As Deloitte sets to the mammoth task of working out what to do with Pescanova, it’s looking like the seafood sector has a scandal that can stand toe-toe to some of the biggest in business, such as Enron and Parmalat.
As Undercurrent News revealed Pescanova has been factoring non-existent invoices, as well as duplicate legitimate invoices with several banks, the accounting firm starts to dig deeper into the hidden debt-ridden company. Who knows what they will find.
Deloitte which is Monday asking for 60 million from creditor banks to keep the company running is walking into a global crisis which is already warranting comparison with some of the biggest business scandals in Europe and the US.
Like Pescanova, energy group Enron and dairy company Parmalat grew into dominant players in their sectors through acquisitions, international expansion and diversification.
In all three cases, this was painted as a roaring success, when, in many cases, that was far from the truth.
Powerful individuals, wielding too much power over boards, banks and auditors, also controlled all three companies.
Manuel Fernandez de Sousa-Faro, chairman and son of the Spanish group’s founder, Jose Fernandez Lopez, may be out of the picture when it comes to running the company, but he’s likely to have to answer for its past.
Fernandez had the pulse on everything in the company, said one source, familiar with the chairman, now suspended from running the company. He made all the important decisions about strategy and reporting but left the nuts and bolts’ execution to the country and project managers.
The signs were there of the crash in the past few years, the source said. I think that the can of worms may get substantially worse.
The issue of responsibility still needs to be ascertained in the case of Pescanova, and at the moment, there are more questions than answers.
However, top executives from both Enron and Parmalat ended up getting heavily punished for their crimes, something minority investors in Pescanova are already calling for.
Reported to be at 1.5bn last year, Pescanova’s debt is now said to be of at least 3.3 billion, in addition to administration costs and supplier debt, taking it as high as 4bn.
According to Spanish media, Pescanova is now saying its debt includes 1.85bn of external liabilities, in addition to 350m of debt within its Spanish subsidiaries and 650-700m within consolidated foreign subsidiaries and 400m in bond debt.
To this several hundred millions must be added in administration costs and debt to suppliers, which would take the debt close to 4bn.
In the case of Pescanova, the company’s expansion into aquaculture seems unlikely to have been the success story the company has indicated.
In its Q3 report, the company claimed a 387.8m turnover and earnings before interest, taxes, deprecation and amortization (EBITDA) of 38.1m from aquaculture for the first three quarters.
It claimed an EBITDA from its shrimp business of 35.9m and 2.2m on farmed fish, which is mainly salmon and turbot.
Given that the turbot operation in Mira, Portugal was hit by two major accidents in the past two years and the combined losses of the stock listed Chilean salmon companies has exceeded $250m, it’s likely the EBITDA figures flatters the net result.
Pescanova is also known to have gone heavily into coho production in Chile, just as the market in Japan crashed over 2012.
With regards to turbot, the problem is less about the market and more about technical execution.
On April 15, Pescanova issued a statement attempting to clarify it had informed the Portuguese authorities about the problems at its turbot farms and production plant in Portugal.
The company has now started a lawsuit against those deemed responsible for the problems, in a bid to sue for compensation, it said.
The Spanish newspaper Expansion recently ran a story saying that the turbot operations, which are owned by Pescanova’s subsidiary, Acuinova, suffered from a faulty installation that was never reported by the company and that meant the 150m building costs will be hard to recover.
However, these incidents were not kept hidden and are instead reflected in the accounts and management reports for the years 2011 and 2012 in Portugal and were quantified by Acuinova to their auditors, Pescanova said in response.
The events were caused by a faulty construction of the hydraulic system of the seawater intake, which caused problems in the normal water supply, and resulted in the shutdown of a project phase, said Pescanova.
Acuinova filed a lawsuit against those deemed responsible for the problems and asked for damage compensation. Legal proceedings are underway in Portuguese courts, the company claims.
Although the company’s shrimp businesses in Ecuador, Nicaragua, Honduras and Guatemala were seen as strong assets reporting strong results, volumes have crashed since the company’s Q3 report.
Promarisco, Pescanova’s shrimp farming and processing business in Ecuador and it’s largest shrimp division, reported a further dive in exports in March on the already-low level of February.
The March export figure for the processor, once the biggest shrimp exporter in Ecuador, is 2.17 million pounds, a decline from 2.26 million pounds in February and 2.79m pounds in January, which was up on 2.67m pounds in December.
However, Promarisco’s plant in Guayaquil has a capacity of around 10m pounds a month.
The plant is still well under capacity, a sign of reduced cashflow cutting the company’s ability to buy from third party suppliers, sources said.
They are losing money every time they switch the lights on, one source in Ecuador told Undercurrent. They need big volumes to make that plant pay.
Undercurrent News