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Send  Share  RSS  Twitter  30 Sep 2011

FISHING: Reassuring Performance From I&J


Recent Western Cape Business News

THERE have been some questions in Cape Town fishing circles around whether iconic fishing company Irvin & Johnson (I&J) would still be part of consumer brands conglomerate AVI.

In July AVI – well known in the tea, biscuits and snacks segment – opted to sell its Denny Mushroom operation to a private equity consortium.

Denny and I&J make up AVI’s ‘chilled and frozen convenience brands’ division. With Denny gone, would AVI retain I&J – which, of late, has not enjoyed the most impressive of profits. In fact, I&J has not been as profitable as Denny of late.

The rationale for AVI selling off Denny was quite chilling: “Denny is the leading producer of fresh, canned and value added mushroom products in South Africa, with a market share exceeding 50%. While Denny is a sound business with the leading national brand in the fresh and canned mushroom categories, the importance of branding in the ‘fresh to market’ produce segment in general and in the fresh mushroom segment in particular has declined over the past several years and this category is no longer strategically aligned to AVI’s growth ambitions.”

Like Denny, I&J must hold substantial market share in the frozen fish category – but the effort in bringing frozen hake pieces to consumers’ tables has been rather costly in the last decade.

Perhaps it’s better not to jump to ominous conclusions, especially since it appears I&J is on track to deliver a markedly improved performance in the year to end June.

A trading update for the 11 months to end May showed that revenue for the ‘chilled and frozen convenience brands’ had crept up nearly 3% to R1.6 billion.

More encouraging was directors upbeat comments that pointed out that I&J delivered higher profits in the second half of the year, enjoying higher volumes in line with increased quota as well as better exchange rates and export prices.

Directors added that higher sales volumes and improved gross profit margin resulted in strong growth in operating profit and a further improvement in the operating profit margin.

The final year to end June results will be out later this month, and should be interesting to peruse with Denny out of the picture.

The stronger second half is a relief after AVI’s interim results showed that lines were rather slack at I&J in the first half.

Operating profit for I&J declined from R60 million in the first half of last year to just R3 million this year. At that stage the operating profit margin was crunched to 2.8% (from nearly 10%) mainly due to weaker results from I&J (where the strong rand caused a material decline in export revenue).

It would seem from the latest trading statement that I&J was able to make the most of its extra hake quota – which was increased by 10%. Long may it continue…

Sea Harvest

The news was also largely positive from Cape Town’s other major producer of frozen hake, Sea Harvest.

Last month holding company Brimstone Investment Corporation reported good fishing conditions throughout the first half of 2011.

Brimstone said additional volumes saw interim revenue at Sea Harvest increasing to R451 million despite the negative effect of the strong Rand.

Brimstone CEO Mustaq Brey said volumes through both the local and export markets grew, but conceded that margins fell due to pressure on pricing and cost increases in fuel and labour. Operating profits at the halfway mark came in at R23.6 million, while the headline loss was R8.4 million.

Brey said good fishing conditions were expected to continue over the second half.

However, he warned that the volatility of the rand and local cost inflation continue to place pressure on the business.


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