Diversification strategy pays off as Oceana delivers solid financial performance in FY 2019

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Financial highlights for the year ended 30 September 2019:

  • Group revenue, at R7 647 million, remained stable (2018: R7 657 million)
  • Headline Earnings Per Share (HEPS) decreased by 25% (2018: 727.1 per share), owing to a once-off deferred tax adjustment as a result of a reduction in the tax rate in the USA, which benefitted FY 2018 results. Excluding the tax effect, headline earnings increased by 4%.
  • Lucky Star delivered stellar sales volumes of 8%
  • Dividends of 363 cents (2018: 416 cents)
  • Group profit before tax increased by 2% (2018: R883 million)

Cape Town, 14 November 2019: Oceana Group (JSE: OCE), a leading global fishing company, today reported a solid operating performance for the year ended 30 September 2019 across most of its business divisions, driven by a strong demand for canned fish, horse mackerel and hake, improved efficiencies across the Group, and effective execution of its diversification strategy.

“On the whole it has been a satisfactory year. The strategic diversity of our portfolio – which allows us to be a multi-species business across five fishing geographies – has delivered pre-tax growth of 2% to R897 million (2018: R883 million). We have sustained earnings on a pre-tax basis from the levels seen in 2018, despite the tougher economic trading environment,” said Imraan Soomra, Oceana Group CEO.

Excluding the tax effect of a once-off deferred tax rate from the USA in 2018, which saw a spike in earnings for that year, earnings increased by 4%.  The Group declared a dividend of 363 cents, (2018: 416 cents).

“The canned fish business – Lucky Star – had a standout year and delivered exceptional results, with a double-digit revenue growth of 12%, due to good volume growth in a tough trading environment. We also increased efficiencies and throughput, which unlocked cost savings of approximately R45 million,” said Soomra.

Lucky Star’s sales volumes for the year increased to 9.5 million cartons (2018: 8.8 million). This pleasing performance was secured off the back of a double-pronged strategy that included prioritising consumer affordability and availability on shelf despite a shortage of local fish supply.

The affordability strategy allowed Lucky Star to keep prices below inflation.

The consistent supply of globally procured fish allowed Lucky Star to positively contribute to food security by supplying 3,4 million consumers daily with affordable fish protein. This global import strategy also contributed to the sustainability of the jobs of 2553 employees on the West Coast at the Group’s canning facilities. Driving cannery and supply chain throughput continued to be a focus, resulting in increased labour productivity and production planning. This helped mitigate against the impact of the weaker exchange rate on the cost of imported frozen fish.

A critical enabler of the frozen fish strategy is the Group’s commercial cold storage and logistics business, CCS, which, by reserving space for Lucky Star, resulted in higher occupancies in the coastal regions. Occupancy in Gauteng was negatively impacted by decreased demand owing to the subdued economic climate.

“The horse mackerel and hake businesses showed attractive improvement due to strong demand, a positive impact from a weaker exchange rate, good landings and excellent utilisation of fleet,” said Soomra.

Detractors from the Group’s overall solid performance were due to abnormal factors outside of its control, which impacted its fishmeal and fish oil business in Africa as well as in the USA (Daybrook operation).

“The Fishmeal business had a challenging year. The extended winter in South Africa saw the Fishmeal Africa operation experience a 13% reduction in landings, and further impairments occurred as a result of our exit from the Angolan business. This impacted overall profitability in this segment,” said Soomra.

Daybrook, which is the Group’s fishmeal and fish oil business in the USA, experienced a decline in revenue by 4% to R1 721 million (2018: R 1 789 million) and a decrease in operating profit to R359 million (2018: R367 million). This was as a result of two headwinds: Reduced landings and traded volumes, owing to the highest ever rainfall in the US Mid-west, which impacted fishing conditions, as well as a decline in Chinese demand for fishmeal, owing to the outbreak of African Swine Fever in this region.

“These were extreme scenarios that impacted an otherwise strong operation with healthy margins,” said Soomra. “During the year we made a significant capital investment in Daybrook during the closed season of approximately USD 6 million, which resulted in improvements in plant capacity and volume throughput. Overall capacity has increased by 20% and we intend to add an additional vessel during the course of the 2020 fishing season. This means that, going forward, we are ready to capitalise on peak fishing periods with the business well positioned to deliver further growth.”

Soomra said that the Group’s transformation strategy is well on track, evident by the fact it was recently named the Most Empowered Food Producer on the Johannesburg Stock Exchange. It also supports the vision outlined by regulators on the Fishing Rights Allocation Process (FRAP). “We are constantly exploring opportunities to increase participation of black people in this industry and we look forward to engaging further with government in this regard.

“While we anticipate continuing uncertainty in global and local markets, the underlying business fundamentals remain strong. Our focus will remain on optimising existing businesses and seeking volume growth in the canned fish segment by maintaining supply and affordability. Our fishmeal and oil businesses have healthy biomass availability with Daybrook having recently obtained MSC certification which is testament to the sustainability of the resource. We expect long term demand for fishmeal and fish oil to remain intact.

“The overall business is robust, resilient and well-managed, evident by this year’s performance. I am confident that the continued implementation of our diversification strategy will hedge against headwinds that may be brought on by a tough trading environment,” concludes Soomra.