Sea Harvest Group Limited (SHG) Earnings Call Transcript & Summary

Good morning to everybody online and to all of you. A very warm welcome on the spring day. It's a wonderful day in Cape Town. And so it's my pleasure to introduce our presentation this morning, I will say a few introductory words and then hand over to Felix Ratheb and Muhammad Brey for the actual presentation. It's a lot better speaking to you this morning as opposed to the last time we spoke to one another. As you will remember, our results at year-end last year was poor and sad. We have a much better story to tell today. All our divisions have done well. All have contributed. So we thank you for your patience, we thank you for your interest in our company and we thank you also for the suggestions that you have given us over this period. I think our executive management have listened to you. You will notice and see that they have done significant cost management and savings. And you will also see that the focus is now to reduce our debt. But please understand that our debt in Australia is a 15-year debt package. And then we also have our local debt. I think it's important to draw that distinction. But having said all of that, the results that we're presenting today is a great pleasure to do. Our core business has done exceptionally well. We have exported -- our export income is more than 50%. But I will leave all of those details to Felix and to Muhammad Brey. So thank you. And Felix, over to you.

Thank you, Chair, and thanks for those kind words. I'm going to try to race through the presentation and just make sure that we've got some time for questions because I'm sure there will be lots of questions at the end of the presentation. Again, as I always start in terms of what we articulated at listing, you'll see that the 4 pillars that are the cornerstone of our business are coming together quite nicely. We've got our core South African fishing business, which is the bulk of our business. It houses the Sea Harvest and Saldanha brand. It's our Hake and Pelagic business on the West Coast and in Cape Town. And you can see we've got around 3,800 employees and 64% of our revenue and almost 90% of our profit. So I'm going to spend more time today on the fishing side of the business rather than the other side of the business. Our Australian business, it's about 10% of our revenue. It's a prawn business. We have our abalone business, which is now all housed under Aqunion. And finally, our Cape Harvest Food, which is our dairy business, which is housed under Ladismith. Putting the slide together, there weren't too many challenges in the first 6 months compared to the previous period. But certainly, the one, again, out of our control has been the lower demand in our key abalone markets being Hong Kong and China. That has impacted our selling prices, which, of course, then will impact the performance of the business. And in this period, we've also had a significant write-down in terms of our biological assets. From a highlights perspective, though, you'll recall that on numerous occasions, I have said that the biomass has shown good recovery with increases in the TAC and we can see it this year. That has resulted in significantly improved hake catch rates, which I'll get to when I'm presenting the hake side of the business. We've acquired 2 new freezer trawlers, which we've added to the fishing fleet. And with a focus on improved utilization, we have managed to take advantage of the TAC increase of 5% and in fact, have increased landed volumes by 15% in terms of hake over that period. The strong demand for wild-caught hake continues in all our markets and channels, particularly with the reduction in cod quotas in the North Atlantic. And that has resulted in very strong and improved pricing for Cape Hake globally. On our Pelagic business, we've seen very good fish oil yields, which is encouraging because that was predominantly from red eye. And we've also seen good growth in terms of milk flow in our Ladismith business. And generally, all businesses have shown very strong volume efficiencies, which has resulted in very good cost control and has driven profitability. So we've had a really solid performance in the first 6 months and really the highlight being the demand for seafood globally. In terms of metrics, group revenue increased by 34%. Mo will get into it and break it down into a lot more. But pleasingly, we've seen growth in our like-for-like business by 13% and then the 21% is acquisitive growth over the period. GP went up by 33% with GP margin at 28%. That slight reduction in GP margin is predominantly because of the mix of businesses over that period, more Pelagic in that period than the previous period. But you'll see a nice growth in our EBIT margin from 11% to 13% with EBIT up 58%. Effectively, we've almost made the full year EBIT of last year within the 6 months, close to ZAR 600 million. HEPS of ZAR 0.95, the full year number last year was ZAR 0.55. So a 91% increase in HEPS. And pleasingly, we've also seen a reduction in our net debt-to-EBITDA ratio of 2.5 to 2.1. And Mo will go into it in detail where our South African business is significantly lower than that. Turning to our South African Fishing Group, and this now is the group combined. In other words, it includes the Pelagic business and the hake business, and I'll break them up separately in a couple of slides later. But revenue was up 42%, GP up 37%, EBIT up 74% and EBITDA up 63%. Very, very strong performance in that business. You can see the EBITDA margin growing significantly to 26%, EBIT margin over 20% and strong GP margin. So generally, very strong performance from our fishing businesses in South Africa. From a revenue perspective, as the Chairman mentioned, a big portion of our revenue now comes from exports. And as well, if we look at the breakdown, we've got 69% of our business in Hake and 31% in Pelagic. And this is now a like-for-like business because we had a full period of Pelagics and Hake. But obviously, with Hake outperforming, it's making up a bigger portion of the EBIT with 75% of the EBIT coming from Hake and 25% coming from Pelagics. You can see exports is 60% of our business, and it's predominantly a European business. But when I say European business, I mean, it's 15 countries in Europe. So from Italy, to Spain, to Portugal, to France, to Poland, to Holland, all countries performing incredibly well and a very nicely diversified species mix and channel mix. So you're seeing food service being 42%, that's out-of-home consumption, retail globally 32%. The business-to-business is our feed business, that's fishmeal and fish oil and 10% is our wholesale business, which is our local business, which we sell via our depots, various depots across the country. If we now focus on our hake business, I guess a very nice challenge to have has been this year trying to balance supply and demand when you've got limited availability and such strong demand globally. That's been quite a challenge to keep all markets happy, but a nice problem to have. The second one has been with the focus on Hake and Increasing Our Hake Capacity to Take Advantage of the increased TACs, we do have quite a bit of horse mackerel that we need to focus on. So that has also been a challenge and can only add to our business, although a challenge could be a highlight in years to come. From a highlights perspective, you'll recall that we got a 5% increase in the Hake TAC, which is supporting a recovery in a nice biomass. And that has resulted in Hake catch rates like-for-like in the period up 49%. If you recall, that was what was impacting the business in the last 3 years. We've also seen strong demand locally and internationally in all markets, but also all channels. And we've seen pricing increase by 10%. We've hardly had any benefit from the exchange rate over this period. It's predominantly been pricing that has moved. And we've had some tailwinds with a lower fuel price if we compare the last 3 years. I'd like to thank the Board for giving us the opportunity