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The ocean is a mystical place that has captured our imagination as a species for as long as anyone can remember. And although there are many fish in the sea, unlocking that resource in a sustainable and profitable way really isn’t that simple.

Sea Harvest has signed off on an incredible year that demonstrates the depth of the strategy – quite literally. The way they think about the various seafood products is fascinating, as explained by CEO Felix Ratheb on this podcast.

With operating margin more than doubling in 2025 and headline earnings coming in 4.2x higher than the prior year, this income statement has plenty of operating leverage. This adds to the intrigue around the business model and how the group is managed, with those insights delivered by CFO Muhammad Brey in this discussion.

Get ready to learn from Felix and Muhammad on this excellent podcast. The passion for the ocean comes through just as clearly as the numbers.

This podcast deals with topics like:

• The importance of hake to Sea Harvest’s business
• Diversification beyond hake – and beyond South Africa’s waters as well
• Why the Ladismith Cheese disposal makes strategic sense
• Key features of the business model that lead to such high operating leverage
• The approach taken to managing financial risks like fuel costs and forex movements
• Sustainable fishing and how Sea Harvest interacts with the precious resources in our oceans
• The financial outlook for the group, recognising the cyclicality in the model

Sea Harvest believes strongly in the value of Ghost Mail in the South African investment ecosystem. They have sponsored this podcast for readers, but I was allowed to ask whatever I wanted to ask. Please do your own research and do not treat this podcast as an endorsement of Sea Harvest as an investment.

Full transcript:

The Finance Ghost: Welcome to this episode of the Ghost Stories podcast. Thank you for being with me in a very busy earnings week. It’s really the start of earnings season, actually, on the JSE here in March 2026.

That gives me a fantastic opportunity to speak to local companies, to their management teams, to understand more about their strategies. Companies that have realised the value of the Ghost Mail audience and are keen to support the platform. 

Sea Harvest is one such company, and it’s so good to be able to do this podcast. Full house here, I really get to speak to top management – Felix Ratheb, who is the CEO of the group, and Muhammad Brey, who is the CFO.

Very grateful for your time today, gentlemen. I’m very aware that earnings release day is hectic, to say the least, so thank you for being here. Felix, Muhammad, welcome to the show.

Felix Ratheb: Thank you. Great to be on your show, Ghost.

The Finance Ghost: Congratulations! Let me just start there. Really good numbers. Your share price is up 54% in the past 12 months. That must be a nice thing to see when you go on Google Finance or wherever it is that you check.

You’ve just released results for the year ended December 2025. Operating margin almost doubled, up from 8% to 15% – delightful. 

Headline earnings, up 320%. People don’t understand when numbers get to that level, like, “What is this thing?” We understand 10% or 20%, but you see 320% and your brain switches off because you don’t know what that means. 

It means it is 4.2x higher than it was the previous year. That’s a serious number. So, both of you, congratulations. I really look forward to digging into these numbers. 

Felix, I’m going to start with you because, of course, Sea Harvest, like all companies, is really just a roll-up of a whole lot of things. You’ve got a whole lot of different businesses, and I think it’s important for listeners who may not necessarily be familiar with what you do to actually understand what is inside this thing that has added up to this fantastic performance. 

So I think the first place to start is if you could just give us – I’d call it the lay of the land, but in your case, it’s the lay of the sea – major segments, where you operate, and what people will find inside Sea Harvest?

Felix Ratheb: Thanks. I think the best way to start is to go back to the very beginning, and that was in 1964 when we were founded on the West Coast in Saldanha Bay.

At the time, the largest hake fishing company (because hake is very abundant in our cold Benguela Current) was I&J, and a company called Sea Harvest was founded in 1964. That’s over 60 years ago, and we’ve seen the growth of the company since then. 

Of course, during that period, we did have sanctions. The company had grown by acquiring the third biggest business within hake called Atlantic Trawling. 

When I took over in 2013, it was about the same size as I&J. So, you had two big private hake businesses that were global businesses, and that were really fantastic global businesses.

Our journey started really from there, in terms of investing in our business. Each fishing trawler is a freezer trawler, where you’ve got a factory on board, that would cost you in the region of R250 million just for one. So you can imagine, building a fleet is very capital-intensive. 

We invested in our assets and built a very solid, globally competitive fishing company. We compete around the world. We don’t necessarily compete globally against the likes of I&J and Oceana; we actually compete against other nations. 

We would compete against the New Zealanders (who produce hoki), against the Americans (who produce pollock), and mainly the Norwegians and Icelanders (who have cod), so that was the start of the journey. 

We acquired the third-biggest company in our space, called Viking Fishing. That catapulted Sea Harvest far; being 50% bigger than the next hake fishing company in South Africa, and the largest hake fishing company in the Southern Hemisphere.

From that perspective, that’s the core of our business. That’s why I’ve spent a bit of time just explaining that. 

We employ around 3,200 people within the Sea Harvest business. We have more than 40 vessels operating around the coastline all the way from Namibia to Port Elizabeth. We’ve got four factories that we operate – we have a facility in Saldanha Bay, in Cape Town, and we have a facility in Mossel Bay with fishing operations. 

Our operations are vertically integrated – we catch, we process and we sell the fish globally under our brand and internationally under the species Cape Hake. That’s the core of our business and where the bulk of our capex sits, our investment and our people.

Adjacent to that, we’ve tried to diversify out of being only in hake. We acquired a business that was founded in 1905. It’s 120 years old this year, which is the Saldanha business in St. Helena Bay. 

Saldanha really produces three types of products. One is your canned pilchards. Everybody would know Lucky Star – well, the number two brand in that category is Saldanha.

That’s a canned product, lower LSMs (Living Standards Measure) – hake sits with the upper LSMs, so that’s a cheaper protein. That’s 50% of that business. 

And 50% of the business is catching another species called anchovy (herring or red-eye), which we call ‘industrial fish’. That predominantly goes into the production of fish meal and fish oil. 

