FISHING: Hake Sector Gets Better Shake
Recent Western Cape Business News
MEDIUM term prospects for the hake fishing sector appear to have brightened considerably if comments from the Cape’s two biggest white fish companies are to be believed.
Both Sea Harvest (controlled by Brimstone Investment Corporation) and Irvin & Johnson (controlled by AVI) have pointed to markedly firmer trading conditions going forward.
In a recent presentation to Brimstone investors, CEO (and Sea Harvest board member) Mustaq Brey said excellent fishing conditions and catch rates continued in the hake sector. He said the medium term outlook for hake was good.
AVI CEO Simon Crutchley – also in a recent presentation to AVI shareholders – said that Irvin & Johnson (I&J) was seeing a sustained good performance from the hake resource coupled with a sound operational performance as well as improved sales mix and better export prices.
Both Brey and Crutchley were pleased with the 10% increase in the total allowable catch (TAC) for hake for 2011. The 10% increase followed a miserable 1% increase in 2010.
Brey reckoned there was potential for further TAC increases. Crutchley believed the additional TAC would give I&J an extra volume opportunity in the second half of the financial year to end June 2011.
Recent performances have been a bit of a grind, but both Sea Harvest and I&J might have pulled through some tricky currents with bottom lines still intact.
While Sea Harvest reported only a 6% drop in sales to R843 million in the year to end December, there was pressure on trading margins as gross profits dropped over 15% to R125 million.
Brey said revenue and gross profits at Sea Harvest were down mainly due to the strong Rand/Euro and poor economic conditions in Europe.
While a lull in offshore business is understandable when looking at the state of certain European economies, Brey stressed Sea Harvest still maintained its status as a leading white fish supplier in SA.
He said continued focus on efficiency and reduced production costs countered the strength of the rand, while North American, Northern European and Australian markets were negating the slowdown in Southern Europe.
It is difficult to precisely gauge I&J’s performance because it forms part (albeit the largest part) of AVI’s ‘Chilled and Frozen Convenience Brands’ segment.
In the half-year to end December 2010 this segment increased revenue 1.2% to R857 million. But operating profit decreased by a hefty R59 million to R24 million despite Crutchley reporting that I&J performed well operationally and saw improved catch rates.
“I think catch rates and operational efficiency at I&J have been about the best they’ve been since I’ve been involved at AVI.”
Like Sea Harvest, a sound operating performance was smacked by the stronger rand – which in I&J’s case caused a ‘material decline’ in export revenue.
Operating profit dropped from R60 million in the interim period ending December 2009 to just R3 million in the half-year to end December 2010.
Crutchley said export markets remained under pressure with reduced demand from customers and increased supply from other fish resources.
Locally, Crutchley noted, I&J had seen some improved mix opportunities with higher uptake of frozen fillet. “But there’s a lot of domestic market competition in this category, which impacted on profitability…”
Looking at the respective performances of Sea Harvest and I&J, CBN wonders what the scope is for corporate action that might lead to a merger of two mainstay hake businesses.
In a competitive hake sector, a bigger entity (with two well-known frozen fish brands) might better cope with the vagaries of exchange rates, brittle offshore economies and fickle consumer habits.
Or would both I&J and Sea Harvest prefer to diversify their primary hake catches with acquisitions that would broaden the product mix?
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