to buy 2 freezer trawlers very quickly in terms of understanding that we will have more TAC and more volumes we need to catch. That was in our fleet this year and also reducing the age of our fleet, which you will see coming up. And generally, the entire business benefited from volume efficiencies, which we had on the fleet and the factory with nice positive variances coming through across our entire business. These are basically the 4 vessels that we've added to our fleet in the last 24 months. The Santo Do Mar and the Harvest Camissa were added to our fleet this year. Both are fishing right now, both built in Spain, both acquired in Spain, both doing H&G at sea. We acquired the Isabella Marine last year. She is now doing fresh, and we acquired the Harvest Cap Nord, which was operational last year. She's a [indiscernible] doing fillets at sea. A nice mix of vessels. Effectively, the 4 vessels that we have replaced had an average age of 64 years old, and these 4 vessels have an average age of 29. So effectively, we've added 35 years to the lifespan of the vessels that we've replaced. You'll remember this chart that I showed for the last 25 years in terms of catch rates. And you'll see that you do have periods with hake where you have 3 to 4 years where you have poorer catch rates and then they start moving up again. We did see that in 2022, '23 and '24. And now we've seen a nice uptick in half 1 2025. You can see it on the top chart as well where hake catch rates are 49% up and fuel price is 18% down. So you can clearly see that periods where fuel is up and catch rates are lower are the periods where we struggle in the business. And in periods where catch rates are up and fuel is low is you've got the perfect stars aligning during that period. And we do seem to have the perfect stars aligning right now where we've got good catch rates, a strong biomass and lower fuel prices with very, very strong demand in the markets we operate. If we look now just at our hake business, and this is our traditional hake business, core business. Our revenue was 19% up, and you can see it was driven by volume, which was 8% up, but more price and mix, which was 11% up with no benefit from the ForEx. GP was 31% up with the GP margin expanding to 35% and EBIT almost doubled for the same period with EBIT margin of 21%, EBITDA margin hitting 27%. So very, very strong performance in our hake business, which is something, in fairness, we were expecting at some point to rebound after 3 years of poor catch rates. Looking at an EBIT waterfall here between the ZAR 219 million and ZAR 429 million, you can see the effect of catch rates and more volumes that added ZAR 123 million in EBIT over the 6 months, which is quite significant. You can see the effect on pricing, another ZAR 76 million. And the exchange rate, that's based on hedges. We didn't have a lot in terms of spot to spot. In fact, it was negative. You have your inflation effect on your cost of sales of ZAR 91 million, plus then fuel adding another ZAR 36 million. So we've had very, very good performance. And as I say, almost doubling of our EBIT from one half to the other. If we look at our business, it's been a strong focus in exports. 61% of our business is now exports in our hake business. There was a 30% growth in exports year-on-year same period with a strong focus in terms of growing that side of the business with the additional demand and the additional vessels that we have. So although showing Europe 79% last year, the pie is not the same. It's a bigger pie. So we've shown 30% growth in Europe, pretty flat in Australia and really demand going to the markets where they need it. Fortunately, in our business, as you will recall, we don't have much exposure in the U.S. In fact, it was only about 1% of our business. And where the European markets are now, they'll easily consume that. And in fact, as I've said, our biggest challenge is that we don't have enough for the markets that we operate. If we look at from a channel perspective, foodservice was 25% up, mainly in exports. Retail also 19% up, around 6% up locally and the balance internationally. Wholesale is down 4%, although pricing is up 11%. So the fish has got to come from somewhere. So a lot of it has been channeled to the more profitable export markets. And you can see a nice mix in our portfolio with 53% out-of-home, HoReCa market foodservice, 39% retail and 8% wholesale, which we do out of our depots in Cape Town and Johannesburg. If we turn now to our Pelagic business. It's been quite a challenging year in terms of lower TACs for both pilchard and anchovy, and I will touch on that. And we also have seen softer global fishmeal and fish oil pricing. But in fairness, it was off a very high base. I would think this is more normalized pricing that we have seen this year. But on a highlights perspective, although the anchovy was very low, red eye more than made up for it. And to compound that, we had almost doubled the fish oil yields that we've seen previously. That has resulted with more product through our factories. And also, we've managed to also increase the throughput in our factories. It's resulted in increased sales volumes and very, very good cost control in this business. So despite what I would say, a very challenging period, if you look here, the pilchard TAC has come off highs of over 100,000 tonnes to 37,000 tonnes this year. And anchovy TAC of over 0.5 million tonnes, that is the lowest recorded number in the last 20 years at 35,000 tonnes. But you can see the red eye has come up quite significantly. And despite that, this business actually performed very well. What I've done here now is not to compare the results, so it won't recon to anything you have in your booklets. This is actually like-for-like the same period last year, so that you have a full 6 months on 6 months rather than 6 months on 3 months. Revenue was 8% up despite, as I say, lower TACs, but the issue has been the price. You can see it on the slide, although volume is 25% up, pricing was 16% down. And that reduction of pricing of ZAR 136 million went directly to the bottom line. So EBIT is 20% down, but it still managed to make ZAR 144 million in the period with an EBIT margin of 16% and EBITDA margin close to 20%. So generally, a good performance in our view, in a more normalized year with the TACs at the bottom of the cycle. If we look at it from the different channels within this business, you can see that canned revenue was up 28%, fishmeal up 1% and fish oil down 17%. But that's predominantly driven all by price. You can see that fishmeal price was down 7%, fish oil was down 53%. But if you recon that volumes in fish oil were up more than 70%, which really cushioned the effect that we've had on the business because of the yields. You can see that export makes up 58% of that business. And again, if you look at the export markets, it's predominantly in Europe, predominantly used in feed for production or farming of salmon and whitefin fish in Europe. In terms of the channel mix, the 52% is predominantly business-to-business. That's our fish meal and fish oil business. The 16% is the Saldanha brand, which is sold in retail, our canned product, which is the #2 brand in the market after Lucky Star. Wholesale is again via various areas and depots that we sell into and government feeding schemes. And then our foodservice business is 16%. Also very nicely diversified channel mix in terms of the Pelagic business. There's not much to say on the Australian side because it is a half 2 business. But I think importantly, the challenges that we've had in that market is that, as you know, prawns are shallow water species, marine heat waves, which are heat waves where you're also having the water temperature increasing, has continued in Western Australia, and you have had more hot temperatures and warmer water, which is affecting the seagrass, which is food for the prawns and the prawns can't really move and go hunt for food. So that is a challenge. And the second one is the -- as you'll recall, the inventory