Now one will ask, “What is fish meal and fish oil?” It’s basically used as a core ingredient when producing feed for the aquaculture industry. You’ll appreciate that wild-caught resources are pretty much capped at, let’s call it, 7 million tonnes. Most of the growth has come from aquaculture. 

An example would be salmon. Salmon has probably been the most successful farmed fish product that you will find. 

Most of the products that one would feed the salmon would be our own protein, which would be our anchovy and our fish oil, which is very high in omega-3, etcetera. So, that’s the second part of our business and a sizable part of our business based in St. Helena Bay. 

The third part of our business – and I’m going to stay with fishing – is in Australia. 

We managed to consolidate that sector over a period of time. We’ve put three businesses in one, and it’s a vertically integrated prawn/bycatch-of-prawn business (crabs and scallops, etcetera). That’s our business in Australia. 

We operate out of Exmouth and Shark Bay (it’s about 2,000 km northwest of Perth), and our head office is in Perth. So, that’s our third fishing operation, which is in Australia.

We have embarked on growth within aquaculture. And the reason is that, with wild resources, supply’s constrained. It’s constrained with quotas; it’s constrained with sustainability issues, so aquaculture is the growing segment.

We looked at South Africa and what we could invest in. To be frank, we had bought oyster businesses, we had bought muscle businesses, we had farmed salmon trout, and we divested from all those businesses. 

Our view was that the only category here in South Africa that could compete globally was abalone. Now, abalone is predominantly appreciated by the Chinese consumer and Chinese communities, no matter where they are in the world. 

It was a very, very lucrative industry with very high operating margins. Quite frankly, when we entered this industry, we just could not produce enough for China. I mean, it’s a billion people who absolutely love abalone.

It’s going through its own issues right now, and we can talk about that later, but we own four farms in South Africa. We’re going to have two now. 

We’re probably 40% of the production out of South Africa. All the product will go to Hong Kong, Singapore, Taiwan and China because that’s where they appreciate it. And it’s an area of the business that can still grow.

The final segment in our business (which we are now divesting from) is Cape Harvest Foods. That was the dairy part of our business.

When we were going through the fishing rights allocation process in 2019/2020, it was a very uncertain period for the business – and for our country, I believe, over that period. 

Our view was that we needed to diversify away from fishing from the perspective of, “What happens if we don’t come out unscathed from the fishing rights allocation process?” So we invested in dairy. 

Why dairy? I think I was asked once by Bruce Whitfield, “What do dairy and fish have in common?” And the only thing I could think of is that they both pair very well with wine. 

Other than that, it actually exhibits quite a few fundamentals that are similar, one being the fact that it’s also constrained by supply. You don’t see growth in milk supply of double digits. If it grows 1% to 3%, it’s a lot, and this is a global phenomenon.

At the same time, people want to eat healthier. When I was brought up, you had to eat margarine – “it’s safe”. Now, nobody eats margarine. We know that it’s not healthy. So everybody’s moved to natural butter. 

Cheese is one of the fastest-growing categories globally, and also the powders that you make (for the chocolate industry, the soup industry, the baking industry, etcetera). That appealed to us because it had very similar fundamentals. 

We invested in that business, and I think we did incredibly well out of that business. We put in a new powder factory – two powder factories! – a butter factory and a cheese factory, but to cut a long story short, we got to a point where we were either going to back the strategy and put a lot more capital towards it or divest. 

And basically, because we were only in cheese, butter and powders, we don’t do the value-added dairy – in other words, your UHT milk, your yoghurts and those types of products; your energy drinks.

So, our view was we were going to give it a full go, or we’d rather divest and allocate that capital in our core fishing business and stick to fishing. 

From a board, business and management perspective, our view was that we know fishing very well. Our debt had got pretty high over the period with all our acquisitions over the last nine years, and our view was that it’s better deployed to pay back and halve our debt. 

We’ve subsequently entered into a sale agreement with Woodlands Dairy, a fantastic company in the Eastern Cape. They will be acquiring the business and taking it forward. 

So those are the various pillars of our business. They’re very different, you’re right. Where we are going is to try to have a diversified seafood offering with hake being the anchor tenant, but also with pelagics offering something very different. 

Sea Harvest is an iconic brand. We’re the number-one frozen fish brand in South Africa. In the last three years, we’ve been the market leader. 

From a brand equity perspective, we rank number one right now in terms of frozen fish. But at the same time, we are competitors to Lucky Star when you look at the lower LSM. So, we’ve got fantastic brands and a great portfolio of assets. 

It’s a very capital-intensive industry with very high barriers to entry. Quota is only given to you every 15 years. To replace a fleet, you probably need R3 billion or R4 billion. Factories that were built many, many years ago – replacement value R2 billion to R3 billion. 

So, you’re talking about a very capital-intensive industry. But from our perspective, those assets have been fully paid. It’s very cash generative – all fishing companies, not only us, are very cash generative.

Nice free cash flow conversion to EBITDA, probably north of 60%, which allows the business (although slightly cyclical from a catch rate perspective, and we can discuss that later) to be able to be more consistent in terms of a dividend flow and to provide a decent dividend yield to investors. 

That is the business in a nutshell.

The Finance Ghost: Very nice. Thank you so much, Felix. A couple of things from that.

Number one, I can tell you that butter is my ride or die. I agree with you about margarine. If doctors ever tell me I can’t have butter, then that’s it. I’m going to become a ghost in more ways than just a purple cartoon. I can’t imagine life without butter. 

Life without fish would also be a bit bleak. I am a fan, I must say. What I didn’t quite realise, perhaps, is that hake is such a South African staple. We think fish and chips, we go hake. 

But it sounds like if you go overseas (now that I think about it, on overseas travels I haven’t really ordered a fish and chips), you don’t get hake, do you? On average, you probably get something else.

Felix Ratheb: It’s a good question. Let me unpack that a little bit. Southern Europe is very different. Southern Europe, particularly Spain and Portugal, would catch hake in their waters. It’s very abundant. 

