Abalone

Aquaculture ventures appear to feature more prominently in the plans of local fishing companies – perhaps understandable considering the extended uncertainty around the delayed FRAP (fishing rights allocation process).

All fishing companies are investing additional funds in aquaculture, either to expand existing operations or build diversity.

The standout fact was that AVI controlled fishing group I&J is making strong progress in its Danger Point (near Gansbaai) abalone farm. The venture reported a sizeable profit of R98 million in the year to end June, way ahead of the R67 million achieved in the 2018 financial year.

It is also by far the largest profit yield for the last five years by the Danger Point farm – and bodes well in terms of diversifying I&J away from its core focus on hake fishing, processing and marketing.

AVI CEO Simon Crutchley said the abalone contribution increased due to higher stock value in line with expansion grow out into saleable sizes.

He said the weaker Rand also impacted revenue – remembering the bulk of the abalone haul is exported.

Looking ahead Crutchley said there would be an increased abalone volume expansion to 600 tons.

But he did warn that there could be an adverse impact on abalone prices from political events in Hong Kong disrupting the market.

Crutchley, however, said I&J was evaluating further expansion of abalone business.

AVI poured R22million into the abalone farm, and intends investing the same sum into the venture in the financial year ahead.

Sea Harvest – I&J’s biggest rival in the hake sector – has also taken a big punt on seafood farming via its recent acquisition of 50% of Viking Aquaculture.

Sea Harvest CEO Felix Ratheb recently indicated that the Diamond Coast Aquaculture expansion project had commenced. At the moment the aquaculture efforts are still at an early stage with revenues of R40 million and gross profit of R17 million in half-year to end June.

Interestingly the Viking Aquaculture product mix ensures a 62% international and 38% local revenue split. Abalone comprises 62% of the aquaculture basket with oysters 13%, mussels 11% and fish 10% and other smaller projects accounting for the balance.

Encouragingly, Ratheb reported that the Viking Aquaculture operations broke even at EBIT (earnings before interest and tax) level for the interim period despite an exceptionally tough sales environment.

He said China and Hong Kong faced local and geo-political headwinds.

What’s more, Ratheb, added that operations faced an extended period of red-tide of 11 weeks. “No animals were lost, but this restricted ability to export.”

In terms of building capacity, Sea Harvest obtained approval to complete the wind farm at Buffelsjag abalone farm and expansion plans at the Kleinzee abalone farm were on track.

Prudently the group also delayed its sea trout sales delayed to the second half in order to score from a bigger size mix.

Happily, water leases for sea trout farming in Saldanha Bay were approved, enabling Sea Harvest to expand trout production to commercial scale.

Ratheb noted oysters and mussels were performing well.

News of aquaculture efforts at Premier Fishing & Brands will also be worth watching in the next few weeks.

At the release of interim results earlier this year Premier indicated that the abalone farm expansion at Gansbaai continued to progress well.

At the half way stage Premier’s abalone farm had generated revenue of R16.2 million (last year: R15.3 million) with profits up slightly at almost R5 million.

Premier said it remained focused on the abalone farm expansion with a target holding capacity between 300 to 350 tons when completed.

Importantly, Premier’s abalone division increased its spat (baby abalone) production from an average of 100 000 spat per month to an average of 200 000 spat per month.

Premier reassured that the hatchery continued to produce good quality spat – “which provides a good platform for our planned expansion in production output”.

The full year results for Hermanus-based abalone player Abagold should also be illuminating – remembering the company is making a valiant effort to recover from a devastating red tide incident in 2017.

Turnover for the six months to 31 December 2018 came in 41% higher at R114 million. At the time the company said this indicated a healthy recovery from the red tide event – adding that the strong growth achieved on the farms enabled the business to regain the dominant trading position in its markets. The company did warn, however, that size distribution in the pipeline had not yet recovered completely.

Abagold executives stressed that the conservative strategic approach taken since February 2017 was starting to pay off, and the health and size of the abalone production pipeline now provide options for management across the three sales formats – live, dried and canned.

Most heartening was that Abagold reported that the tonnage increases on the farms led to the significant sales volume increase in tons sold (+45%). “Abagold was able to supply all our customers at improved levels. Volumes will continue to increase until full capacity is achieved in 2020.”

Abagold reiterated that focus of the business remained on delivering a full farm with a well-balanced pipeline by June 2020. Importantly, the commentary at the interim stage noted: “We are comfortable reporting that we are at least three months ahead of this schedule, at this time, which will have significant financial benefits for the business in the next 12 months.”

CBN reckons the aquaculture operation to watch in the near term could TerraSan’s Aqunion abalone business. Much attention has been focused on TerraSan after the acquisition of the Saldanha fish canning operations, but Aquinion looks like it could become a significant part of group profits in the longer term.

Like Abagold, Aqunion’s Romans Bay-based Whale Rock farm suffered mortalities of 42 tons after the red tide event in 2017.

But TerraSan noted the red tide event created a shortage of South African abalone in the international market enabling Aqunion to increase its prices to partly combat the effect of lower volumes.

Aqunion also acquired a new suitable site near Gouritz River Mouth, which is still subject to an environmental impact assessment.

But the company is also being proactive in re-evaluating production and processing techniques as well as cost and sales prices. “Aqunion is aware that South African wages and electricity have and will continue to increase with more than inflation and sales prices will come under pressure from growing sales volumes. This will result in a narrowing of margins unless we farm more effectively or find ways to increase our prices.”

So the company created Aqunion Wholesome Foods to place more emphasis on sales price growth. This will focus on increasing the proportion of Aqunion’s products which are sold in mainland China and in retail markets in Hong Kong.

The one fishing company conspicuous by its absence in aquaculture ventures is South Africa’s dominant seafood player Oceana Group.

Oceana, which owns the Lucky Star canned pilchards brand and the Daybrook fish meal/fish oil facility in Louisiana – has hinted at chasing down aquaculture opportunities both locally and abroad.