buildup that we've seen globally with farmed prawns and that has been compounded now with all the tariff wars in the U.S. where countries like Vietnam, China, Thailand have been hit by huge duties, and we're waiting to see where will that product move into. So that's why I'm quite speculative in terms of H2. Ideally, we probably would have had a decent H2 in terms of pricing because supply within Australia is lower from other fisheries, particularly the Northern fishery. But as you can see with the 2 quotes that I've put at the bottom there from Rabobank, which are the leading agri banks and do a lot of research. It's very uncertain. In both those quotes, it looks like pricing is recovering, but it is uncertain. So what we have seen in terms of the Australian business, we have seen very good prawn volumes, particularly in our Exmouth fishery, not in our Shark Bay fishery, but combined, we should see the volumes that we were hoping in terms of our targets this year. Very, very good operational performance from the team on the ground there in Exmouth, in Shark Bay, in the Kimberly in every area with very strong cost control. We went through a redundancy program in January. It was not pleasant, but we've seen costs coming under control there. And also with very strong contribution this year from our engineering business. Our engineering business for 6 months does a lot of internal work, in other words, our vessels, but that staff complement is available, and we do a lot of the tugs for the likes of Rio Tinto, et cetera, and it's been very, very good. Of course, other than getting revenue, it also sharpens our engineering skills doing so much work for the industry. So it's been very positive all around actually in Australia from an operational perspective. As the Chairman said, even this business from a half year perspective has been a positive contributor with EBITDA nicely up to $2.3 million and the margin up. So it is a half 2 weighted business. We'll have to wait and see, but it's a lot better than where it was this time last year. And quite a nicely diversified business. As I say, I'll go into detail in half 2 in terms of the various channels. Foodservice is a big part of the business, predominantly out-of-home in Australia. And we have Cape Hake in there. We have prawns. We have Fish Trawl, which is product we catch in the Pilbara, scallops and crab, nicely diversified product mix. And I think the focus here will be to grow exports and grow retail because we already do a lot in the Australian foodservice market. Finally, if we look at our aquaculture business, which is our abalone business, this has been a challenging 6 months for this business. The markets have continued to deteriorate. Our team was in China, Taiwan, Hong Kong not so long ago. Demand is still low. The Chinese consumer is under pressure. They are saving more than spending with winter coming in their mind with the property crisis. So you can see off a very low base last year, we've had a further 26% reduction in pricing, and that's across all categories, dried, canned and live. And just that reduction in pricing, which is around $7 on 400 tonnes took away ZAR 52 million in EBIT in the first 6 months if we compare to the first 6 months of last year. But on the positive, our integration between the farms is going incredibly well. We're showing some really good performance in our old Viking farms, a 16% improvement in terms of growth rates. The quality has improved, and the team have done an excellent job in terms of taking costs out of the business. We had a target of an annualized number of ZAR 20 million. It went to ZAR 40 million and now it's ZAR 60 million. And they're well on the way in terms of achieving that. Again, what I've done here is I'm not comparing what you have in your financials. I'm trying to compare VA and Aqunion together for the same period, 6 months on 6 months. So you get a fair comparison of what's going on. And you can see ironically that volumes are up. So the team has done an excellent job in terms of getting more volume into the market. It's particularly canned product that they've got there, which is not as profitable. But you can see the effect on price. Price was 30% down over that period with mix added to that. So you can see the reduction in revenue of 17% with GP coming down by 38%. Pleasingly, from an operating profit perspective, the company was in the black of ZAR 8 million in profit, but it was more the fair value write-down of ZAR 41 million that impacted EBIT with negative ZAR 39 million, still very decent GP margins. And as I say, it's a business that is a very small part of our business. It only constitutes 4% of our revenue, but it has the potential of very strong upside once China recovers. You can see that our biological assets in terms of volume have increased, but in terms of value have decreased, predominantly driven by the way the fair value is calculated in terms of price, volume and ForEx. And 2 of those out of the 3 were negative going into this period. If we look at our Cape Harvest Food Group, this has had a very, very strong performance in the first 6 months. I guess the only challenge is globally, we're seeing prices not moving up significantly in terms of powders, cheese and butter, but they have stabilized nicely. And what we are seeing is that with increased milk flow into our facilities, we're showing good efficiencies, good economies of scale, good cost control. The pricing in terms of milk has been stable. We're starting to see foot-and-mouth disease dissipate in terms of the farms that we can buy from. Although these numbers, most of it is still with half our business having to deal with vaccinated animals. We are seeing the solar PV that we installed. We installed a 1.6-megawatt plant at Ladismith and about 30% of the plant now runs on solar, performing incredibly well and good savings there. We also put in a roller drier powder plant, an additional powder plant, where we were planning to have close to 40% capacity utilization this year. It's almost hit 70% and it's growing. Our sliced cheese line that we put in is at 100% capacity. So generally, all parts of the business have performed well. We've managed to increase exports over this period, particularly on cheese, and we've disposed profitably a lot of the BM Foods businesses that we had in our portfolio. So good focus by the teams here, and you can see it in the numbers. Revenue is up 24%, driven by both volume and price and mix. GP Up 20%. EBIT was up 73%, nice growth in the EBIT margin. That will only improve as we are able to take more milk that doesn't have -- has not been vaccinated will allow us to put it into products where we do have a better value mix and not just cheese. But you can see EBITDA up to almost ZAR 80 million for the 6-month period. So very strong performance from the team in Ladismith. You can see from a milk flow perspective, nicely up year-on-year. Milk price did start increasing significantly between '22 and '24, but has since stabilized with a nice increase in butter, cheese and powder prices globally. This is a phenomenon in this category that we're showing all over the world. Butter, cheese and powder pricing has increased, whether you're in New Zealand, Europe, Oceania, Asia, et cetera. If we go now into the channels, where has that growth come from? It hasn't come from retail. It's predominantly come from foodservice and business to business as well as our depots. So that's where our focus has been in terms of growing that part of the business because we do have a constrained consumer in South Africa. And we've shown nice growth in these particular channels. You can see how nicely diversified the portfolio is with 36% being in foodservice, 31% being business to business. That would be for the likes of people that would be buying butter to make -- in bakeries business, et cetera. Retail 19% and wholesale 14%, very nicely diversified dairy business. I'll now hand over to Mo, which will take you through the group's financial results for the 6-month period. Mo?