They grew up eating hake, and when it dried up in Spain in particular, the Spanish fleet went looking for hake in other parts of the world. Namibia, South Africa and Argentina are the other three where it’s very similar to their hake in abundance. 

They were very used to hake, and that’s why that is the predominant market. Even today, where we sell the bulk of the hake, it’s still Spain, Portugal and Italy, your Southern Mediterranean countries. 

But if you go up north, your point is very well made in terms of fish and chips. 

The fish and chips culture really comes from the UK, and everywhere there is an English community (whether it be in Australia, the US or Canada), you have a very strong fish and chips culture. 

That is predominantly cod. That was mainly caught in Norway, Iceland, and even the UK, and that is very prevalent in Northern Europe. So, you have Northern Europe – they love their cod. Southern Europe – they love their hake.

What we are seeing lately, however, is that you don’t get much cod, and their go-to species has become hake, from that perspective. So, you are finding that most of our growth in the last 10 years has actually come from the north of Europe. 

We’re seeing great strides in Holland – your lekkerbekje that everybody knows if they go and they’ve lived in Holland for a while, that is hake today. You go to Germany, they’ve moved to hake from cod; Poland has been a very good growth market for us, particularly in the last two to three years; Sweden. 

So, hake is sold all over Europe (and the United States and Australia). We simply don’t have enough product for everyone. 

Number one, it’s wild. Number two, it’s healthy. It’s full of omega-3s. It’s quite bland in terms of not being very fishy, so consumers love it. 

It’s the go-to fish in South Africa for moms for their kids – we’ve all been brought up eating fish fingers in South Africa; that’s probably the first interaction you have with fish. So, it is a staple in my view in South Africa, but very important in terms of a very healthy protein globally. 

And Europeans, to give you an example, the Spanish eat 60kg per capita of fish per year. That’s almost four-and-a-half times a week compared to, let’s say, 8kg in South Africa.

Our view is that South Africa has got a lot of growth still. As people move up the LSMs, they want to eat more seafood. People want to live healthier. Obesity is an issue, and demand for fish just keeps growing. 

It’s got a low carbon footprint, which is another positive in terms of fish, and we can unpack that later. But yes, it is a go-to protein for a healthy lifestyle.

The Finance Ghost: Yeah. I mean, South Africa, we think that chicken is a vegetable at the braai. It is a different market here compared to Southern Europe, for sure. And the fish fingers and tomato sauce, absolutely. As someone who has young kids, these are just the realities of life. 

Lots of interesting stuff here. Lots of supply and demand dynamics, which I really do enjoy. I’m looking forward to getting into some of the numbers with Muhammad just now – who is still on this podcast, I promise! We’re just thoroughly enjoying learning about fish at the moment. 

Felix, I do have one more for you, before we move across to talk through some more of the details on the income statement and that kind of thing with Muhammad. That is around the latest performance, bluntly, which is just so good.

It’s been described in your own results announcement as “the strongest performance in your history”. That’s a lovely thing to be able to write. I’m curious to run through, very high-level, without going into much detail (people will go read the results), just what is really driving that. 

And then one specific question from my side. I keep reading about beef inflation. Obviously, with everything going on in South Africa, I would imagine that’s good news for fish, right? Which is a protein source. 

Presumably, if the steak is so much more expensive than it used to be, then suddenly I can put a fish on the braai and it just got a whole lot more affordable, right?

Felix Ratheb: I believe so. I think that if you look at meat inflation, with foot-and-mouth, it’s going to get even worse. That’s tailwinds for us in the seafood industry, but I’m a fish snob. I keep saying that if you look at what we go through to bring that beautiful piece of fish to one’s plate… we’ve got these big ships, lots of people working on them. They go out to sea for 55 days. We produce on the ship, bringing back the last hunted protein on the planet. I mean, there’s nothing that you eat that you hunt, other than fish. It’s naturally organic.

So, seafood inflation has been high, more in the overseas market than locally. But I believe whitefish will start catching up, particularly if you look at inflation with salmon. Salmon is unbelievable, with what it’s done in terms of inflation. 

I think it’s a positive, both locally and internationally. It’s the last hunted protein that everybody will want. And we haven’t even started selling this type of product to China. 

When the Chinese consumer turns to a more Western diet, this is the healthiest way of eating. That has opportunity, too. As I say, the issue on our side is more the supply side. 

Regarding the performance, yes, there are many variables. When you start with a fishing business, and you look at its good performance, you first have to start with the health of the resource. We call it ‘biomass’ in our terminology. How healthy are fish stocks? That’s the first one.

Our biomass in hake (and on the pelagics side, but let’s rather stick to hake) has been very, very healthy. It’s been certified by the Marine Stewardship Council (MSC) – that’s the gold standard for sustainability globally, not only in South Africa, and is well managed by government. 

That’s something that is very, very important for us. It’s managed based on science. The crowd at UCT actually do a lot of the modelling, and it’s a model that’s been around for a very long time. 

So, if the biomass is healthy and you’re not taking too much fish out of the water, it’ll be there to sustain future generations.

What we’ve seen this year is a very healthy biomass. Our catch rates (that’s the amount of fish that we catch per day that we go fishing) are up 40%. That’s a very big metric in our lives. 

You can imagine that if I go fishing and I’m catching 10 tonnes of fish a day, I’ve paid for the fuel, I’ve paid for the people, I’ve paid for everything. If I’m catching 14 tonnes a day, effectively my costs are 40% lower, so that has been very positive. We’ve seen fantastic catch rates in the business.

So, you’ve got volume and you’ve got efficiency in terms of catch. Then you look at the top line, and you’ve got more volume now, but secondly, you’ve also got (which I find has happened in the last five years) inflation in hake being high. 

When I started in this business, if we could get CPI (Consumer Price Index) plus 3% or 4% in the markets in which we operate (because obviously we sell to Europe, which had a different CPI to South Africa), it was a good result. 

