[TOP STORY] Sea Harvest FY numbers all up, with a pleasing dividend

Despite a hard year in terms of supply chains, lockdowns and soaring fuel prices, the fishing and dairy businesses have proved rewarding: CEO Felix Ratheb.

SIMON BROWN: I’m chatting now with Felix Ratheb, CEO of Sea Harvest. Results for the year ended December [are out]: revenue up 5%, headline earnings up 4%, dividend up 24%. Felix, I appreciate the early morning time. It’s been a really tough two years, and we’ve chatted around your getting your internal processes Covid-resilient to a degree. But of course there’s a much larger supply chain out there. Are you still seeing supply-chain disruptions globally and locally as you try to move your products around?

FELIX RATHEB: Good morning, Simon. Yes, certainly, especially on the sea freight and the air freight side, and getting containers out to Europe out of Cape Town has been very difficult. At the same time it’s even worse on airlines. As you know, air freight has reduced. It’s almost a third of what it was. So getting product over to Hong Kong and China has been very, very difficult from a freight perspective.

At the same time, the on-off lockdowns haven’t been easy. Yesterday Hong Kong went into a hard lockdown again with their zero-Covid approach. So it’s been very tricky getting product to market, even though markets have been firm. So the supply side and the disruptions have been difficult to manage.

SIMON BROWN: Your Australian operation – post the year end you announced an acquisition there. Some rand strength took the shine off the numbers, but Australia is actually looking very good.

FELIX RATHEB: Yes, Simon. We are very excited about our Australian business. In dollar terms it was up 16%, and we had a lot of once-offs there. If you normalise for that, we almost doubled profit there.

At the same time, we’ve made a massive acquisition, a transformative acquisition doubling our size there, putting us on the map and making us relevant in Australia from a vertically integrated fishing perspective.

We’re very excited about that. We’re hoping to close that by the end of this month. We’ve got all the regulatory approvals that were required and yes, it’s a matter of integrating and extracting those synergies and doubling the size of the business in Australia.

SIMON BROWN: Also, you’re growing your cheese business, Ladismith Cheese, adding to that. In a sense I suppose it’s related in that it’s hospitality, it’s food in a sense. It’s not going to have the same drivers as your typical fishing in terms of perhaps diesel prices, in terms of perhaps the fishing rights allocation process. It gives you some good diversity there?

FELIX RATHEB: It does, Simon, but at a lower margin. [For] the fishing business our Ebitda margin was 51%. It’s still the star in the portfolio. Even with fuel prices up 21% and the rand strengthening by 7%, it still had a very good performance because the Department of Fisheries is managing the resources quite well, particularly in hake. It’s globally sustainable. With people wanting to eat healthier, fish is in demand.

So, I don’t think it’ll ever get to that level, although we have other drivers. The dairy business [was] affected by milk prices last year. They were up 12%. So it has its own variables, but you’re right. You don’t have rights on the regulatory side, so you can build your business, which is what we did.

We expanded capacity in all three product portfolios: so our butter production increased by 30%; our powder production – we built a new plant – is up by 33%; and we acquired a dairy in Bonnievale that was a cheese producer, which increased [production] by 40%.

In every category within dairy we’ve organically and acquisitively grown within the dairy space to give a nicely diversified mix to that portfolio and not be reliant only on fishing.

Although we are waiting for our fishing rights today, so we will have 15 years of certainly, which is great. You can build a business on that basis.

SIMON BROWN: Yeah. The Fishing Rights Allocation Process, Frap, started last year and concluded at the end of January. You have submitted. As you said, the awards will be for 15 years, which gives great certainty. What is the timeline to hear back from government as per the allocation?

FELIX RATHEB: Some of them came out last night, Simon, and a lot of them, the balance, will come out today. So that process will conclude and we’ll have certainty for 15 years. It’s looking like we’re going to be over that hump now… It’s critical from an investment perspective; investors want certainty going forward. Shareholders and management deploying capital want to know that you’ve got something for 15 years before you deploy the capital and grow. So it’s all coming together in terms of providing that certainty, which is much needed in our business.

SIMON BROWN: Those that have come out so far – have any of them been in areas that you applied for and you’re meeting with success?

FELIX RATHEB: They have, Simon. We are still regrouping to understand them all …. They came out very late last night. So we are all regrouping today. The timing couldn’t have been more perfect on the day that we release results. We are still analysing them and we’ll take it from there.

We are positive that it’ll be aligned to what the president and the minister of finance have been saying in terms of creating more jobs. Our economy needs more jobs, our economy needs investment and certainty. Having that certainty allows us to assist government to do that. We are in semi-rural areas like Saldanha Bay; we employ a big portion of the town and a lot of the SMMEs depend on us, so our success is their success.

We’re excited about the future. I mean we’re positive. It’s difficult, it’s not going to be an easy year this year. Fuel is our second-biggest cost driver and it’s over a $100/barrel. The rand is strong and 50% of our product goes offshore, although we are quite well hedged for this year. But it will be challenging. I don’t think it’s going to be easy for anybody at these levels.

SIMON BROWN: Yeah. Challenging but, as you say, the Frap gives you that certainty. That is critically important.

Felix Ratheb, CEO of Sea Harvest has been talking numbers. I appreciate the early morning time, sir.

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