Thank you, Felix. Turning to the group financial results for the 6 months to 30 June 2025. We'll begin with a segmental review and really pulling it all together. The South African Fishing segment continues to be the bedrock of the group and now includes both the Hake and the Pelagics business, accounting for 64% of revenue, but 90% of EBIT for the period. The South African Fishing segment EBIT increased by 74% to ZAR 568 million with the EBIT margin increasing from 16% to 20%. The Aquaculture segment had a difficult half with a loss before interest and tax of ZAR 39 million, largely driven by the negative fair value adjustment on biological assets. Cape Harvest Food Group had an excellent half driven by the increased volumes with revenue up 24% to ZAR 975 million, approaching the ZAR 1 billion mark for the 6 months, while EBIT was up 73% to ZAR 61 million. And pleasingly, the EBIT margin increased by 2 percentage points from 4% to 6%. Australia also had a decent half, turning around the loss before interest and tax from the last year to breakeven, and this business is really largely weighted to the second half of the year. All in all, a pleasing performance with EBIT up by 58% to ZAR 590 million with the group EBIT margin up from 11% to 13%. If we look back 5 years and over the particularly difficult financials year 2022, 2023 and 2024, the improved performance has seen H1 EBIT of ZAR 590 million ahead of full year FY 2022 and FY 2023 and almost in line with the full year FY 2024. Pleasingly, though, the EBIT margin has also shown some recovery to our target of 15% despite headwinds in some of the segments. From a group P&L perspective, for the 6 months to 30 June 2025, group revenue increased by 34% to ZAR 4.4 billion, with the inclusion of Sea Harvest Pelagics and Aqunion accounting for 21% to the top line growth. On a like-for-like basis, revenue increased by 13%, driven by good volume growth across all segments, complemented by sound price increases, particularly in the Hake business. Gross profit increased by 33% to ZAR 1.25 billion at a GP margin of 28% with good volume efficiencies across almost all businesses, offset by softer pricing in Pelagics and aquaculture. Other income of ZAR 138 million includes ZAR 25 million of insurance proceeds and ZAR 58 million in positive ForEx and fuel hedges. And net operating expenses increased by 14%, but this was largely as a result of the acquisitions effected in the last year. With a keen focus on good cost control, fixed costs on a like-for-like basis increased by 2%. Benefiting from the good top line growth and the volume efficiencies, operating profit more than doubled to ZAR 633 million with the operating profit margin ticking up to 14%. Included in the negative ZAR 44 million fair value line is a negative ZAR 41 million fair value adjustment on biological assets and related stock as well as a ZAR 9 million charge on the contingent consideration. This resulted in group EBIT up 58% to ZAR 590 million at a 13% EBIT margin. Net finance costs were up 9% to ZAR 140 million, largely as a result of the acquisition effected in the prior year. After accounting for minority share of losses in aquaculture of ZAR 15 million, Sea Harvest Group shareholders -- profit attributable to Sea Harvest Group shareholders increased by 87% to ZAR 330 million, while group EBITDA approaching ZAR 800 million now was up 51% to ZAR 793 million at an EBITDA margin of 18%. If we adjust the profit attributable to Sea Harvest shareholders by the insurance proceeds received during the period as well as the profit on the disposal of various properties and businesses within BM Foods, headline earnings increased by 120% to ZAR 318 million. And after accounting for the equity issued to Terrasan in the prior year, earnings per share increased by 62%, while headline earnings per share increased by 91% to ZAR 0.95. The period saw a significant investment in working capital in an amount of circa ZAR 300 million as a result of rebuilding low stock levels at the end of 2024, being at peak working capital cycle at the middle of the year, the significant increase in the top line as well as the timing of sales and receipts. This resulted in net working capital as a percentage of revenue increasing from 19% at the end of last year to 21% at the middle of this year, although better than where we were at the middle of last year, where we were at 25%. From a CapEx perspective, H1 2025 saw the group spend some ZAR 204 million in maintaining its asset base, including having to deal with increased scrutiny from the regulators. This equated to circa 5% of revenue in the period. Expansion CapEx of ZAR 89 million included ZAR 57 million on the new freezer trawler, the Harvest Camissa, and depreciation on PPE was ZAR 173 million in the period, equating to circa 4% of revenue. Turning now to the group cash flow waterfall. The group opened 2025 with ZAR 290 million and generated operating cash of ZAR 972 million. From a working capital perspective, ZAR 295 million was invested, while the group utilized ZAR 199 million in servicing interest and tax and a further ZAR 73 million on the growth of biological assets. As mentioned on the previous slide, ZAR 204 million was invested in our business as usual CapEx and ZAR 83 million in expansion CapEx, while the group utilized ZAR 83 million in settling dividends during the period and a further ZAR 25 million in repurchasing shares, closing the period with ZAR 303 million in cash. From a debt perspective, and touching on the SA debt, we'll touch on the group debt on the next slide. South African net debt has decreased by ZAR 74 million from ZAR 1.92 billion to ZAR 1.847 billion. And based on the improved performance, the SA net debt-to-EBITDA covenant has decreased from 1.92 to 1.63x. Turning now to the group net debt. Group net debt was also down by ZAR 74 million from ZAR 2.66 billion to ZAR 2.587 billion, with the group net debt-to-EBITDA ratio decreasing from 2.5 to 2.1x. As touched on by the Chair in his opening remarks, the Australian debt is ring-fenced with a 15-year amortization profile, which begins in December 2027. Australian net debt was stable year-on-year, noting that it is at peak working capital midyear. Based on the improved performance, ROCE has ticked up from 10% to 12%, while the free cash flow conversion has also improved from 58% to 59% on an annualized basis despite elevated levels of working capital at midyear. From a group capital allocation perspective, the group continues to consolidate the acquisitions that we've effected over the prior years with a focus now on generating the targeted returns. Organically, the group will continue to pursue efficiency projects and organic growth opportunities that deliver targeted returns and ultimately driving long-term shareholder value. The significant focus on the capital structure continues with a target set to reduce debt by 50% over the next 3 years through noncore asset disposals, maximizing free cash flow generation and determined cost reductions. Of course, a strong balance sheet will allow the group to support improved dividends in the future. The group will continue reinvesting in its business, renewing the fleet, driving factory efficiencies, recruiting and retaining increasingly scarce critical skills and diversifying markets. Balancing optimal working capital levels to support the business remains a focus, particularly with 3 seasonal businesses now in the group being our Ladismith, Australia and our Pelagics business. Thank you. I'll now hand back over to Felix to take us through an outlook for H2 2025, after which we'll take questions. Thank you.