Now, we are seeing CPI plus 7% or 8% in the last three years. Very good inflation, so selling prices have been significantly higher, and that has helped our result.

You then need some tailwinds, and we’ve had them. Last year, we had a favourable exchange rate. The rand was relatively weak. 

We’re probably one of the few industries that want a weak exchange rate because it benefits us – 64% of what we catch, we export. It’s a big number, and we’ve had a relatively weak rand, mainly to the euro (because we sell to Europe), so that was positive.

At the same time, fuel was favourable – we hit a high of $80 to $90 a barrel, and it’s come back nicely down to around $60 a barrel last year (forget what happened last weekend, I’m just looking at a full period) – and we came off three difficult years. 

You’ll appreciate that when you come off three difficult years, you focus on costs. We got a leaner business. All the right variables, going in our favour. 

We had invested in capacity. We bought four ships, two last year, so that when the good times come, we have the capacity and we have the throughput in our factories to take advantage of it. 

Call it sometimes being lucky – all the stars aligned and we were ready. The management team was, let’s say, in place to be able to win the game against the All Blacks on the weekend. That’s what I put it down to. It’s really having some tailwinds and being able to take advantage of the opportunity. 

And you’re right. I’ve been here for 23 years, and this is by far the best year. The last time I saw this was in 2002/2003, when we had these types of margins. 

At the same time, it’s not only hake. I focused on hake because out of the R1.3 billion that we made in operating profit, R1 billion came from hake. So I focused most of my time on that. 

But the pelagics also had a decent year. Even though the prices came off (because they were off a high in the last two years), we made over R200 million in EBIT in that business, so that had a good year.

Australia had a record year. We had better volumes of prawns and better pricing on the prawns.

Our dairy business also had a record year, which was also positive because you never want to be selling a business coming off a poor year. So it was really, really positive.

Really, the only part of our business that struggled was abalone. Now, abalone is reliant on China. What we are seeing is that the Chinese consumer, specifically in terms of discretionary spend, is not spending. They are saving.

They see that the tough times are coming, and we’re seeing that more than 30% of what they earn, they save. That has built up. It’s even higher than post-Covid. We have a situation right now where we need them to spend.

The product that we offer is a white tablecloth offering. It’s the type of product you’d eat at a high-class restaurant like a Shangri-La or the Hyatt. It’s the Wagyu of seafood, and it’s one of the five treasures that the Chinese appreciate – they absolutely love abalone.

But you need the right consumer confidence and the right macro environment for consumers to spend, so that’s been quite tough. We made a loss in that business. Quite a significant loss – close to R60 million operating loss. 

Fortunately, it’s a very small part of our business. It only makes up 4% of our revenue, so the only blip that we had was in our abalone business. Otherwise, every other business fired at the right time.

The Finance Ghost: Felix, thanks. Lots of great additional details there. I quite enjoy the ‘raising of a child’ and how that’s coming through in this, right? It’s fish fingers, it’s tomato sauce. Then one day, you get your heart broken and your mom gives you the ‘many fish in the sea’ talk. We all had that! 

And that’s the biomass, right? There have literally been many fish in the sea, and that’s been a huge boost to your numbers in this period, which is obviously very helpful.

Muhammad, I’m excited to bring you in here because we’re going to talk about operating leverage. Felix gave a little example there – 10 tonnes, 14 tonnes. I’m not sure if that was the example per ship or just good maths – or easy maths, rather – but it is interesting. 

I’ve always wondered about this – the ship goes out, operating leverage is the name of the game in your business. That’s why we are seeing this incredible result when times are good. As a CFO, can you just walk us through the shape of the income statement? 

And let me also say I’m slightly jealous that you get to be in a business that has so much operating leverage. That must be, I would think, quite a fun thing actually. Maybe a bit stressful too, but it’s interesting. It’s definitely interesting.

Muhammad Brey: Thanks, Ghost. Indeed, it is. It’s interesting, and it’s exciting when it’s going the right way. When the tide goes out, it can also be the other way, so it’s a tale of two sides of the coin. 

There are plenty of fixed costs in the business. Let’s just start with the asset base, which Felix touched on earlier. Ultimately, we are a manufacturing concern of note. There’s a total of somewhere in the order of R10 billion of total assets in the group. We have 56 vessels, 12 factories and 7 aquaculture operations. 

And of course, what’s complementing that is our intangible rights. The 15-year rights in South Africa and the intangible rights in Australia. 

Ironically, these are also the moats around our business; the barriers to entry. Those, as well as our 5,200 employees and the 30 markets in which we sell. 

But typically, like any manufacturing concern, these are big beasts, and you need to feed them with volume, and volume drives these efficiencies. So, we try to sweat these assets through maximum capacity utilisation.

If I then look at the profit and loss (P&L) – how we look at it and the shape of the P&L, the first thing, of course, that drives it is the top line.

Felix tries to drive inflation plus 4% to 5%. The markets allow this with demand, of course, outstripping supply. We then also generally benefit from the weakening rand. It generally weakens on a year-to-year basis.

Of course now, with the sale of Ladismith, that exposure improves from 52% to 64% of revenue. So that’s a nice flip, firstly, for us and something that we try to secure by insurance on an annual basis.

If you then look at the cost of sales line, a large portion of our cost of sales is fixed. Just to give you a sense, a small vessel going out will cost in the order of R200,000 per day to run. A medium-sized vessel, R300,000. The large freezers, which go out for between 45 and 55 days, cost in the order of R450,000 per day to run. 

Now, whether you’re out catching one tonne a day or 10 tonnes a day, a large portion of those costs are fixed. So, you can imagine what volume does to it. 

Just to digress, the biggest portion of those costs would be staff (in the order of 30% to 35%) and fuel (in the order of 15% to 20%). So, you can see how very much fixed these costs are. 

