Holidayed to the bone
I’ve learnt a painful lesson. Never take leave and then use this priceless leisure time to complete all the tedious admin that is somehow evaded during working days. My wife, among other horribly tedious tasks, set me to work in the garden. Five hours of weeding the veggie patch and the verge, on my haunches or on my knees, has left me feeling anything but rested and relaxed. My back feels like it’s been beaten by a claw hammer, and I would probably have been more refreshed if
I’d planned a fortnight sightseeing in Kabul. Last Saturday’s reluctant sojourn in the Fish Hoek doubles A team did not help either, where I suffered a 30minute blitzkrieg at the hands of the peerless (and fearless) Edgemead A couple.
Talking about questionable diversions, it was roughly three years ago that fishing and seafood company Sea Harvest bought the Ladismith cheese and butter business for R527m. Observers, at the time, reckoned that Sea Harvest — which has a dominant and lucrative niche in hake — had baited the wrong hook. I think the acquisition has turned out OK. Ladismith forms the bulk of Sea Harvest’s nonfishing operations under the Cape Harvest banner, and could become an increasingly important segment depending on what transpires in the prolonged fishing rights allocation process.
Sea Harvest, along with AVI’s I&J, is a dominant player in the local hake sector. Politically speaking, it would be surprising if Sea Harvest’s hake allocation was not reduced — notwithstanding the huge investment in vessels and processing plant as well as the company being a major employer in the impoverished West Coast region. In the interim period Cape Harvest (read: Ladismith) increased revenue 10% to R516m, but the margins were slightly skimmed with gross profit coming in only 5% thicker at R96m. That stemmed from costs associated with installing extra capacity, so hopefully the margin can clot convincingly in the next 18 months.
Ladismith traditionally enjoys a stronger second half as milk flows are more favourable in the spring months. That said, even if we double up the interim operating profits, it seems clear that Sea Harvest certainly did not overpay for Ladismith. One development to note is that there has been a marked swing in the sales channel, with retail only making up 60% (previous interim period 67%) of total sales and wholesale growing 27% (20%). This swing, presumably, reflects the easing of Covid regulations on eateries and other food entities, and is hopefully a balance that does not distract further from margins.
Churning it out
Interestingly, Ladismith has bought the smaller Bonnievale-based Mooivallei Suiwel, which involves primarily cheese and butter operations. No purchase price was disclosed, but Mooivallei means a hefty 40% increase in cheesemaking capacity and a 15% increase in raw material supply. The success at Cape Harvest means punters are less likely to turn their noses up at the Mooivallei deal, but I sensed that some investors might have preferred further diversity outside the nonseafood lines. I would argue that it is probably better to bulk up the familiar (and profitable) dairy niche before other food lines are considered. And they will come.
Sea Harvest CEO Felix Ratheb reiterates that the group is still aggressively looking for acquisitions - including “other categories in the food sector”. Gut feel, however, is that the next acquisition Sea Harvest nets will be on the international front — at least judging from the promising progress made in its Australian seafood operations.
Sea Harvest Australia saw a not insubstantial R231m of revenue whittled down to R5m operating profit (albeit up strongly on the last interim period’s R2m). This is a considerable business with an abundance of fishing capacity and well-established routes to market, and there simply has to be a way to scale up the margins with a smart acquisition or three.
Observers reckoned Sea Harvest had baited the wrong hook. I think the Ladismith acquisition has turned out OK