Thanks, Mo. I think before I go into an outlook, which I'm sure everybody is more interested in, I'd like to just go back to what we presented 6 months ago in terms of our strategy and where we're going in the next 3 years. So you'll recall, I mentioned that we went through quite a strong growth phase in the periods following listing. To the extent last year, we've reached the consolidation phase. And what we've said, there are 3 key pillars now that we are focusing. The first one is to really optimize cash generation from our core businesses. And that's our Sea Harvest Hake business and our Pelagic business. In terms of the Hake business was to increase exports, which you've seen, we've done, we've grown it by 30%; efficiency improvements, new vessels, factories, et cetera, et cetera, modernizing our fleet, which we're very thankful in terms of support from our shareholder base in terms of being able to do and we've done that. On a pelagic perspective, modernize our fleet, we put an order for 2 new vessels there, again, to make sure that we are efficient, increasing our throughput in our facilities by 30% and developing new markets. And if you recall at the time, I did mention that, look, at the end of the day, we are also reliant on nature. So it would be dependent on catch recovery. But what we wanted to do is streamline the business. So when catches arrive, which we know they will, the business was fit to take advantage of that opportunity. And we've seen exactly that plan out. If you recall, I had presented that I expect through the cycle these businesses to make around ZAR 700 million, and we're close to ZAR 600 million in half 1. I mean we are definitely going to achieve not within 3 years, but within 1 year, what we wanted to achieve there. The second one was to address the capital structure in the business. And really, it's shoring up the balance sheet and enabling us to -- with our strong cash flow generation, pay back debt and at the same time, pay a very decent dividend to shareholders that have been very supportive of us for many, many years. That included selling noncore assets, which we have done, quite a few, maximizing free cash flow. Unfortunately, and I put it in orange there, it's been a little bit tricky in the first 6 months because as the business has grown and you've seen revenue growth the way you have, we've obviously had to invest in working capital. So that's been the main reason why you're seeing less cash generation, but that will normalize and that will come through. And then the second one was to manage CapEx because once we've done all -- most of our CapEx has been spent. It's a matter now of matching depreciation with CapEx so that we don't consume more cash in terms of enhancing earnings. And the plan there was to reduce the debt by 50% over the next 3 years and really get our net debt-to-EBITDA below the 1.5x. So we've made good progress there in terms of reducing it, but there's -- I mean, it's only 6 months in a 3-year journey, still a bit to go. The last one was our businesses -- which are a smaller part of our businesses right now being our abalone and Australian business. And that really is to position them for growth when certain, let's call it, macro factors turn. This is really China turning, and it's really prawn prices globally normalizing. And what we wanted there is to at least have ZAR 100 million from each of those businesses within a 3-year period. I put that as red because obviously, we've had a ZAR 39 million loss in terms of EBIT, driven by fair value. I think it will be more reasonable to see where that is after the year-end. But this is going to be a 3-year journey. The reality is China won't recover overnight. And Australia, in terms of some of the issues that it has are longer term, particularly with marine heat waves. So I've still got that as red. However, if I look at our EBIT margin, we said our EBIT margin needs to get to 15% within 3 years. I put it as orange. We're currently at 13%. I believe we probably will get there sooner than what we've said, potentially by the end of the year. The second one was to have our ROIC equal to at least our WACC. Our WACC is sitting at 13%. Our ROIC is currently at 9.3%, but it's moving in the right direction in terms of getting where we want. We've clearly stated that we want to improve the dividend going forward. It's not applicable. We haven't deviated from our dividend policy. If you recall that listing, we pay one dividend at the end of the year, after year-end, usually between a 2.5 and 3x dividend cover, which we've always honored. I would imagine that with such strong cash flow generation, this is something that we did discuss internally, but our preference for now was to give it a little bit more time, pay back some debt and look at something more reasonable in next year after the year-end. And the last one was our HEPS to be above ZAR 1.50 within 3 years. That's sort of the through-the-cycle HEPS that I targeted my team with. And being at 95% in half 1, we're going to get to that number long before that 3-year period. So I think that generally speaking, this is our scorecard internally as a team. I think we're heading in the right direction. I believe we definitely are. If we look forward to H2 now, which is what everybody will be looking at, I do believe that these catch rates in terms of hake will continue. As I've said, when we see the declines, they happen for 3 years. When we see the recovery, it does happen over a longer period of time. Of course, we are always dealing with nature and you don't know. But June and -- July and August, we've seen a continued good performance in terms of catch rates over winter. So that's been very pleasing. We definitely have a capacity now to catch our full year TAC this year. You'll remember that last year, we left quite a bit of fish in the water. It was a lost opportunity. We've capitalized on that, and we will catch our full allocation this year in terms of hake. We are seeing demand for Cape Hake very strong, in fact, stronger than it was the previous 6 months. And what we've seen is a very strong uptick also in horse mackerel. So the challenge in horse mackerel has been now how do we catch more rather than the market. Continued focus in operational efficiencies. We've done a lot of good work in this area, and we'll see it benefiting us in terms of half 2. And we are expecting as a team that fishing will finish very strong this year. It will be a good year because based on what we've seen from July and August. The Australian business, we've seen very good catches, reasonable, I'd say there, but it's been good relative to other years, both in prawn and in mackerel and in Fish Trawl. Our engineering business is performed -- if we look at our order book, it's full until the end of the year. So we expect it to continue performing well. Really, the big question mark here is that what will happen in quarter 4 in terms of moving all the inventory that we've caught. And I keep the analogy that the forwards have done all the work. Now the backs need to come and score the tries here because we've got the product in stock now. It's a matter of how do we perform in terms of quarter 4, where it's the big buildup in terms of sales. From an abalone perspective, we have not seen any change going into winter. Demand has still been weak. Prices are under pressure. What we are seeing sadly is competitors starting to dump product to generate cash. A lot of the farms are in trouble locally. I strongly believe only farms with strong balance sheets will survive this period. And our focus right now is to focus on what we can control, which is our costs, our efficiencies in terms of growth rates and making sure we balance supply and demand, potentially mothball underperforming farms. So we have a very clear strategy and the team are implementing it to the book here. So I think that this business, once it recovers, will be fit for growth. And finally, our Ladismith business, we would say that in half 2, the markets are more in balance. The costs are under control. We do have additional capacity. We also do have nice balanced stocks in place, which we need to start moving in half 2. It is -- generally milk flow is better in the second half. It is more a half 2 business. So I believe that business is also well positioned to have a decent half 2. So I'm quite positive on the fishing and on the dairy side. Fortunately, that's the biggest side of our business, quite negative outlook on abalone for the next 6 months and 50-50 on the Australian side. Okay. That's it from us. Just to end off with determined cost reductions across the entire business, and I'll take questions. Thank you. Over to you, Fred.

