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Sea Harvest weathers the pandemic, sees annual revenue surge 10%

We are in food and probably very fortunate that we sell to so many countries around the world: CEO Felix Ratheb.

SIMON BROWN:  I’m chatting now with Felix Ratheb, CEO of Sea Harvest. Results for the year ending in December (show) revenue up 10%, headline earnings up 2%, and dividend unchanged at 45 cents. Felix, good morning. I appreciate your time. 

Sea Harvest – obviously a lot of it is brands that are going into our kitchens. I imagine that a lot of it was probably into hospitality. Were you able to take some of that hospitality and put it into retail, seeing as I wasn’t in a restaurant, but was cooking at home?

FELIX RATHEB: Good morning, Simon. Yes, 100%. You’ve hit the nail on the head in terms of the challenges that we’ve had, and that has to start all the way back when we’re going fishing. We go fishing with big trawlers. We’ve got about 35, 40 trawlers in South Africa, and we produce products on board as well. 

So the first thing was to have the flexibility to move product into retail on the vessels and then in the factories where we produce for 26 markets across the world. I guess we are fortunate that we are quite well diversified. We’ve got customers in foodservice and retail in, let’s call it, Italy, Spain, Portugal, Holland, Australia, and so on. 

What we’ve seen during the pandemic is a massive decline in food service or hospitality, restaurants and catering – all those sales came to a standstill. But there was a massive surge in retail.

So we needed to be very, very flexible and divert product into retail production which, from a customer side and a consumer side, wasn’t really where our bigger issues were. We saw in February in Italy the effects of the pandemic on the workforce there, then Spain, and then it eventually hit us. And you can imagine, if you get an outbreak on a vessel everybody gets sick.

So our focus really was more on the side of trying to keep our employees healthy and to make sure we keep fishing and processing and keep moving the stock. We’ve done that successfully, simply because we are very defensive.

We are in food and probably we are very fortunate that we sell to so many countries around the world.

SIMON BROWN: I hadn’t fully appreciated the global nature of it. I want to touch on some of the booming areas, but aquaculture was struggling. Was that operational or was that purely a hit owing to the pandemic and the resulting lockdowns?

FELIX RATHEB: That was completely related to the pandemic. Most of that product is flown out on international airlines. Out of trade time, we predominantly use Cathay Pacific, Singapore [Airlines] and those type of airlines, and they came to a complete standstill. So, number one, even if the demand was there, you couldn’t get the product into the market. 

But secondly, in Hong Kong in particular, and Singapore and so on, they had significant lockdowns and curfews. People were worried about going out. Effectively the food service or the restaurant business in those particular markets declined by 40%. So it was incredibly difficult. There was pressure on price, all related really to the pandemic. Fortunately for us, it’s only 2% of our revenue, but it gave us an insight into the decimation of industries in those particular sectors. If you don’t have a retail business and you’re in food – everybody believes food is defensive – anybody involved in that side of the equation really suffered during the pandemic.

SIMON BROWN: That’s a great point. Food is defensive – if you can get it to me. It comes back to our not expecting restaurants to simply shut down. The short version, I suppose, is that Australia knocked it out of the park, quite frankly.

FELIX RATHEB: It was a very good performance in Australia. It was 25% up in revenue. Most of our products. We did the same thing Australia did and managed that slightly differently. They wanted to eradicate all cases completely, so they shut borders internationally but also locally, interstate. You couldn’t get from one state to the other. What that created is a very strong internal economy and a lot of confidence locally. People then travelled locally. People went out to restaurants locally. 

But I also think, Simon, it’s the products that we sell in Australia. Prawns, for example, that we catch there are sold in retail predominantly. So we had a fantastic Christmas. At the same time our hake, which is 30% of our revenue in Australia, is predominantly for fish-and-chip shops. So that’s technically not out-of-home consumption, because people pick it up and go and consume it at home. That was incredibly defensive, and incredibly strong. So Australia saw a very strong performance. We delisted the company, if you recall, last year from the ASX. We took out a lot of costs.

It’s a nice story in terms of a turnaround, increasing revenue, but also taking out a lot of costs, as a result of which we had nice GDP accretion in terms of the margin.

SIMON BROWN: The last question. The fishing rights allocation process, Frap, is kicking off and expected to be completed by the end of the year. I’m imagining Sea Harvest is well-positioned, and you’re confident of receiving a potentially better allocation.

FELIX RATHEB: I don’t believe there will be any better allocation, Simon. But we’ve done everything possible to protect our rights, quite right. We are predominantly based in distressed towns, smaller towns like Saldana Bay, Mossel Bay. We provide most of the employment. So we’re an absolute key contributor to employment, in terms of direct employment but also downstream.

You know, we support 682 SMMEs, which are predominantly black-owned in those areas. 

So, over and above the fact that we are a black-owned company, over 80% black-owned, a Level 1 BBB contributor, I think more importantly we’re a job creator in towns where there’s not much happening. So we believe we’re in a strong position to renew our rights going forward for the next 15 years, which I think is important because it provides certainty. We’ve got a lovely business from a cash-conversion perspective; our free cash flow conversion to Ebitda this year was over 80%. Very nice margins. Our fishing business – a 21% operating margin. I think when that’s past us and we’ve got certainty for another 15 years, I think you’ll see a rerating in terms of our share price.

SIMON BROWN: Exactly the point I was getting to. It’s that duration. It isn’t something that happens once a year or even every couple. It’s a 15-year licence. Felix Ratheb, CEO of Sea Harvest, I appreciate the early morning.

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No small feat for a company that has to fish in “de facto” Chinese territorial waters (of SA’s coastline), and to compete with Chinese vessels.

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