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Fish Farmer [U.S.-Latin Trade magazine]

by Hope Katz Gibbs
Washington Correspondent
U.S.-Latin Trade magazine
September 1993

HERE’S A SHORT QUIZ. WHAT is the top three kinds of seafood products consumed in the United States? If you said shrimp is number one, you are right. Tuna is the second favorite fish, followed by salmon.

For the chairman and CEO of Marine Harvest International, Inc., these are important answers. John A. Mistretta’s aquaculture company, with fish farms in Ecuador, Chile and Scotland, is betting heavily on the U.S. demand for these seafoods.

“People should think of this industry in the same way they thought of the chicken farming industry when Frank Perdue first started out,” says Diana Burton, vice president and corporate secretary of Marine Harvest. “This is the beginning of serving gourmet fish to the masses. And why not? People love salmon and shrimp.”

Indeed they do. In 1992, the world’s fish eaters consumed 258,000 metric tons of Atlantic salmon. That same year, 115,000 million metric tons of Western White shrimp were sold. And the United States was the single largest market.

A PRIME PLAYER

This is all part of the plan for Marine Harvest, the only aquaculture company listed on the American Stock Exchange (AMEX: MHI). Marine Harvest is already the world’s second largest exporter of Western White shrimp to the U.S., and the world’s largest producer of fanned Atlantic salmon.

Such volume accounted for a successful earnings report for the first nine months of fiscal 1993, when Marine Harvest’s net income rose to $6.0 million (or .52 cents per share) on sales of $102 million.

That’s a considerable improvement since the company first listed its shares on the AMEX in September of 1991. In the comparable period of the prior year, it was running in the red with a net loss of $1.2 million on sales of $63 million.

The company wasn’t known as Marine Harvest International at the time. It went by the name Marifarms, having been formed that month as a spin-off from Ground Round Restaurants Inc. At that point it owned only shrimping and tuna operations.

They company began a turnaround in September of 1992, when Mistretta was given the task of expanding the company for its principal stockholder, Hanson Industries.

MISTRETTA TAKES OVER

Before getting into fish, Mistretta was nicknamed the “chairman of leisure” at Hanson Industries, the U.S. arm of Hanson PLC of London. There, he was responsible for such companies as Bear Archery, Tommy Armour Golf, University Gym Equipment Inc., and Valley Recreation Products.

During his time at Hanson, Mistretta worked under the tutelage of David Clarke, the deputy chairman and CEO of Hanson Industries. Hanson owned 33% of Ground Round, and likewise held 46% of Marifarms when it was spun off. When Clarke heard an aquaculture company was on the selling block, he decided to let Mistretta do some investigating.

It turned out that Unilever, a Dutch and British consumer-product conglomerate worth about $55 billion, had been investing millions in aquaculture technology. But turning out a successful crop was taking longer than shareholders anticipated. Unilever had been looking for a buyer since January of 1992 for its Marine Harvest Ltd. division, which owned 17 salmon farms in Chile and 32 in Scotland.

A GOOD BUY

Ironically, by the time Marine Harvest Ltd. was sold to Marifarms in October of 1992 for approximately $48 million, its technology had turned out a healthy $90 million crop.

“The only way we could have done better would have been to buy it two months earlier,” says Mistretta, who was the lead man on the acquisition. “A few months earlier they hadn’t seen any return on their crops. By the time we got around to buying them, they had had a successful harvest and that sent the price up a little.”

In the months after the acquisition, Clarke—who was the acting chairman of the new aquaculture firm—offered Mistretta, 47, the top job. “It was an offer I couldn’t refuse,” says Mistretta. Since then, much of the company’s success can be attributed to the determination of the new CEO, who officially took over in November of 1992.

THE NEW CEO

Those in the fish business say Mistretta became more than just the head of the company. He also became an apostle for aquaculture.

“If you just sit back and think about raising seafood on farms where you can control the quality and don’t have to worry about pollution, you have got to believe it’s the wave of the future,” he says. “There is no one who just does this.”

Mistretta’s first executive decision was to sell the non-fanning, tuna processing operation (too much bad press about catching dolphins in nets) and dive head on into salmon and shrimp farming. The decision seems to have been a good one.

Following its first year of operations as a separate company, before Mistretta took over, Marifanns’ stock had been sitting at $2.75 per share. On October 30, 1992, when Mistretta finalized the acquisition of Marine Harvest Ltd., the stock jumped to $5.25.

By May, Marine Harvest International—the new company, renamed after the acquisition— became the second fastest growing equity on the AMEX, trading at $9.50. By the third quarter of 1993, the stock was trading at $11 per share—a 400% increase from the day the acquisition was announced.