Good set of results. Thank you, Mo and Felix. And now we've got a few questions.

Yes. Mr. Chairman, the first question. Murray Moore, you say horse mackerel demand and pricing is strong. How have catches been?

Thanks, Konrad. I need to answer that in 2 sections. Firstly, catches on the Sea Harvest fleet in Cape Town, which is our Viking fleet. They've been stable and improving. However, our catches on the Desert Diamond, which is our joint venture with Oceania has been incredibly poor. Catches to that level for a vessel that size have not been there, as I say, and the markets have been incredibly strong. So 2 different fleets. The fleets that are dual with hake have been good, but dedicated horse mackerel trawler has been poor.

Three more questions regarding the Pelagics business. What was the outcome of DFFE's second research trip regarding anchovy and pilchard TACs? Are the anchovy and pilchard TACs now final?

Thanks, Konrad. Yes, they are. The survey was completed. We're waiting for another survey, and we're pushing government to do it by the end of the year, but the TACs are final. What I presented were the final ones for this year. From what I can see, the red eye is very strong in terms of biomass. Sardine is recovering nicely from what we've seen in terms of biomass versus the last 4 to 5 years. But anchovy obviously had a very, very poor result, and we've seen it in the water as well. We've been asked by scientists to avoid anchovy completely for this year. But as I say, the last time we had something like this, it rebounded very quickly. So the only concerning one is the anchovy biomass, which was -- also, I must just caution that the survey was also done at a different period of the year. So it's not a like-for-like comparison with what we had. So a lot of questions about it. But my personal view is that rather look at what you're seeing in the water, and we haven't seen a lot of anchovy. So I would say that the anchovy resource has been under pressure.

I'll combine these 2. They both relate -- well, they relate to the Pelagics business. What was the local oil yield percentage? And can you share what you have been experiencing in the canned pilchard market. With most protein prices up substantially, I'm assuming it's been a nice tailwind for canned pilchards.

