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OPERATIONAL REVIEW |
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Chilled and frozen convenience brands |
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 I&J processes, markets and
distributes premium quality,
value-added frozen foods in
local and international markets.
Denny is South Africa’s largest
producer of fresh and processed
mushrooms and with a growing
range of convenience foods and
sauces has become a trusted
household name respected for
freshness and quality.
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“There is ongoing focus on improving
operating efficiency, and heightened
activity on getting more value
from I&J’s strong brand heritage.” |
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| Continuing operations |
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| Revenue increased by 5,0%. I&J’s South
African operations realised higher prices
as a result of a weaker Rand and increases
in both overseas and local prices for
sea-food products. Hake volumes were
lower because of the reduced quota
allocations. Denny achieved slightly higher
sales volumes and also increased prices
in response to increases in the cost of
imported materials and higher packaging and transport costs. Operating profit
increased by 40,1% from R139,1 million
to R194,9 million largely because of a
healthy improvement at I&J’s South African
operations driven by the weaker Rand and
a more efficient base in both trawling and
processing activities. Denny benefited from
firm demand and increased production and
contributed R8,3 million of the increase in
operating profit. Operating profit margin
improved from 8,2% to 11,0%. |
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Chilled and frozen
convenience brands |
2008*
Rm |
2007*
Rm |
2006
Rm |
2005
Rm |
Change
08 vs 07
% |
| Revenue |
1 775,4 |
1 690,8 |
1 678,7 |
1 596,9 |
5,0 |
| Operating profit |
194,9 |
139,1 |
27,3 |
112,1 |
40,1 |
| Operating margin (%) |
11,0 |
8,2 |
1,6 |
7,0 |
34,1 |
| Capital expenditure |
40,3 |
63,3 |
80,7 |
84,0 |
(36,3) |
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| *excludes Alpesca |
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| I&J total operations |
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| Revenue and operating profit derived by
I&J from each fishing resource was as
follows: |
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Revenue |
Operating profit |
| Fishing resource |
2008
Rm |
2007
Rm |
2008
Rm |
2007
Rm |
| South Africa |
1 341,4 |
1 322,9 |
148,6 |
103,9 |
| Other |
135,4 |
104,3 |
11,7 |
9,0 |
| Continuing |
1 476,8 |
1 427,2 |
160,4 |
112,9 |
| Argentina |
445,5 |
480,5 |
(10,2) |
33,1 |
| Total |
1 922,3 |
1 907,7 |
150,1 |
146,0 |
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The core South African fishing and
processing operation continues to perform
soundly with the fleet capacity well
matched to lower quota and less staff at
the processing operations, although the
year-on-year impetus of recent initiatives
has declined as they become part of the
base performance. Catch rates for the
year were slightly higher than in 2007. This
business remains well geared to a weaker
Rand, with significant Euro-denominated
exports, but also has material price
increases in fuel and packaging material
to deal with. There is ongoing focus
on improving operating efficiency, and
heightened activity on getting more value
from I&J’s strong brand heritage in the
domestic market, with new product ranges
launched and in development. I&J’s “other” business comprises sea-food
trading operations and royalty income on
product beneficiated in Australia through
the Simplot joint venture.
Alpesca’s results declined significantly in
2008 as result of reduced quota, lower
catch rates, wage inflation and lower shrimp
prices. This operation made an operating
loss of R10,2 million in 2008 compared to
a profit of R33,1 million in 2007. In June
2008 AVI’s board resolved to disinvest
from Alpesca. Notwithstanding the value
inherent in Alpesca’s long-term hake and
shrimp fishing rights and strong processing
capabilities, this asset has proven difficult
for I&J to achieve consistent economic
returns and it has detracted significantly
from the focus on optimising I&J’s South
African operations. In accordance with
accounting standards Alpesca has been
classified as a discontinued operation.
I&J’s joint venture with Simplot (Australia)
Pty Ltd (“Simplot”) produced better results in
2008, yielding R15,0 million in profit before tax
compared to a loss of R22,3million in 2007.
This was the result of Simplot achieving
better processing efficiencies, market
share gains and higher than usual sea-food
trading profits in 2008. There is ongoing
engagement with the joint venture partner
to improve returns from this investment.
There were no major capital expenditure
items in 2008. The quota reductions of
the last few years have allowed I&J to
dispose of its oldest vessels, which would
have needed replacing, and still catch the
full allocated quota. There is likely to be
increased expenditure on fleet upgrading
and replacement over the next few years
as more vessels reach the end of their
useful lives and quota volumes increase. |
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| I&J quota |
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The South African hake Total Allowable
Catch (“TAC”) was reduced by 10% for the
2007 calendar year, and a further 3,3%
for the 2008 calendar year. I&J’s quota
allocation has remained constant at 28,0%
resulting in a reduction from 37 755 tons to
36 530 tons.
The Argentinian hake TAC was reduced by
20,5% for the 2007 calendar year, with a
proportional reduction in Alpesca’s quota.
The total hake quota for calendar years
2006 to 2008 is summarised in the table
below: |
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| Hake quota (tons) |
2008 |
2007 |
2006 |
| South Africa |
130 532 |
135 000 |
150 000 |
| I&J |
36 530 |
37 755 |
41 950 |
| % |
28,0 |
28,0 |
28,0 |
| Argentina |
270 000 |
340 000 |
380 000 |
| Alpesca |
20 270 |
25 923 |
27 847 |
| % |
7,5 |
7,6 |
7,3 |
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| I&J resource management |
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I&J’s economic performance is strongly
linked to the performance of its hake
fishing resources.
During 2007 the South African hake resource
showed an encouraging increase in total
bio-mass and continues to do so. While this
bodes well for the future, the resource is
managed using conservative models and
there could be further reductions in the TAC
in the short term, although these are not
expected to be material.
I&J remains at the forefront of initiatives to
limit fishing efforts and protect breeding
areas off the South African coast.
During 2008 effort control measures were
introduced which limit the number of days
that a vessel may be permitted to fish in
accordance with the quota available to
that particular vessel. I&J is monitoring the
effectiveness of the effort control measures
and is committed to assist the Marine and
Coastal Management department to ensure
compliance and enforcement thereof.
In Argentina recent research has indicated
poor juvenile recruitment and there are
concerns of over-fishing against allocated
quota. In addition to a 20% quota reduction,
this has resulted in reduced access to
certain fishing grounds and an increase in
the number of prescribed non-fishing days.
The resulting reduction in hake catch has
materially affected Alpesca’s performance. |
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| Denny |
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| Production volumes at Denny improved
after a strike disrupted the first quarter
and increased by 2,4% on a year-on-year
basis. Demand and supply were well
matched for most of the year, resulting in
stable selling prices. There was ongoing
progress in growing the Denny brand,
with several new sauce and soup ranges
launched. Operating profit increased from
R26,2 million to R34,5 million. |
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