Ultimately, you want to feed these beasts. So when you look at a year like 2025, where the stars sort of aligned, number one, we had much better catch rates, which drove efficiencies. But secondly, we also had catch volumes up in the order of 17%. 

So now, suddenly, you have 17% more volume to spread over the same cost base. You can imagine what that does to your cost per kg. If you put that into numbers, revenue was up 20%. Cost of sales was only up 2%, even though we had revenue up 20%.

Gross profit up 60%, and ultimately operating profit up 200% to almost R1 billion. That just shows you the operating leverage in the business.

We have a very similar situation for our pelagics business, and also even in our Ladismith Cheese business, where we saw that we grew in milk by 8%, but that ultimately translated into a 36% increase in operating profit.

The Finance Ghost: Yeah, very nice. I’m going to look at those ships slightly differently now. My little boy, in particular, thinks they are the coolest thing in the world when he sees them in the ocean. 

Now I can tell him how much they cost. A number that will mean absolutely nothing to him at the age of five, but he’ll still think they’re pretty cool. And I think they’re pretty cool. 

It’s just one of those industries where it’s very real. You can see and touch it, and it brings your food. It’s the real economy, it really is.

And you’ve got a lot of stuff you need to think about in running those boats. You’ve mentioned fuel, for example. Felix, earlier you talked about how the rand influences your selling prices out to Europe, but it obviously also influences fuel costs here.

So, we’ve seen what’s happened in Iran in the last few days. Who knows what happens from here? What happens with the oil price? Is it all just going to blow over? 

There is no way of knowing. And this is why it’s a risk, right? This is financial risk. That’s how it works. 

I guess, the oil price, other than that big $100 blip in 2022 (and I only know this offhand because I looked at an oil price chart this weekend), has been stuck in a bit of a window, right? 

You’ve got a great situation where the cartels kind of want to keep it in a place where they can make their money. And that’s great news, actually, for you guys, because it doesn’t actually flap around that much anymore, other than when there’s some kind of big global distortion. 

And this is a question for you again, Muhammad – as the person who has to run the numbers in this thing, how do you look at, “Okay, which risks can we hedge?” 

And then obviously, you’ve got risks where you just have to accept them as part of business. That’s why it’s called equity risk. There are certain things that are just a risk you have to carry.

How do you guys manage that?

Muhammad Brey: From a risk mitigation perspective or an insurance perspective, our strategy is to hedge 50% of our rand or euro exposure. A big portion of our sales goes into Europe, so what we’ll do on an annual basis is we will hedge 50% of our book for the following year, and this buys us insurance. 

So we’ve locked in the rate. Not only do we lock in the current rate, but we also lock in the forward points or the interest rate differential in that. So we get another R1.20-odd on top of the rate that we have today. 

For example, if the rand is trading at, let’s call it, R18 to the euro today, if I take out a hedge one year forward, I’ll get about another R1.20 on that. That allows me then to lock in R19.20 going forward. 

So our strategy is to lock in at least one year forward, and we buy insurance on 50% of our book. The rest of it is then exposed to the spot market. 

Last year, we traded at around R20. It’s going down now to R19. So, the balance of the book is then exposed, but we ride the ups and the downs.

On the fuel side, you’re right – it has traded in a very narrow window in the last year or so. We’ve tended to sort of lock in when it’s a bit lower. At around the $60 level, we tend to lock in.

Of course, if it goes higher than that, we’d rather ride it out because it would typically tip back to the $60, so we don’t really have a firm strategy on fuel. It would be more opportunistic, and when it’s low, we will take out the exposure. 

The third thing, of course, with the leverage balance sheet is that in the past, you would ask yourself, “Do we hedge the interest rates?” The interest rate was coming down, so it didn’t make sense to hedge at that time. 

At the moment, we’re still looking at one or two more cuts in interest rates coming through, so it wouldn’t make sense to hedge. 

Not only that, but we’re also looking to repay a portion of our debt through the sale of Ladismith cheese, so it doesn’t make sense to lock in anything on that side. 

Again, on the interest rate side, we are much more opportunistic. We’ll see how the curve ultimately bottoms out towards the end of the year, and we’ll look at the bank balance sheet to see what the strategy would be over the next couple of years.

The Finance Ghost: Very interesting, thank you. That’s a lot of additional insight into how you manage the business, which I do appreciate.

I’m going to take it back to Felix now. So, Felix, I was going to ask you about the Ladismith cheese disposal, but to be honest, I think you gave such a great intro to the group earlier that you’ve kind of answered the question – around why you are stepping away from that and how, other than the pairing with wine, it’s not necessarily a good fit with the seafood business. 

So I’m going to ask you something that’s a slight variance of that, which is to say, as you look at the portfolio that you have today, do you feel like you’re a long-term holder of everything that’s in there now? 

Obviously, I’ve done this for long enough to know that everything is for sale at the right price, really (except probably your hake operations). But, as you sit, do you feel like where the group is right now as a portfolio, you’re comfortable? 

Or do you think that there might still be a little bit more M&A activity to come in the near term?

Felix Ratheb: I think where we are right now and the way we’ve articulated it to our investors was that we had such a phenomenal growth period since listing that it’s time to consolidate and take stock.

So that’s what we are doing. Let’s shore up the balance sheet, let’s just get to a consistent dividend policy and yield. I think that is very, very important before we look at doing more.

However, the reality is that no business is going to grow by sitting still. If I look at the portfolio, I think we’re too big in hake now, and even if we did want to buy other hake businesses, it would be tough from a CompCom perspective.

I think there’s still opportunity in pelagics. I don’t believe we’re the biggest player, and there are other related fisheries in South Africa that we’re not exposed to. I would prefer South Africa for seafood because it’s closer to manage. 

So, we would stick to fishing, and you never know what opportunities will come along. To give you an example, we spoke about the Viking acquisition. I was working on that transaction for five years. 

Ladismith cheese – we didn’t just enter the cheese business. We spent five to six years talking to the owners. In fact, when we had made the offer, the factory burnt down, and we came back two years later to buy the business. 

