery network and increase the supply of oysters required for our growth plan. The first spawns from the trial hatchery are planned for Q1 FY25. If the results are positive, the facility will receive further investment to convert it to a permanent facility. 

To mitigate risks and diversify production, we have also established a production sharing agreement with a trusted third party with unutilised productive capacity. This agreement is capital and operating expense-light and has the potential to boost our production at a lower cost. The initiative is currently in trial phase, with a decision to expand or wind it down expected to be made during FY25.

DIVERSIFICATION

To broaden the revenue base for the Company, and as announced to the market in June 2024 with the appointment of Ross Gordon as Chief Innovation Officer, the Company is exploring options for revenue diversification within our existing areas of expertise. As a leading pearl producer with a skilled aquaculture workforce, a comprehensive operational presence in Indonesia, and backed with strong government and community relationships, Atlas Pearls has several core competencies that could be applied to closely related aquaculture products. Throughout FY25, we will evaluate various diversification options, including both organic and inorganic opportunities. In assessing new opportunities, the Board will prioritise prudence, focus on near-term profitability and cash returns, and ensure that investment and growth plans for the core pearling business is not compromised.

30-YEAR ANNIVERSARY OF ATLAS PEARLS

Atlas Pearls’ Indonesian operations are 30 years old, having being incorporated in October 1994. To mark this milestone, we will celebrate our 30th anniversary with events scheduled at each of our locations, together with our local staff and stakeholders. In consultation with our villages and stakeholders, we have discussed potential capital works programs to commemorate this achievement.  Those programs will serve as a tangible symbol of our commitment to the communities we are part of, demonstrating our ongoing investment and integration into the fabric of the communities in which we operate. The projects will include a suite of school and medical clinic refurbishments, in addition to the installation of several wells to provide cleaner water access for local villages.

Ironically, the traditional 30th wedding anniversary gift is typically a pearl, symbolising the beauty and enduring value of the relationship. 

We acknowledge the hard work and dedication from our management team and employees who have demonstrated exceptional commitment in executing the strategy into tangible actions, and deftly navigating periods of change. It is important to emphasise that Atlas Pearls thrives on a culture of continuous improvement and evolution, not just in terms of the perspective of our standard operating procedures related to our oysters, but also in how we view and measure the key aspects of our business.

As stated last year, our focus remains on the production and distribution of the highest quality, ethically produced, and luxurious pearls in the world. This focus is underpinned by our Vision and Mission: 

OUR VISION 

To be the global leader in the production of the world’s finest South Sea pearls. 

OUR MISSION 

Producing the world’s best South Sea pearls in a way that is sustainable, respectful, and caring of our environment, people, communities and shareholders.

Michael Ricci | CEO – 29 August 2024