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FISHING: (S)hake, Rattle And Roll


Recent Western Cape Business News

CAPE TOWN’s major hake producers appear to be enjoying much improved trading conditions – but the strong rand, coupled to weak international markets – is rattling the rivets out of the bottom line.

Consumer brands giant AVI recently reported a “material decline” in profit for fishing subsidiary Irvin & Johnson (I&J) due to export prices and (unfavourable Rand vs Dollar) exchange rates.

But directors reported that excellent fishing and processing performance offset the impact of I&J export market pressures.

In addition to lower fuel prices and good fishing conditions, factory performance was maintained at improved levels established over the last few years and further cost reduction initiatives were implemented in the second half of the year.

An AVI presentation to investors suggested I&J would introduce further cost saving initiatives at I&J, having already implemented a head office retrenchment programme in the second half of the financial year to end June.

But I&J is still going through with capital projects - like the upgrade of the Woodstock fish processing plant.

The numbers don’t make for pretty reading. Revenue for the year to end June 2010 was down a hefty R216 million to R1.38 billion on the back of lower export selling prices in key European markets due to reduced demand and increased supply from other fish resources.

Obviously the stronger Rand and lower volumes following the reduction in the hake total allowable catch also had an impact.

Operating profit dropped by around two-thirds to R74 million with trading margins shredded. No official breakdown of margins has been disclosed but AVI’s Chilled, Frozen and Convenience brands – of which I&J is a major component – saw trading margins almost halved to 6.9% (previously 13.6%).

While describing the drop in profit as disappointing, AVI directors said it was some consolation that the majority of the profit for the year “can be attributed to improvements made to this business over the last four years”.

Even though the hake quota is up 1%, prospects for next year don’t look brilliant for I&J with the white fish export markets still constrained.

AVI directors noted that further cost reduction initiatives implemented in the second half and continuing into next year would produce benefits, but that these would not be sufficient to offset the adverse impact of current exchange rates.

Interestingly, AVI directors admitted that while I&J’s domestic market margins were preserved, this was done with some loss of market share.

This is interesting because Brimstone Investment Corporation’s hake subsidiary, Sea Harvest, made the claim recently that “on the local market the retail business performed well and maintained its status as the leading frozen white fish supplier in SA”.

One might presume then that Sea Harvest, which appears to be much more upbeat about operations and prospects than I&J, is snaffling market share.

Sea Harvest, like I&J, did report export volumes under pressure – citing depressed southern European markets, particularly in the foodservice sector as consumers traded down to cheaper options.

But Sea Harvest reported that a strong focus on efficiency improvements across the entire business, contributed to reduced production costs.

Overall, Sea Harvest’s revenue dipped 11% - mostly driven by the strong rand.

It’s difficult to accurately quantify Sea Harvest’s performance because Brimstone’s fishing interests also include a minority stake in Oceana. For the record, though, Brimstone’s fishing interests generated R406.5 million in revenue in the half-year to end June.

Operating profits came in at R6.7 million, with headline earnings reflected as R1.95 million.

The company said good fishing conditions were expected to continue over the medium term, but warned the continuing strong Rand and depressed international seafood market could impact margins negatively.

Judging by the recent performances both AVI and Brimstone might well be weighing up their respective options with the hake businesses.

It’s difficult to tell whether AVI is losing its patience with I&J, which dragged on the group’s (otherwise stellar) results for a number of years now.

For Brimstone one presumes that diversifying away from the hake profile with pelagic or other catches would probably make sense.

Of course, one wonders whether AVI would contemplate selling off its hake interests. Would there be a willing buyer?

Would Brimstone – now an empowerment partner at AVI’s biggest rival, Tiger Brands, really be interested in a deal that would markedly bulk up its hake operations?

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