Tiger takes R94m knock on put option
May 24, 2005
By Dirk De Vynck
Cape Town - Branded food and pharmaceutical group Tiger Brands` results for the past three financial years have taken a knock of R94 million due to the potential loss relating to empowerment company Brimstone`s shareholding in Sea Harvest.
The exposure relates to the granting by Tiger Brands of a put option in favour of Brimstone and in respect of the empowerment firm`s 22 percent shareholding in Sea Harvest. A put option is an option to sell a security at a specified price and at a specified date.
Tiger Brands, which holds 74 percent of Sea Harvest, initially granted the put option for the 22 percent stake in favour of Brimequity, an equal partnership between Brimstone and Coronation Capital, in 2001.
However, the duration of the put option was extended in December 2003 after Brimstone`s purchase of Coronation`s 11 percent interest in Sea Harvest.
Tiger Brands said the difficult conditions experienced by the fishing industry over the past few years, compounded by the strengthening rand and the uncertainty of future quota rights, resulted in a potential exposure for Tiger Brands were Brimstone to exercise its option within the allowed period, being between December 8 2006 and December 8 2009.
Despite the difficulties in measuring the value of the option, Tiger Brands determined the liability to be R94 million. This has knocked R7 million off the latest interim net profit to March and R21 million and R66 million respectively in the 2004 and 2003 financial years.
However, the group made it clear that the exposure did not take into account the impact of improvements in fishing conditions and any significant weakness in the rand exchange rate.
Also, Tiger Brands noted there were no indications that Brimstone was intent on exercising its rights.
Pierre Marais, an investment analyst at African Harvest, said Brimstone`s position could change if the proposed quota system, in accordance with the draft fishing policy in its current form, was accepted.
The draft policy could lead to between 25 percent and 50 percent of the big fishing companies` quotas being redirected to small and medium enterprises.
Mustaq Brey, Brimstone`s chief executive, said although the group had no intention of exercising its rights at present, they had to do what was best for shareholders and could revisit their position if the situation worsened.
The operating income of Tiger Brands` fishing interests, which also include a 41 percent stake in listed Oceana, fell from R80.5 million to R45.1 million in the interim period.
Tiger Brands rose 60c to R103.20. The food producers and processors index lost 0.16 percent
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