From cold to bold

FISHING giant Oceana Group – which is best known for its Lucky Star canned pilchards brand

FISHING giant Oceana Group – which is best known for its Lucky Star canned pilchards brand – looks set to bolster its cold storage and logistics segment, which trades under the CCS banner.

CCS is a large scale operation that offers cold storage, blast freezing and transport of fish, poultry, meat, vegetables and dairy – but has long been regarded as the Cinderella of the Oceana empire.

The business comprises eight storage facilities and more than 123 000 pallets – yet accounts for just 5% of Oceana’s revenue and operating profit lines. In the last financial year CCS saw revenue markedly down at R373 million (2018: R433 million) and profits slumping by a quarter to R60 million.

Oceana said CCS continued to feel the impact of the subdued local economy, with low occupancy levels in its Gauteng and Walvis Bay operations placing pressure on pricing and margins.

Writing in the latest annual report, CEO Imraan Soomra noted that Oceana had consolidated CCS’ inland capacity and focused efforts on driving growth in the South African coastal facilities. The Angolan storage facility was closed after poor fishing conditions and steep increases in import tariffs.

But the poorer performance from CCS should not detract from the key role the cold storage hub is increasingly playing for Oceana.

Soomra indicated that under a new leadership team, CCS played an instrumental role this year in enabling effective implementation of Lucky Star’s frozen fish strategy as well as adding value more broadly to South African importers of frozen produce. “We believe that there is further growth potential…”

Soomra also added that although CSS’ occupancy levels were lower than planned, these were still “very good” compared to others in the market.

Soomra said the strategy for the past financial year was to stabilise the Gauteng region, which had been facing disappointing occupancy levels for a number of years.

He explained that the cold storage requirements have reduced in Gauteng – where distributors and producers tend to have their own capacity. “The tough competitive environment and excess capacity was exerting pressure on pricing and margins. We decreased our capacity by exiting one of the Midrand leases.”

He said CCS would continue to have some footprint in Gauteng, but the focus will be on coastal areas where there was a competitive advantage.

“Our Cape Town and Durban facilities enjoyed a fourth successive year of occupancy levels above 85%.”

Somra said CSS consolidated some its Cape Town operations into the most efficient grouping by expanding on the company’s own capacity and reducing leased assets.

He reported saw volume growth in fish imports and pointed out that the division played a larger role in Lucky Star’s frozen fish procurement strategy – storing much higher volumes than in 2018. The lack of local pilchards has forced Lucy Star to import frozen fish mainly from North African countries.

But the need to store additional frozen fish for Lucky Star is a double edged sword for Oceana.

Soomra elaborated: “Given our frozen fish strategy, significant space was reserved to accommodate the frozen fish requirements of Lucky Star. This came at a cost of external CCS customers that would ultimately have improved the performance of CCS.”

But, Soomra stressed that the benefit to Lucky Star enabled the division to achieve its record sales volumes.

Clearly the cold storage hub is taking on an increasingly important strategic function for Oceana.

Soomra stated: “We will continue to expand on our capacity in the Western Cape to meet the needs of the wider cold storage market for fish, other proteins, confectioneries, fruit concentrate and vegetables. Our leadership team changed dramatically this year along with a drive to develop people, making sure we have the right skills and succession planning in place for the future.”

It will not be without challenges, though.

There are several risks to CCS – including failure to renew key port lease agreements, competitor pressures causing reduced occupancy and the cyclical nature of consumer segments could create volatility in earnings. Then there is also increasing energy and labour costs that could eat into profit margins.

That said, CCS – which at this point is predominantly in the fish and poultry markets – has already seen three logistic companies closed their doors in the first six months of the year.

More specifically, Soomra said Oceana would restore the profitability of CCS to previous levels by leveraging its port operations where there was a location advantage and customer base.