Look, the fish oil yields have been almost double. So probably 3.8% to 4%. I don't know what local means, but I mean, our produced fish oil yields have been almost double. So that's the number. In terms of demand for pilchards is definitely there. That hasn't been our problem. I think as you've seen, 28% increase in terms of sales. I think the bigger issue here has been supply with local landings and the TAC being set at half almost what it was of last year. That's been a problem, which meant that all of us have had to import more. And the other geographies that we import from have had similar challenges like Morocco, et cetera. So it's been more expensive to import. So margins are under pressure. So I don't think it's a demand issue, certainly a supply issue on canned pilchards.

Questions from Charles [indiscernible]. Aquaculture could -- question about aquaculture, could the decline in demand be structural? In other words, a change in taste.

Look, it's a good question and a question that we watch very clearly, but we think it's the opposite. We've seen more production of Chinese abalone, more consumption of abalone. It's just a different type of abalone because the consumer doesn't have the disposable income to be spending on expensive abalone. That's what we've seen. And that's our view. Even in Hong Kong, where you've had -- the bigger issue has been people moving out of Hong Kong and restaurants closing. If we look at consumption, consumption hasn't decreased as much as what we would have -- it's decreased on South African abalone, but it hasn't decreased on overall. I don't think Chinese people are eating less abalone. No. In fact, they're eating more, and they've got a better, more affordable opportunity to be there. So no different to whitefish or any other product that's out there. It's a matter now of how do we differentiate because ours is definitely a superior abalone. How do we differentiate it? So when people are more confident to spend more that we seize that opportunity. I think the other problem that we have, it's a very fragmented South African abalone industry. I mean, you've got 3 players that I think understand branding and the whole -- how you position the provenance of South Africa in the market. So we've got a fragmented industry. But perhaps this is an opportunity where most of the industry will land up consolidating, and we might have a stronger industry going forward.

I'm going to ask these as they relate. If abalone is a cyclical issue, would it make sense to buy out some of the more distressed operators?

Yes. I mean that's what we -- I mean, that's why we moved into abalone last year in terms of buying Aqunion, which is the biggest farm. I think where we are right now, we're positioned where we want to be. We've got 1,000 tonnes of biomass. Our view is that let's get that biomass sold and ensure that we do it properly and we become profitable. And if product moves out of the market, I don't foresee us right now. We might do certain things in terms of partnerships, but no, we wouldn't be going to buy distressed parcels right now because we've got our own work that we need to do.

Right. And these two questions also from Charles [indiscernible]. BM Foods, what have been the learnings here? And why do these assets or businesses not perform since initial acquisition? And staying with Charles, you have spoken about certain operations being noncore that could be disposed of. Have you made any progress in this regard?

Look, I think the BM was not a big acquisition. I mean it was a smaller acquisition in our portfolio. But it was really to look at related categories and see if there is potential in related categories. If I look back now, it just strengthens what I've seen in terms of the movie that's played out at BM strengthens our belief of what our investment case was at listing. And that is to reduce customer concentration. BM Foods had customer concentration in terms of a large retailer. Secondly, I've always been of the view that don't have any customer more than 10% of your -- especially in retail because retailers are strong. The beauty about Sea Harvest has been that we are diversified all over the world with maybe 40 retailers we send product to. We are not reliant on any particular retailer, which BM Foods was. And thirdly, they were very much -- or we were very much in that business in private label. And again, something that I believe a branded FMCG business a lot stronger than being reliant against on retail. So that's the answer to that. It pretty much proved the hypothesis of where we want to be with all our businesses. So it was a very good learning in my view. Yes. And at the same time, we have managed to dispose a lot of the assets in terms of profitably. We've sold the olive business. We've sold the pie business. We've also disposed on quite a few properties. So generally speaking, I mean, we've actually done well out of the asset and well done to the team who's worked very hard. I mean we were partners with the owners, and they've done a very good job in terms of getting value for all shareholders.

Thank you. From Sumil Seeraj from Standard Bank. Congratulations on a strong set of results. Can you please explain the reduction in cod quotas in the European market? Can you also disclose the hake tonnage caught in H1? And how much more do you have left for H2?

Thanks, Sumil. Thanks for those kind words. Firstly, the easier one to answer. We caught around 52% of our hake in H1, and we've got 48% available for H2. And we've pretty much got close to 70% of our horse mackerel available for H2. So once we get to our hake, we'll start deploying vessels to look for horse mackerel. So that's where we are with that. In terms of the cod, it's a good question. Lots of theories around it. Is it perhaps over catch and the arguments that Norwegians and the Russians have in terms of catch and the co-share agreements, et cetera, the Norwegians will blame the Russians. Russians will blame the Norwegians, I'm not sure. It is a cyclical species as well. The only thing with cod is that it's a long-lived species and recovery takes a long time. So what we are seeing now, it's not going to be a 3-year journey. It's going to be a 5-year journey plus. So that's probably the reason is that perhaps they got the biomass wrong and the TACs were set a little bit too high. That's what I think it is, but I mean, I'm not a scientist. And what was the other question, Konrad?

It was about the disposal of noncore assets.

Yes. Look, I think that we've already, as I've mentioned, disposed of a lot of the BM assets profitably. We also disposed of all properties in the group that were not core to our business like our Terrasan head office we acquired. We're in the final rounds of disposing of a Spanish mackerel package in Australia. So everywhere where we were seeing something is not core and there's demand, we are disposing of it and bringing the cash to the center to repay debt.

From Myuran Rajaratnam. Again, a question about the disposal of noncore assets. I think you've answered that. Your catch rate improvement has come to the rescue earlier than expected, but does this mean the foot lifts off the pedal in terms of streamlining the business and improving efficiencies?