Take a very long time in terms of understanding the sector, the business and, more importantly, the state of the assets and management. 

So we will always be on the lookout, however, we are entering a consolidation-play phase, and for the next two to three years, we’re looking at really optimising our balance sheet. 

In terms of what assets we could or could not keep. It’s really the assets that I’ve classed as having potential, but will they actually survive? 

Let’s look at abalone. We’ve spent R1 billion in abalone. Our view is that our investment thesis is correct. Once consumers start spending again in Hong Kong and in China, I believe we’re going to get to the prices where we were, and then it will be a great business. 

But what if it doesn’t happen? So, you’ve got to be running those scenarios, too, when you look at it strategically. 

So, we’ve got a plan. If it goes the way we want, we would want to grow in that part of the business. But if it goes the other way as well, what’s our exit strategy? I would put it in the question mark corner.

The second one is Australia. We entered Australia, wanted to consolidate that sector and grow. It’s still not big enough, in terms of where we believe it should be. $100 million business, which is the size of the business as it is right now, it probably needs to be $250 million. 

The problem in Australia is that you don’t have a Sea Harvest or an I&J or an Oceana or anybody bigger that you can go and buy. It’s all these small family businesses. So, for you to build a vertically integrated seafood business, you’ve got to buy all these businesses. 

You can appreciate the amount of time and effort it takes to integrate those businesses, which we’ve had to do.

The question mark now is, are we going to deploy more capital to grow Australia?

If not, we’ve got to relook at that asset in terms of – do we want to be there? Because it takes a lot of management time sometimes. Everybody looks at all the ratios in terms of return on capital employed (ROCE) or return on investment (ROI), etcetera, etcetera. 

From a management point of view, I look at it from a return on effort perspective. Sometimes there’s a lot of effort, especially when it’s that far away. 

If it’s not going to become sizable and we’re not going to give it more support, then we’ve got to look at that portfolio, because again, it can be deployed better elsewhere. 

That’s where I am, in my mind. I’ve got assets where they’re question-marked “should I be there?”, but they’ve got the potential if certain things change. 

I’ve also got other sectors within the South African seafood industry that I think we don’t play in. If they were to be available, I’d need to strengthen my balance sheet first to look at whether we would look at something. 

So as you’ve said, if there’s good value, whether you’re selling or buying, you’d always look at it.

The Finance Ghost: Ya. This is a note of appreciation from my side, Felix. I think that’s a great answer, and thank you for addressing abalone. I wanted to ask about it specifically, but I thought that might be slightly unfair, so I’m glad you commented on it. 

Interesting about Australia. Look, anywhere that has a place called Shark Bay – I think everything in Australia is dangerous, so when a place is named after a dangerous animal, then it must be pretty serious. I can well believe it. 

And you could definitely teach the retail sector a thing or two about selling a business on a high like Ladismith Cheese. We’ve seen some pretty hideous exits of businesses by JSE-listed companies in recent times, so yeah, well done. I think that sounds pretty solid. 

Muhammad, back to you then. It sounds like you might be getting some money in the bank from these disposals. That’s exciting, as the CFO. Jokes aside, capital allocation – how should investors be thinking about this in your context? How are you guys looking at this?

Muhammad Brey: Firstly, I think what the sale does is show off the balance sheet. If we just look at this in absolute numbers, debt goes down to circa R1.3 billion, of which 50% is in Australia, which has a very long-term repayment profile, and the balance of 50% in South Africa. 

But the core leverage ratios go down from 1.3x to 0.9x. It’s sub-1x EBITDA. And if you just think about that in the light of where we were at the end of 2024, 2.5x, that does give you quite a bit of pressure and stress. 

The balance sheet will then obviously be in a much better position. That allows a lot more flexibility as a management team. However, I think the strategy in the immediate future is to continue to consolidate. 

Of course, the first thing is to prioritise maintaining our asset base, be it the vessels or the factories; make sure that they’re running efficiently. 

Then secondly, we try to squeeze out whatever else we can in terms of organic growth opportunities and efficiency projects. The way we look at that is typically, we want to earn a very decent margin above the weighted average cost of capital. So that’s the second avenue that we will pursue. 

Thirdly, I think we’d want to still reduce debt further. We do want to keep a level of debt on the balance sheet. In my mind, that’s circa 1x EBIT. From an efficiency perspective, it doesn’t have to be completely ungeared. 

And then ultimately, if we don’t have any further use for cash, that would be returned to shareholders – be it dividends, interim dividends, share buybacks. Ultimately, rewarding shareholders for their patience and ultimately driving value.

The Finance Ghost: Yep, I like it. That sounds solid.

Felix, I’m going to bring it back to you. This might be the hardest question of the day, actually, around ESG and all the attention that seafood gets. As we move on a little bit now from the performance over the past year.

I think it’s quite an important question and it also speaks to consumer trends a bit. I’ve seen a lot of content online – documentaries, the ocean, etcetera, etcetera. You said it earlier, right? This is really the last food we eat at scale that is hunted. So, there’s actually a pretty big responsibility towards the environment and the sea floor and everything else.

You’ve got this long-term fishing license, you’ve got that kind of visibility in terms of your operations. But your end of the bargain obviously has to be sustainable fishing practices. I’m sure we could talk about that for an hour that we don’t have. 

But I think just a few minutes around your sustainability in how you fish, perhaps specifically for those who do feel like eating fish is maybe supporting practices that are not necessarily sustainable. 

What do you guys do to address those concerns, in our waters especially?

Felix Ratheb: I think that’s a very good question, and probably the most important question, because the reality is that, as I’ve said before, we’re fortunate from a seafood-production point of view. We don’t have mad cow disease, we don’t have foot-and-mouth, we don’t have avian flu, we don’t have any of that. It’s a clean protein.

When you enter a new market, what are the questions that you get asked by consumers? And that is the sustainability practices.

