Abagold, the fast growing abalone farming venture based in Hermanus, has skipped its interim dividend in order to assess the impact of red tide on its operations.
The red tide, which can be harmful to sea life and often contaminates shellfish, appeared on the Hermanus coastline earlier this year. It was described as the largest red tide ever seen in the area and stretched 3km into the sea.
In the interim report Abagold chairman Hennie van der Merwe said that it was regrettable that the highly satisfactory and smooth ongoing performance of the company was “meaningfully disrupted” after the close of the interim period to end December 2016 by the abalone farm being hit by the worst red tide occurrence in recorded history on the Western Cape coastline.
Van der Merwe said the red tide was exceptionally high in volume and density. “It impacted severely on abalone and lasted for several weeks during the latter part of January and the first weeks of February 2017.”
He said that despite massive efforts on the part of the Abagold team in battling this natural disaster, the company suffered substantial spat and abalone mortalities with the growth rate of surviving abalone also being negatively affected.
“This will have a significant negative impact on our ability to satisfy demand over the next six months.”
Whether other abalone farms – not affected by the red tide - will cash in on the skewed demand/supply equation remains to be seen. Premier Fishing, which listed on the JSE recently, has plans to extend its abalone farm at Gansbaai (seemingly not hit by the red tide) with some of the money it raised in an over-subscribed R565 million private placement.
Abagold said it would only consider dividends again at the end of the financial year (to end June), after assessing the impact of the red tide event on spat and abalone mortalities, growth loss and reduced future growth as well as lower sales.
Van der Merwe explained: “At the time of finalising the interim results, we were unable to accurately measure or estimate the full impact of this event. This may only become possible over the next few months, and we will advise shareholders further once we have a better idea of the extent and impact of this event.”
The red tide, sadly, covered a strong top line performance by Abagold in the six months to end December when turnover increased 46% to R151,4 million.
Abagold MD Tim Hedges said the increase was supported by a significant sales volume increase (+31%). But he cautioned that the overall performance was negatively impacted by the Rand strengthening markedly against the dollar.
The net result was a 10% increase in net profit to R22 million. If unrealised gains and losses were factored in, Abagold’s net profit before tax decreased a whopping 86% to R9,1 million. This was due to a R70,8 million decrease in the fair value adjustment to biological assets caused by the negative impact of the strengthening Rand on the valuation of biological assets.
More reassuringly, though, cash generated from operations – the lifeblood of a company - increased by a healthy 81% to R36,7 million.
Despite the strong Rand and the red tide causing temporary stress, it seems that Abagold’s operational progress is still well on track.
Hedges reported that total growth recorded was up 5% from 202 tons to 212 tons.
“Considering that we were simultaneously harvesting ahead of plan to satisfy market demand during our peak sales period, this is a very satisfactory performance.”
Hedges noted that Abagold was able to sell excess spat produced from the hatchery to the value of R3,8 million - thanks to surplus production and local demand.
The sales and marketing function looked slightly trickier. Hodges said tougher trading conditions were caused by new demand for smaller, cheaper abalone products – which was linked to Chinese austerity measures, and weaker economic growth and outlook in the company’s export markets.
But Abagold still managed to increase the sales volume by 72 tonnes.
Hedges said that although the market remained under pressure with the low-growth Chinese economy and political environment, the progress that the Abagold brand and quality had made during the past few years should continue to allow the company to demand a premium price for its products.
There was also significant progress on the feeds side of the business – which trades as Specialised Aquatic Feeds (SAF).
Hedges said the development of Abagold’s own aquaculture feeds continued to gather momentum with significant expansion in the capacity of the facility and in the development of feeds for other species. He disclosed that 347 tons of abalone feed and 829 tons of trout feed sales were recorded in the six month period.
“Increasing the total tonnes sold is a critical focus area in order to make the feed factory efficient and more profitable.”
Hedges believed SAF was poised to increase the current trout feed sales significantly.