I wouldn't say catch rates came to save the business. I think that the biggest benefit has been on the pricing side and the demand side. I think that where we were, catch rates have normalized. I wouldn't say that catch rates are at their peak right now. I think this is what we'd expect from hake to be around the 10 tonnes a day. We're not hitting 15 tonnes a day, which we've seen in certain years with nice big fish. So no, I wouldn't say that. I think there's still more -- it could be a lot better. And what was the second part of the question?

It was -- does this mean the foot lifts off the pedal in terms of streamlining and improving efficiencies?

No, I think you always, in your business, have to look at efficiencies. And efficiencies are 2 different types of things. One is do we take out cost? Probably we've taken out costs and if we take our costs now, we're going to go into bone. So that's not where we're looking. But in terms of do we have the right vessel mix, is our utilization right on the vessels? Are we getting the right yields in our factories? Are we getting the right throughput? That relentless focus on efficiency improvement is going to be there.

Also from Myuran, what was the issue with the Desert Diamond?

There is no issue with the Desert Diamond. The reality is that if you look at that size vessel and the amount of fish that it needs to catch per day, you do have a cyclical period of horse mackerel catches where they concentrate particularly on the East Coast, and that hasn't been there this year. We've deployed the vessel, and you'll hear more about it in the Oceania presentation because they run the vessel, but we have looked at options at deploying it in Namibia, and we did successfully do that. But in South Africa, this year, we are not seeing the abundance that we see in other years. And it is also a cyclical species. You'll have 3 years where you knock the lights out and then you'll have 3 years where the species is not there. And again, very driven by climatic factors too, and water temperatures. So again, if you talk to the scientists, they'll say that the fish is there. We are seeing the fish there in fairness because with our vessels, we are catching it at the bottom. But the fish could move looking for the right temperature where there's food.

From Matthew Robarts from Blue Qadrant. What is the CapEx expectation for H2 of this year? Any further ship acquisitions? And again, in reducing debt, what further operations are noncore that will be considered for disposal?

I think that in half 2, we still do have quite a bit of CapEx to get through in terms of keeping these vessels that you're seeing there at sea. So they require quite a bit of spend and the requirements globally now have increased in terms of the amount of steel, et cetera, you have to spend. So I think it will be quite a bit of CapEx that will still go through in terms of keeping the vessels at sea. So this year, we will be over on CapEx, most definitely. But no, we don't need more vessels. I think we are where we are with the fleet other than the pelagic boats where we've placed orders to look at replacing 2. They're going to be new builds within the next -- probably delivery within the next 3 to 4 years.

Right. And this -- continuing on that question from the same attendant. Also from Chris Logan, a similar question, in reducing debt, what further operations are noncore that will be considered for disposal?

I think anything that -- if somebody approaches us with a decent number in terms of businesses that we believe don't fit, we will certainly look at it. Right now, that hasn't been our focus. Our focus has been more to optimize our businesses and get them fit first before we look at something. But generally speaking, clearly not in our core businesses, but all the businesses that are right now not where we want them to be, we will be having discussions.

From Siphelele Mdudu, Matrix Fund Managers. What is the upside case for the abalone business? What needs to happen for this to improve?

This is the nice question because the upside potential is astronomical if it ever got there. So in very simple terms, if we get to pricing pre-COVID, which was over $30 a kilo, that's $10 a kilo more than we've got here, and we produce 1,000 tonnes. So if you do the math, it's a big number in terms of just getting to -- actually, it's not pre-COVID, that's post-COVID. Pre-COVID was $35, it's $15 on that amount of tonnage. So the upside of abalone is the biggest upside of any part of our business. But the big question mark is what does the macro economy look like in China? And that's anybody's guess.

Again, from Murray Moore. The last I heard the fishing vessels were seeing great pilchard catches, but DFFE came out with a poor conclusion to their research. Why is that?

I think we need to sometimes differentiate between science and emotion. As I've said, even on our hake side, we saw very poor catches the last 3 years, and the scientists were saying that the TAC needs to be increased because the resource is strong. And we've seen that they were right. In this scenario here now, the scientists are saying that we need to take a precautionary approach to catches. And the industry is saying that, oh, but it's fantastic catches, why are you're not increasing the TAC. Our view as Sea Harvest globally, not only here in Australia has been, you take a precautionary approach to fishing. You ensure that you protect the resource. You ensure you don't do long-term damage because those type of comments are the comments that can come and bite you later if you over harvest. And that will be forever, not short term. So we always take a very precautionary approach.

Question from [indiscernible] PSG Wealth and Financial Planning. Well done to management for a good set of numbers and cost control. Is management considering any impairments for the financial year 2026?

Can I give that one to Mo rather?

Yes. No. Look, we'll have to consider all of that as we go into the -- as things stands now for media, of course, no impairments, and then we'll do our normal impairment testing as we go towards the end of the year. So we can't comment on anything in that right at this stage.

Questions from Chris Logan. The first relates to what we see as core and noncore, which I think has been answered, unless you want to expand on that. But also from Chris Logan, are you able to provide a breakdown of returns earned by operation, either ROCE or ROIC? And if so, could you please share those return numbers?

Yes. So we are able to do it. And of course, we track it as a management team. I mean, safe to say that the fishing businesses and even the dairy businesses have generated decent returns. And of course, just based on the numbers is where they are, abalone is, of course, negative and Australia is subpar at the moment so, of course, receiving the necessary attention. So certainly, there's certain businesses which are performing at ROIC well above WACC and some that are struggling. But that's also the nature of the diversified nature of this business.

I see no further questions on the system.

Well, there being no further questions, I just want to thank you all for your presence, for your interest in the company and for your patience with us. It's a fishing company, and it's not an easy business. As I've always told my executive, you can't contract with the sea. But under the circumstances, I think Felix and your team, you've done a very good job for these 6 months. Thank you to you and your team. Keep up on the cost management. And hopefully, the next 6 months will be as good or better. Thank you, everybody.