Seafood demand strong, but Sea Harvest hit by smaller harvests, higher rates

Fishing group Sea Harvest yesterday reported a dip in interim profit, with the six-decade-old group feeling the pressure of smaller catches and high interest rates on its debt.

But giving it confidence is an unrelenting demand for wild-caught seafood, both in markets that have opted not to trade with Russia, as well as South Africa.

Revenue increased by 3% to R3.3 billion in the six months to end June while headline earnings fell 17% to R176 million, with the group's performance under pressure from continued low hake catch rates, deteriorating market conditions in abalone markets and higher interest rates in both South Africa and Australia.

Net finance costs climbed about 23% to R128 million amid higher interest rates and a R602 million increase in its debt to about R2.9 billion after the group made a major acquisition in May that added anchovy and pilchards to its portfolio, completing its range of South Africa's most important wild-caught fish.

Its abalone business doubled in size, giving it scale and increased foreign currency revenue, with about half of its sales in South Africa in its 2023 year.

Supply, not demand

CEO Felix Ratheb told News24 that the issue in the first half - at least for wild-caught fish - was supply, not demand. Sea Harvest is still eyeing the world's growing demand for protein, and healthier food, as well as the ongoing boost from Russia being shut out of major Western white fish markets, he said.

Despite weak catch rates in the first half - with more than 50% of its total allowable hake and mackerel quota still to be caught in the second - the core South African fishing business delivered a very good half, he said, demonstrating the resilience of the business.

Sea Harvest hadn't "even started looking at the opportunity" in the United States, which has also banned Russian fish, while new markets for hake, for example, in Eastern Europe, had emerged.

"And if you look at really two species that you'll go to that are in abundance in terms of whitefish or other hake or cod, cod prices have gone through the roof, hake prices have gone through the roof," he said, adding: "We are getting requests on a daily basis".

The same was true in South Africa, at least in terms of wild-caught fish, with the group's domestic retail business seeing volumes grow 10%, while prices were up 7%. It had also received a boost during Covid-19, when increased online shopping and eating at home meant more people stocked up their freezer, including with fish.

"And that hasn't changed. So, we haven't seen a dip post-Covid like all other businesses, seeing a bump up in food service and retail coming down. It's been the opposite."

Diversified business

Valued at R3 billion on the Johannesburg Stock Exchange, Sea Harvest was founded in 1964 and is majority black-owned. It employs about 6 500 staff and operates in South Africa and Australia, while it also has food processing interest, Ladismith Cheese. The butter, cheese and powder producer was bought in 2019.

The group did benefit in its half year from improved pricing, and its operating profit increased 23% to R311 million. Operating profit in its South African fishing business increased by 26% to R299 million as the group enjoyed firm demand across local and export channels.

Its Australian business was hit by the clearance of low-margin stock from the prior season. Also, higher-margin sales in that country is skewed to its second half due to the late start to the prawn season. This contributed to a R15 million operating loss in Australia, from a profit of R2 million previously. It is now, however, eyeing the benefits of increased scallop and crab quota as well in its second half.

In its non-fish Cape Harvest business, which includes Ladismith, operating profit picked up 39% to R40 million and margins improved despite a drop in revenue, with Ratheb saying the group saw more sign of consumer strain in this part of the business.

But what has helped is volumes and efficiencies, with the group investing in powder plants, allowing for it to take on more milk and utilise its overflow.

Some uncertainty

Ratheb said the investment in Ladismith, as well as geographical diversification, had come amid some uncertainty over fishing rights, though this had been concluded at the end of 2023, giving certainty for the next 15 years.

After a series of acquisitions over the past few years, the focus would now be on integrating the acquisitions, as well as focus on getting value out of its business units that have now built scale. This includes abalone, which, while under some pressure in China, still has enormous potential.

He said: "I mean, Cape hake today is one of the most in-demand species anywhere in the world. You go to Spain, and you go to a restaurant, and Cape hake will be on the menu. The same with Italy, the same with Portugal. Now we have to emulate that with Cape abalone. I think there is so much opportunity with abalone".

"Our view right now is pay down debt, optimise our business, pay a better dividend to shareholders, and that's probably our focus now," he added.

Cape of storms

Sea Harvest also suffered a major tragedy when its MFV Lepanto vessel sank about 63 kilometres off the west coast of South Africa in May, killing 11 people.

Ratheb acknowledged that morale was low after the incident and focus was on engaging with staff, as well as working with and supporting families. These are families that had not only lost their loved ones and bread winners, but hadn't even received closure of a body, he said. "It's been tough," he said.

The group was doing its own work internally, he said, adding that he had his own hypothesis. But there are "a lot of factors" and focus should instead be on the outcome of the independent investigation being conducted South African Maritime Safety Authority, he noted.

-FIN24-