Sea Harvest opts to diversify
• Limited opportunities in the sector prompts fishing group to acquire Ladismith Cheese Company for R527m
Fishing group Sea Harvest will dramatically diversify its food brands basket after mooting a large investment in the local dairy sector. The group, which is controlled by empowerment entity Brimstone, said on Tuesday it would acquire Ladismith Cheese Company for R527m.
Fishing group Sea Harvest will dramatically diversify its food brands basket after mooting a large investment in the local dairy sector.
The group, which is controlled by empowerment entity Brimstone, said on Tuesday it would acquire Ladismith Cheese Company for R527m.
Sea Harvest CEO Felix Ratheb said Ladismith Cheese would provide Sea Harvest with an ideal platform to build on in the dairy sector through the development and acquisition of additional dairy and allied beverage products. “We are looking to build a bigger blackcontrolled food company.”
The deal follows on the heels of Sea Harvest’s R885m acquisition of the Viking fishing Group and 50% of Viking Aquaculture.
While the move into the dairy sector might surprise investors, Sea Harvest has long harboured ambitions to play in the broader food sector. Initial tilts at diversification were made in the form of distributing frozen vegetarian and vegan meals, while Australian seafood subsidiary Mareterram is also involved in food distribution outside of the fishing sector.
Market sources said Sea Harvest’s shift into new food lines was possibly prompted by a realisation that there were limited opportunities in the fast consolidating local fishing sector.
Western Cape-based Ladismith Cheese produces and distributes cheese, butter and milk powders to the South African retail, wholesale and food service markets.
The company produced 9,000 tons of cheese and butter and 7,500 tons of dairy and nondairy powder to generate R681m in revenue and R58m in after tax profits for the financial year to January 2018.
Ratheb said the Ladismith Cheese acquisition formed part of the fishing group’s strategy to grow organically through additional volumes and margin enhancement. He said Sea Harvest would pursue acquisitions in complementary sectors of the South African food and agricultural industries, especially those segments exhibiting strong fundamentals and growth that would allow the group to leverage its core competencies and strengths.
Sea Harvest is best known for its eponymous hake brand, which is a market leader in the local frozen fish category.
Ratheb said the Ladismith Cheese acquisition offered Sea Harvest a profitable branded fast moving consumer goods manufacturer of significant scale. “It’s not that different from fishing. Both companies are involved in processing, and we understand flow lines and yields. The customers are also similar,” he said.
Ratheb said that the dairy sector was expected to see growing demand for cheese and butter as consumer dietary habits changed towards natural fat products.
The proposed Ladismith deal will be settled in cash, but Sea Harvest intends undertaking a vendor placement of up to R300m worth of its shares with majority shareholder Brimstone to part fund the transaction.
Sea Harvest indicated that the new shares would be placed with Brimstone at about R14 per share.
IT’S NOT THAT DIFFERENT FROM FISHING. BOTH COMPANIES ARE INVOLVED IN PROCESSING
When a company like Cashbuild posts a 12% drop in operating profit, you know it’s tough out there. So it’s little surprise to see that Dawn, owner of branded goods such as Vaal sanitaryware and Cobra taps, appears to be in a last throw of the dice to survive SA’s economic downturn.
Dawn has been in turnaround mode for what feels like forever, and 2018 was earmarked by new management as the first of a three-year recovery plan. That was delayed when Dawn released results for the year ended March in July and it has now been forced to implement deep cuts to the business as conditions since its year-end have worsened.
Its new plan is, as might be expected, bad news for SA’s increasingly fragile jobs market. More than 700 employees are about to get the chop, including those at Dawn’s head office, where both the size of its board and fees paid to directors have been cut.
Dawn’s woes are certainly historical and partly of its own making. High fixed lease costs and poor working capital management are two key issues with which it continues to grapple, for example.
But in a country where schoolchildren routinely die in pit toilets, where the government clearly has both a moral and developmental obligation to roll out water and sanitation services, companies like Dawn that locally produce and distribute products aimed specifically at water reticulation and sanitaryware should not be struggling as they are.
President Cyril Ramaphosa’s “new dawn” is a meaningless catchphrase while the government continues to prevaricate over the provision of desperately needed infrastructure.
It’s not an obvious combination but fishing outfit Sea Harvest’s decision to add the Ladismith Cheese Company to its business is hardly an insignificant dabble in another food group. At R527m, the purchase price represents more than 13% of Sea Harvest’s own market cap of R3.9bn and marks its first major foray away from the business of fishing.
Sea Harvest was unbundled from BEE investment company Brimstone in 2017 and it is Brimstone that will be helping Sea Harvest pay for the deal by issuing shares to its one-time parent, worth R300m.
Sea Harvest’s stated investment strategy has been acquisitive growth in “complementary” sectors of the SA food and agricultural industry where it is able to “leverage its core competencies and strengths”.
Yet operating a fishing fleet must be quite a different kettle of, you know what, to running a company that churned out 9,000 tons of cheese and butter and 7,500 tons of dairy and nondairy powder in the year to endJanuary. And the cheese and dairy business is anything but easy, if you consider how listed dairy products group Clover has struggled to deliver consistent earnings growth since it went public in 2010.
Still, it may be somewhat more predictable than a sector at the mercy of changes to the cost of fuel, and fishing patterns.
Ladismith’s R57.7m after-tax profit for the 2018 financial year also puts it on a price to earnings multiple of about nine times, considerably cheaper than Clover, whose historical price to earnings multiple is 21.4.