From Queen Elizabeth to Marilyn Monroe—pearl necklaces have been wardrobe must-haves and bucket list items for years. The sole aquatic gem, the pearl has a lot to offer, but as with most things associated with the oceans, there is no accounting for its predictability, making pearl farming an intricate business. 

Aussie pearling business Atlas Pearls (ASX: ATP), with its roots in 1992 Indonesia, has reported that it expects its revenue in FY23 to be between $26 and $28 million, approximately a $5 million increase over FY22, even as its inventory dwindles. 

The increase in expected revenue reflects a highly successful sales auction in Japan earlier this month, underscoring the strength of the pearl market with a strong demand at high prices. Historically, the Company has reported full year sales revenue in the range of $14 million to $22 million.

In H1 FY23, the size and quality of the pearls harvested fell below the levels observed in the previous fiscal year, FY22. Despite the decrease in pearl size and quality, the number of pearls sold remained consistent with FY22. The strong pricing for pearls managed to offset the negative impact on revenue.

This development is expected to result in a corresponding increase in the Company’s EBITDA for FY23. Nevertheless, Atlas refrains from providing a definitive forecast of the EBITDA result at this time due to the uncertainty surrounding the market.

Atlas has enjoyed buoyant year-to-date sales, driven by sustained global demand for South Sea Pearls. The Company’s success can be attributed to a well-executed online and physical auction held in Kobe in March 2023, as well as continuous private sales throughout the year. To further capitalise on this positive momentum, Atlas plans to organise a final physical and online auction in June 2023, complemented by ongoing private sales.

In an effort to address ongoing quality issues in pearl production, Atlas has leveraged its improved data analytics capability. These issues, primarily related to smaller pearl sizes, appear to be rooted in genetic factors, with a disproportionate representation of oysters spawned in a particular hatchery in 2019. The final harvest of this cohort is currently underway, and the results will be thoroughly examined to identify potential influences such as environmental factors and farm location on growth and quality. 

Despite their smaller size, these pearls maintain good quality and continue to find a receptive market, thereby safeguarding sales revenue. However, their good quality couldn’t manage to deliver good results for Atlas in H1 FY23.

During the first half of FY23, the Group’s net profit after tax amounted to $3.6 million, marking a slight decline compared to the $4.1 million profit recorded in H1 FY22. Furthermore, the number of pearls held by the Company decreased significantly from 127,761 on June 30, 2022, to 32,038 on December 31, 2022. Consequently, the value of the pearl inventory diminished to $0.5 million, down from $3 million. If that wasn’t enough, its cash equivalents also fell from $4.4 million in H1 FY22 to $3.3 million in H1 FY23.

Additionally, Atlas saw a change in its executive leadership as the Chief Financial Officer, Diana Kubicki, stepped down in June 2023. Assuming her position is Gemma Cann, the Company’s current Financial Controller.

Following a gloomy financial update for H1 FY23, Atlas is pegging its hopes on pearl auctions and private sales to bring home the bacon before its time to announce the FY23 results.