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Oceana delivers operating profit growth of 69% at the full year

Oceana Group Limited says it has demonstrated its ability to keep delivering value to shareholders while maintaining good financial discipline in managing its balance sheet. For the year ended 30 September, Group revenue grew by 34% to R8.2bn, operating profit increased by 69% to R1.7bn, and headline earnings increased by 34%. As a result of the diluting effect of the additional shares issued in September 2015, headline earnings per share (HEPS) increased by 20%, resulting in a five-year compound annual growth rate in HEPS of 12%.

Reflecting on the year, CEO Francois Kuttel said, “We are delighted with this performance. Despite tough conditions in our African markets, we have again delivered significant value growth for shareholders. This positive growth was driven by the inclusion of Daybrook and Amawandle (Foodcorp) assets for a full period, supported by 13% revenue growth in our African operations as a result of strong volumes in canned fish, fishmeal and hake, higher occupancy levels in the CCS business, and favourable pricing in most markets. We have also achieved material cost efficiencies in production, logistics, warehousing and freight, as well as improved efficiencies through our finance shared services centre and the renegotiation of key contracts.”

The Lucky Star canned fish and fishmeal division continues to be a star performer, contributing 52% to group revenue despite adverse fishing conditions and reduced quota allocation in South Africa and Namibia. The 13% increase in sales volumes reflects competitive pricing against other proteins, a strong marketing strategy, and the introduction of new products and flavours, with Lucky Star Pilchards maintaining market share of approximately 80%.

The company’s strategy to increase importation of frozen rather than canned pilchards, and to double production in its canneries in South Africa and Namibia, resulted in reduced foreign currency exposure and had a positive impact on overhead recoveries. 

“Importantly,” said Kuttel, “maximising local production capacity and investing in facility and process improvements resulted in enhanced efficiencies and had significant positive knock-on effects, providing 214 additional jobs.”

The industrial fishmeal business recorded a 19% increase in landings of anchovy and redeye herring in South Africa, with a further 13,000 tons landed and processed in the newly-commissioned fishmeal plant in Angola through the Oceana Boa Pesca joint venture. This resulted in a significant increase in sales volumes of fishmeal and fish oil. Pricing has been impacted by Peruvian quota announcements but positively offset by a favourable exchange rate.

Daybrook’s first full year as an Oceana Group company saw effective integration within the Oceana group. The improved landings of 687 million fish (2015: 650 million) and the increase in fish oil yields and fishmeal production reflected both a robust gulf menhaden resource, as well as enhanced efficiencies and additions to the facility’s capacity. Improved operational efficiencies made up for the softening in fishmeal prices following reasonable landings in its first 2016 Peruvian fishing season, and slightly slower than expected volume uptake in China.

“Now representing around 40% in value of Oceana’s market capitalisation, this acquisition has thus far delivered exactly what we wanted it to, and more. Our investment in Daybrook is a critical component of our commitment to securing long-term opportunities for value growth. With performance in line with what we had said to the investment community 18 months ago, we have seen significant returns being brought home to southern Africa, with Daybrook delivering revenue of R 1.9bn and operating profit before other operating items of R668m. Given the challenges many South African companies have faced in seeking to expand internationally, it has been pleasing to see how well Oceana has executed and delivered on this investment.”

Horse mackerel prices faced continuing pressure due to oversupply and tough trading conditions in traditional African markets, although the favourable exchange rate partially offset weaker dollar prices. In South Africa, the Precautionary Maximum Catch Limit for targeted catch of horse mackerel decreased by 8% to 38,656 tons. The Desert Diamond was deployed in Namibia for the last two months of 2015, then underwent planned maintenance before returning to South African waters for the last six months of the financial year. Although horse mackerel landings in the newly assigned fishing area were marginally better than last year, catch rates remained sporadic. Low volumes, coupled with dry-dock costs and higher foreign-denominated costs, resulted in high unrecoverable vessel costs. In Namibia, security of quota allocation remains a concern, while reduced owned quota and expensive purchased quota prompted the sale of the Desert Rose in October 2015. Despite weaker markets, margins in Namibia improved following the sale of excess fishing capacity, consistent catch rates, and the termination of experimental fishing efforts in Angola. 

Hake profitability improved significantly as a result of increased volumes following the Amawandle (Foodcorp) acquisition, firmer Euro prices combined with a favourable exchange rate, and lower fuel prices.  Oceana’s own and contracted quota now represents 12.4% of the Hake Deep Sea Trawl TAC, up from 1.1% five years ago.

The west coast rock lobster business showed a decline in profitability, following lower catch rates experienced by the industry and a lower live mix due to poorer fish quality, both of which negated a favourable exchange rate. Continuing uncertainties remain regarding quota allocations and the implementation of the small-scale fisheries policy.  The squid business reported a second consecutive year of positive results, following good landings, a weaker exchange rate, and a reduced fixed-cost structure. The fishing resource remains stable.  The French fries business remained profitable for the year, before being sold in August 2016 to Famous Brands Limited. The decision to sell was based on an undertaking by the purchaser that the factory will remain in Lamberts Bay, securing jobs and continued community support.

CCS Logistics continued to deliver revenue growth, driven by record occupancy levels in its 11 cold stores and supported by a strong focus on cost efficiencies. The relatively new transport services business doubled its profits in 2016, accounting for approximately 10% of total revenue.

Said Kuttel, “We are making a positive contribution to the regional challenges of food security and job creation. Our canned fish and frozen horse mackerel products are playing an important role in providing a low-cost healthy source of protein to low-income populations across the region. This is particularly important given the context of rising food costs and the recent drought. Our strategy of importing frozen fish and doubling production in our canneries, has helped not only to keep the market supplied with an affordable protein source, but has also resulted in an increase in the number of employees, as well as in the hours worked and wages earned. At the same time as delivering improved volume and efficiencies, the strategy has had a positive impact on the neighbouring community and local economy.

“Looking to immediate future, we’re going to continue  bedding down the integration of our Daybrook acquisition, consolidating the business to pay down the debt, and driving ambitious cost saving and efficiency targets. In Africa, we will be working to further extend the market for our Lucky Star products, while seeking new opportunities to increase diversification in species, geography and currency. As a larger player in the sector, we will continue to seek to play a leadership role in supporting small-scale fishers, working with them and other parties to drive fishing practices that are economically, socially and environmentally sustainable. Doing so is clearly in our collective interest.”

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