But just to pause there. Firstly, we produce food, let’s be clear. It’s a critical source of protein. If you had to do that on land, you’d need twice the carbon footprint, and you’d have to tear down half the other forests. 

The best place to actually extract your food is from the ocean. However, we need to do it sustainably.

Now you will appreciate there is no way I’m going to go and spend R400 million on a new trawler if I’m damaging everything that I’m catching and it’s not going to be there in a couple of years. The paybacks are just too long.

So, we’re the first, from an industry perspective, that supports sustainable fishing practices. That drives our business. In fact, I call it our ‘licence to operate’. Without that, we don’t have a business.

So, what do we do about it? I think the first thing is that we’ve worked and supported, as I mentioned, the Marine Stewardship Council, which is the gold standard for sustainability. 

What does that do? The first part of that is to make sure that you’re not extracting more than what you need out of the oceans, because it’s not going to be there for future generations. That’s the first thing, but it doesn’t stop there. 

The second thing is that when you’re fishing, you’re interacting with other species. You’re interacting with bycatch, you’re interacting with what we call endangered and threatened species. And how do you now interact with those? 

Again, we have a standard, and standard operating procedures (SOPs) in terms of what we do there to make sure that we don’t have issues regarding our interactions with other species.

That, to us, is critical. Otherwise, we wouldn’t get our certification and we’d be all over the news.

The next one is obviously the point that you’ve made in terms of the habitat. The bottom, or the Benthic, as we call it – what are we doing to the ocean floor, etcetera, etcetera.

And that’s where there’s been a lot of misinformation from the perspective that we do not trawl corals. If you’re trawling corals with your gill, you’ll lose it. We don’t trawl fish in rocky areas. It’s dangerous. 

Generally, like most trawling companies, we’re fishing on sandy bottoms. That’s the first thing. The other thing that we’ve done in South Africa. So, the standard also doesn’t allow us to fish in sensitive habitats, so we avoid sensitive habitats.

We’re also one of the proponents – we’re not against marine protected areas. What people wouldn’t know is that we’ve got an Exclusive Economic Zone (EEZ) which belongs to South Africa, and we have only trawled or fished 4% of that. That’s it. We’ve only touched 4% of the ocean floor in the South African EEZ. It’s not a big area. 

When we’re talking about putting marine protected areas (MPAs) in places, from our perspective it’s not a big impact. Especially what we’ve agreed as an industry (which was completely voluntary) was to ring-fence those fishing grounds. 

So what we’ve done is we’ve said, “Okay, well, we’re going to ring-fence wherever we fish, and we’re not going to go outside those areas.” So, that 4% or 5% that we fish, we’re not going outside those areas. 

If there are sensitive habitats anywhere else and we happen to have done damage 2,000 years ago, whatever it might be, we’re not going out of that. We take sustainability and fishing practices very, very seriously.

And I guess that’s how we are a responsible fishing company looking forward. And that’s whatever we give our consumer, they must know that we have done it sustainably. I think that is important. 

But it doesn’t stop there. In South Africa, most of our facilities are in rural towns. To give you an example, 30% of the Saldanha Bay town works for us.

We talk about directly working for us, but if you think about the multiplier effect – that is, people who provide food, paint the boats, do this, do that – you’ll find that it’s a much higher number.

So we are critical. And I’m just using Saldanha Bay. You go to St Helena Bay, it’s the same thing. You go to Gansbaai, it’s the same thing, etcetera.

So, we are critical to the town, which means we don’t only provide employment because people’s problems outside my factory gates become my problem. If there are social issues at home, drug abuse, alcohol abuse, we have to do something about it. 

We’re very involved in our communities. Whether it be social centres that we’ve set up, whether it be schools, whatever, we don’t tick boxes for a scorecard. The reality is that the people who work for us – it’s basically the town, and we have to do more than just provide employment. I think that is important.

The other thing that we’ve also experienced in South Africa – in the beginning, it was out of need, in fairness, but then it made a lot of business sense – is energy security and water security.

In the beginning, we had load shedding, so everybody ran to put up solar plants and wind plants. Well, quite frankly, I can tell you probably two of my best investments in terms of payback have been a wind farm that I put up in our abalone farm, which has reduced my electricity cost by 35%, and my solar plant that I put up, both in the abalone facilities as well as the dairy facilities, that has reduced my electricity cost by 25%. 

So, even without load shedding, it made a lot of sense, especially if you’re a big consumer.

Water is a big problem, particularly here in the Western Cape and particularly in the Klein Karoo and the West Coast. We’ve had to put up desalination plants. It was about five years ago that we almost ran out of water in the Western Cape, and again, we put up a desalination plant. In the beginning, it was a grudge investment, only to find later that it’s been one of the better investments. 

All these things in terms of an ESG focus, let’s call it, were initially out of need, but afterwards, make a lot of business sense. 

We’re trying to become sustainable in everything that we do. There’s a culture in our company that everything we do, whatever we touch – whether it be the sea bottom, whether it be fish, whether it be waste – the amount of work that we’ve put in to reduce waste in our business and to make sure that even if we produce waste, it’s recyclable. 

So, our commitment to our consumer: to whoever eats our piece of fish or abalone or whatever, it will come from pristine, beautiful waters, it’s healthy, it’s sustainable, and probably a little bit expensive.

The Finance Ghost: Yeah, that’s a very practical answer, which I have a lot of respect for, because that is just a reality. Like you said in that answer, you do make food, and people need to eat. 

If you’re at the top of the food chain, you’re going to have some kind of footprint on the ecosystem around you, whether you are a human being, a lion or a shark. Take your pick. 

And obviously, all we can really do is try to do the best we can sustainably. So that is a nice practical view.

I’ve seen the sort of typical documentaries, and you’re right, it’s trawling through the coral, right? That’s the classic doccie approach, and it’s all very sad – I have no doubt that happens elsewhere in the world and that some companies do do this, but I’m very glad to hear that there’s a strong commitment from you that that is not happening at Sea Harvest.

