Following a challenging 2022 financial year, JSE-listed vertically integrated seafood company Sea Harvest has managed to grow its earnings before interest and taxes (Ebit) by 15% to R576-million in the 2023 financial year.

The group’s profit after tax attributable to shareholders was, however, 9% lower at R282-million, compared with R310-million in the prior year.  

Gross profit increased by 29% to R934-million, however, with the gross profit margin expanding to 31% compared with gross profit of R722-million and a margin of 26% in the prior year.  

The company says its performance benefited from strong demand across all markets and channels, as well as improved pricing in the year under review, while its 43% hard currency exposure allowed it to benefit from the weaker rand.

However, this was offset by lower volumes as a result of difficult fishing conditions, including lower catch rates and weather movements; above-inflation cost increases including for fuel; persistent loadshedding and prawn prices being under pressure globally.

Headline earnings decreased by 6% year-on-year to R275-million, while headline earnings a share were 100c – 5% lower than the prior year’s 105c.

The primary driver of softer earnings was a 47% increase in average interest rates.

Net finance costs increased by 79% year-on-year to R233-million, driven by higher interest rates.

The group declared a full and final cash dividend of 40c, compared with the 38c dividend paid out in the prior year.

Sea Harvest group CEO Felix Ratheb is ultimately pleased with the company’s performance in the year under review, considering the challenges that it faced.

“Despite significantly lower volumes owing to lower landings of hake and less availability of milk, revenue was up by 6% year-on-year to R6.2-billion – driven by strong price increases and a weaker rand to the Australian dollar and the euro,” he explains.

SEGMENT PERFORMANCE

Sea Harvest’s South African Fishing division grew its revenue by 10% to R3.03-billion, in the year ended December 31, 2023.

This division posted an operating profit increase of 12% year-on-year to R391-million, while maintaining an operating margin of 13%, despite 7% lower sales volumes owing to fishing conditions.

Revenue in the Aquaculture division increased by 15% to R136-million for the year under review, compared with R118-million of revenue generated in the prior year, which reflects improved pricing and higher value product mix, which was offset by lower volumes as a result of the group’s sale of its oyster business, effective September last year.

The Aquaculture division narrowed its operating loss by 39% to R24-million in the reporting period, compared with an operating loss of R40-million reported in the prior year. After accounting for fair value adjustments on biological assets and a R93-million gain on purchased loans, the division recorded Ebit of R84-million, compared with a loss before interest and taxes of R37-million in the prior year.

The Cape Harvest Foods business recorded a revenue decrease of 8% year-on-year to R1.9-billion owing to the deconsolidation of BM Foods in the second half of the year. Sea Harvest explains milk flow was lower owing to environmental challenges and loadshedding, which resulted in lower sales volumes.

In turn, the lower sales volumes were tempered by a 12% improvement in pricing across all markets and channels, complemented by a higher value product mix.

Cape Harvest Foods continues to experience significant cost pressure, with R27-million having been incurred to mitigate the effects of loadshedding in the reporting year. Additionally, a loadshedding-related fire incident during the year under review resulted in a two-month disruption to operations.

Cape Harvest Foods ultimately delivered R81-million in operating profit for the year, compared with an operating profit of R118-million in the prior year.

The Sea Harvest Australia segment was severely impacted by a reduction in prawn prices, which reduced on a global basis. The group explains higher inventories driven by tightening economic conditions for consumers and the slow opening of the Chinese market, coupled with an oversupply of wild prawns into the Australian market, resulted in lower prawn sales volumes.

Sea Harvest Australia reported an operating profit of R15-million for the year under review, compared with an operating profit of R45-million reported in the prior year.

Overall, Sea Harvest minimised production losses arising from loadshedding at a cost of R46-million. This follows a mitigation spend of R25-million in respect of loadshedding in the prior year. 

The company says that, despite some challenges, demand for its products remains firm, with the Aquaculture division expected to benefit from larger-sized abalone in the new financial year.

The group’s Ladismith Cheese Company is completing its first solar photovoltaic installation, as well as the addition of a roller dryer powder plant, which will add further product diversification to the business.

From a channel perspective, food service revenue increased by 19% year-on-year to R3.4-billion, wholesale revenue increased by 18% year-on-year to R395-million and retail decreased by 1% to R2.3-billion.

Sea Harvest expects softer prawn pricing to persist this year, hence the Australian segment’s increased focus on managing costs and inventories by diversifying product, market and channel mix.

The group says recovery in international prawn demand will be key to improving pricing in the year ahead.

The company’s acquisition of two local pelagic fishing and abalone businesses in the Western Cape – West Point Fishing and Aqunion – from investment group Terrasan for R1.22-billion bode well for the group’s growth going forward.

Lastly, Sea Harvest expects to take advantage of a 5% increase in the total allowable catch for 2024 in respect of its Fishing segment in South Africa. “With the Fishing Rights Allocation Process concluded, it provides much-needed certainty to our business and lays the platform for required investment,” Ratheb concludes.