A RISING STAR

According to a report by Bob Figliozzi of the Stamford Company, Inc., a member of the New York Stock Exchange, Marine Harvest’s revenues this year could approach $125 million, with projected earnings of 70 cents per share for 1993.

“This is a special situation because it is a pure play in aquaculture, which is a growing business sector,” says Figliozzi, who expects the stock—which reached a high of $11.25 in June of 1993 and then slid
back to $10.25 in August—to trade in the early teens later this year. “The shares are thinly traded, so they are not suitable for investors who require constant liquidity. But they are extremely attractive for aggressive growth accounts.”

Currently, Marine Harvest’s shrimping facility in Ecuador produces 10 million pounds of shrimp annually and exports mainly to the U.S., but also to Canada and Europe. These operations are “top class,” says wholesaler Stuart Blakely at Cana Foods in Toronto, which closed a deal this spring with Marine Harvest to be Canada’s sole distributor of their Ecuadorean shrimp.

“They are extremely organized, their shrimp is consistently high quality,” says Blakely, whose business generates about $4 billion annually. “And they provide great service. If I ever need a certain amount of shrimp at a certain size, they come through. I can’t say that about many other producers.”

It is the company’s salmon fanning operations, however, which are giving Marine Harvest its boost on the stock exchange. On a daily basis, Marine Harvest’s Chilean salmon are flown to Miami on 747 jumbo jets. Its Scottish operations, meanwhile, supply the European market.

“Their salmon operation is stunning,” says Roger Fitzgerald, senior editor at Seafood Leader magazine in Seattle. “I have been tramping around fish plants for the last 20 years and they are the best as far as sanitation and technology is concerned.”

HIGH RISK

Aquaculture is a risky business, admits Fitzgerald. During the last presidential election when Ross Perot and Bill Clinton were telling Americans how poor fish farms were maintained, consumers just about stopped ordering shrimp cocktails. That put a real dent in the industry. “It’s an especially volatile industry right now,” says Fitzgerald. “The markets are weak and that is forcing large companies to become increasingly efficient.”

Efficiency is a priority for Mistretta. He says one of the company’s biggest assets is that at each facility they produce their own feed. Feed is the second biggest expense in aquaculture.

Mistretta also attributes Marine Harvest’s efficiency to the fact that each fish farm operates independently. “The corporate headquarters provides strategic direction and financing for the salmon and shrimp businesses, but they operate autonomously,” he says.

The result: the 10 employees at corporate headquarters in Woodbridge, New Jersey, are able to manage a company with 1,450 full-time employees and 170 part-time employees.

NEW FINANCING, NEW MARKETS

Being listed on the stock exchange doesn’t hurt, either. “By being publicly listed, we have opportunities and methods of expansion that our competitors who aren’t publicly listed don’t have,” says Mistretta. “We have access to different ways of financing.”

This includes 5 million new shares of Marine Harvest International (in addition to the current 7 million outstanding shares), currently being offered under the management auspices of Smith Barney Harris Upham & Co., and Bear Steams & Co.

But it is the Latin American connection, especially its optimal growing conditions, that really makes the company successful, says Mistretta. “The temperate climate helps the fish to grow faster, and labor costs are low,” he says. “Plus, the tax rates are right. The Chilean tax rate for our operation is 15%. Here they are 34%.”

As for the growth pattern of his company, Mistretta says he’d like to see the business grow geometrically.

“Right now our salmon operation is twice the size of the shrimp business. I would like to see them equal out, then both expand internally and externally,” he says. “I think our strength, particularly in salmon, is to stay in the wholesale side of the business. We have so much advantage over competitors at the processing and farming levels, that the next step is to expand into more farms, then to make more acquisitions, particularly in Latin America.”

For new markets, Mistretta plans to export more shrimp to Europe, where consumers prefer their shrimp with the heads (one less process for Marine Harvest). He is also getting into the “peel and de-vein” business, where shrimp tails are individually frozen and shipped primarily to the United States. “All customers would have to do is take their big bag of frozen shrimp out of the freezer, put it into a pot of boiling water, and voila: dinner,” he says.

Does Mistretta see himself as the Frank Perdue of fish?

His laughs: “Maybe someday I’ll be known as the king fish.”

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• MICHAEL GIBBS, website illustration and design: www.michaelgibbs.com
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• STEVE BARRETT, portrait of Hope on Bio page: www.stevebarrettphotography.com

Contact HOPE KATZ GIBBS by phone [703-346-6975] or email.

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