Lobsters pinch Sekunjalo's cash

Cape Town - Shareholders hoping that Sekunjalo Investment would soon pay a maiden dividend would have grimaced at the empowerment group's large cash outflows in the half-year to end-February 2009.

While Sekunjalo showed encouraging pre-tax profits of R11m, the all-important cash flow statement showed a cash outflow of R43m from operations.

With another R76m invested by Sekunjalo during the period, the cash flow statement showed the group shifting from a R36m cash positive position at the end of August 2008 to an overdraft position of over R40m.

At the end of the interim period the group's bank overdraft stood at R57m with about R17m cash on hand. The interest bill for the six months was R8m, lopping more than 40% off Sekunjalo's R19m gross profits.

Sekunjalo director Peter van Zyl explained that the group's cash flow situation was caused mainly by a slowdown in export lobster business operated by fishing subsidiary Premier Fishing. Premier is Sekunjalo's major investment, accounting for the bulk of profits and value.

He said demand in the US for south coast lobster had dwindled in the global financial crisis and prices had consequently softened markedly.

West coast lobster still going down a treat

Van Zyl said Sekunjalo decided to take a conservative approach by not pushing lobster sales at a time when customer payments were slowing down.

"We had to hold onto lobster stocks of around R30m and also have around R15m tied away in debtors."

Van Zyl said the cash flow situation had, however, rectified in the first two months of second-half trading. "The US market for lobster is picking up, and we have started to see large swing in the cash flow."

He emphasised that the slowdown mainly affected the south coast lobster, with demand for west coast lobster in the Far East and Europe still steady.

Van Zyl said cost-cutting at Premier Fishing was progressing well, with the pelagic business having reduced operating costs by R4m a month. He believed Premier Fishing would enjoy a strong second half.

Asked about Sekunjalo's dividend prospects, Van Zyl said the group was unlikely to pay a dividend at the end of this financial year. "We'll see how we do in the second half (which is traditionally stronger for Sekunjalo), but in the current environment we will probably only look to paying a dividend in the next financial year."

Finweek reported in April Sekunjalo chairperson Iqbal Survé predicted the group could pay "a very high dividend" in the 2010 financial year, provided there was no global economic meltdown.

By lunchtime on Wednesday, Sekunjalo's shares were trading 10.5% up at 42c.

- Fin24.com