So, thank you. You can eat Sea Harvest fish and feel good about it. 

Amazing that water is one of the challenges when basically you spend your lives sending ships out on the water. It’s quite incredible, right? Taking the salt out of it being the operative point.

Let’s move on from some of the ESG stuff and start to bring this to a close, then. 

Just in terms of outlook, Muhammad, I’m going to come back to you now. The Ladismith disposal is happening, and there are obviously a lot of other trends in the group.

Financial outlook for the next financial year – you’ve just come off an incredible year. This is a cyclical business, so I guess some of this might be for people just to manage their expectations a bit, right?

Muhammad Brey: I think that’s right. We’ve set ourselves a target to at least deliver R1.50 through the cycle. Outstanding year in 2025 being R2.19. And of course we want to try and get above that R1.50. 

I think from our perspective, the year ahead would be a more balanced year. There are certainly some headwinds, but also some tailwinds, and I’ll just touch on a few of those.

From a headwind perspective, we’ve had a reduction in the Total Allowable Catch (TAC) by 5%. The rand is a little bit stronger against the currencies in which we trade. We’ve seen the impact of the marine heat waves in Australia, and the Chinese markets continue to be relatively soft. Those are some headwinds that we face. 

However, I think, from a positive or tailwind perspective, we have plenty of capacity to catch our hake. We’ve got some additional capacity now to catch some more horse mackerel. So, those are some additional capacities that we have in the group to take advantage of more volume.

Hake markets are certainly firm, both locally and internationally, as we can see. We’ll certainly be targeting inflation plus plus, in terms of driving value.

In our pelagic business, we are seeing an uptick in global fish meal and fish oil prices, so that’s also a nice tailwind. And then finally, also in the pelagics business, we have some additional capacity that we’ve put on there.

So, in my view, it could be more of a balanced year going forward. I hope that answers the question.

The Finance Ghost: Marine heat wave in Australia. I didn’t even know about that. Every time I learn something new about Australia, it involves nature trying to kill you! It’s incredible, honestly. The most frightening place in the world.

Felix, as we bring this to a close – your elevator pitch to an investor considering an investment in Sea Harvest, listening to this podcast and going, “Okay, this is a business that I might want to get involved in.” 

What would you say that elevator pitch is, in terms of your investment case?

Felix Ratheb: I think we touched on a lot of it in the interview. The first one is that it’s a very defensive industry. At the end of the day, we’re producing food, and everybody’s got to eat. I think that is critical.

Secondly, we’re in an industry where supply is not going to keep up with demand. As people eat more healthily, as populations are growing, as people want more brain food, omega-3s, etcetera, move more to proteins, we’re going to see that that’s going to increase more. 

The only thing that can bring that equilibrium is price, so I do believe that we’re in an industry where we will see good price growth in basically all the sectors that we are in. 

The other thing is that we’re not just a hake business anymore. We are diversified now across many species.

My dream or vision was always to operate at every level of the ocean. So, we’ve got hake right at the bottom. We’ve got pelagics, which are further towards the top. Horse mackerel, and prawns, which are more shallow water. So, we cover the ocean in terms of the various species. 

It’s an industry with very high barriers to entry. You can’t just get quota. It’s an absolute fortune to build ships and factories.

And at the same time, what about the know-how? When somebody’s taking a R250 million asset and is having to catch 20 tonnes of fish a day, there’s a lot of IP there in institutional memory.

So I think that – and empowerment in our industry. You also have that barrier to entry that you have to be very well empowered, which we are.

We’re a rand hedge, as Mo said. Post this transaction, 64% will come from offshore across 30 geographies in hard currency. It’s the euro leading it, then the Aussie dollar and then the US dollar. Those are the currencies that we are exposed to. 

At the same time, we don’t have a single customer that’s more than 2% to 3% of our business, so we don’t have the exposure that others fear to Coles, Woolworths or Shoprite or wherever it might be. 

We’re not price takers. I think that’s critical. I’ve driven my team to be like that in every country we operate. Even if we operate in Italy, we don’t only sell to one retailer; we sell to five retailers, probably ten food service distributors. 

We’ve spread our product so that we’re not reliant on any particular customer, which sometimes can expose you to risk. We’ve seen it in Australia. 

We’ve got brands. The Sea Harvest brand is a recognised, iconic brand in South Africa. The Saldanha brand is very strong in Australia. The Shark Bay prawn brand, people would know, in terms of provenance. 

Fishing companies generate a lot of cash, so they’re good dividend payers, provided you don’t have a lot of debt. That’s why I’ve had a consistent effort to reduce debt, because we generate a lot of cash, and we’re a fantastic share to have for an investor that’s looking at a decent dividend yield. 

Finally, we’ve got a very good management team. Sometimes I look around the table, and the team that I have is probably the Springboks, in terms of – if you look at them compared to my global peers around the world, because we operate globally. 

I chair many of the international associations, and I look at the people around the table and the tenure that they’ve had in the business is quite phenomenal.

You add that all together, and I think it’s a great business, a great company to invest in. I strongly believe that most of the time, it’s undervalued because it’s not appreciated or understood by investors. 

Let’s see where we go forward. As Mo says, I don’t think we’ll see one of these record years in the next couple of years, but the point of the matter is that we need to come very close. We have some tailwinds and some headwinds, but we as management have a plan to try to protect those operating margins.

The Finance Ghost: Well, thank you both for your time. This really has been interesting. It’s a fascinating business. Tough business, but lots of cool stuff going on there. All the best to you for the period ahead. Coming off a very, very impressive base, which of course means a tough base for comparison. 

I look forward to seeing the next set of numbers coming out. Muhammad’s smiling there. He knows. I know already – I’m going to read that in an announcement, reminding people about the tough base. 

Felix, Muhammad, thank you so much. All the best, and I really appreciate your time on this.

Felix Ratheb: Thank you.