Oceana today released its interim results for the six months ended 31 March 2020, recording a group operating profit increase of 9%. Group revenue was up 2% to R3 627 million, primarily due to increased African operations revenue of 3% (mainly attributable to improved canned fish, fish oil and horse mackerel pricing), increased cold storage occupancy levels and the favourable impact of the weaker Rand on export revenues.
The group delivered a resilient operating performance for the six months ended 31 March 2020 under difficult trading conditions in the latter half. Performance of African operations was strong driven by sustained demand for canned fish, horse mackerel and hake, supported by firm pricing across all sectors. Operational efficiencies and a solid performance from the cold storage segment following optimisation of capacity has bolstered results. As expected, performance of the fishmeal and fish oil segment in the US was curtailed on the back of the lower prior season catch.
Revenue from Daybrook’s operations declined 4% due to lower fish oil sales volumes following lower prior year catches and oil yields, partially negated by firmer global fish oil pricing and the favourable US Dollar exchange rate.
Group headline earnings per share was in-line with the prior year with higher taxation expense and minority earnings, due to improved financial performance in subsidiaries with minority interests, offsetting the increased profit before tax. On a comparable like for like basis, excluding the incremental effects of dividends withholding tax, headline earnings increased by 4%.
The company said it has taken the prudent decision to preserve cash and defer its interim dividend, in light of the uncertainty posed by COVID-19 and its effect on macro-economic conditions. This decision will be reviewed in the coming months.
Said Group CEO, Imraan Soomra: “This is an excellent result, and I’d like to pay tribute to our people at Oceana, who have really risen to the challenge. During the first days of lockdown, they responded incredibly to our call to arms and we recorded 100% attendance at work.
“Our strategy of both customer and geographic diversification is paying dividends. Not only are we well positioned across geographies, but our customers are located right across the world, with fresh fish being in demand in Africa and Europe, pet food in the US, fishmeal in Europe, Africa and Asia, and canned fish in South Africa. What has been critical in the COVID-19 environment is that our products are primarily consumed in-home, which has protected us from closures in the tourism and hospitality industries.”
During the period, the group extracted operating efficiencies through optimisation of the SA fishmeal fleet and cold storage capacity and associate and joint venture losses reduced materially following closure of the Angolan fishmeal operations and higher volumes processed through the Namibian canning operation.
Said Soomra: “We have made enormous progress on increasing both operational and working capital efficiency. More production is taking place in South Africa, especially with frozen fish. This has meant we have improved our man hours per carton produced. We have also renegotiated dollar pricing for fish from abroad, and we have held to procurement best practices.
“We have significantly improved performance in our Cold Storage operation, particularly in our inland stores in Gauteng. We’re becoming more discerning about which customers we accept for these facilities. However, our focus is now on the longer term given the capacity we have at our disposal, and this is receiving our attention.”
Group operating profit increased by 9% to R605 million (March 2019: R554 million) driven by growth of 18% in our African operations offset by a reduction in the USA where Daybrook’s operating profit reduced by 23%.
“I am delighted that our pricing, affordability and accessibility strategy for Lucky Star canned fish has paid off. We have price points that are really attractive to cash constrained consumers. Strong availability has also been critical to servicing demand, with six months of inventory available as at the half year.”
The strong performance of the Africa operations together with a lower net interest expense, resulted in group profit before tax increasing by 10% to R466 million.
Taxation increased by 26% to R153 million due to the higher earnings contribution from the African operations which is subject to a higher tax rate than the USA operations and dividends withholdings tax of R21.8 million (March 2019: R8.8 million) accrued on dividends declared by foreign subsidiaries. “The increased withholding tax was really a timing issue, with higher distributions from the US taking place in this six-month period.”
Looking forward, Soomra said that the weakening Rand would have a positive impact on results, given that Oceana was a net exporter in the second half of the financial year.
“I am delighted with our improved performance into April and May, and we’ve recorded very good demand for all of our products, in particular canned pilchards. The Rand’s depreciation will put canned fish margins under pressure given the higher cost of imported fish, but we will offset this by focusing on both operational efficiencies and supply chain improvements. Anchovy, hake and horse mackerel catch rates in South Africa have been good and there are promising signs of recovery in the local pilchard resource. In the US, landings and oil yields at the end of May are well ahead of the prior season.
“All our operations were classified as essential service providers and continued to operate during the COVID-19 lockdown. We implemented stringent health and safety standards and protocols across all our operations in February and early March prior to COVID-19 lockdowns. As the infection rate in South Africa increases, our operations may be interrupted to some extent, with the risk greatest in our mid-water vessel operations. We do not foresee the risk of a large-scale impact in the immediate future, given the diverse and wide footprint of our operations, the geographic spread of our customer base, and the high levels of in-home consumption of our various products.
“I am particularly proud of how we have responded during the crisis, including providing financial assistance to frontline medical services, as well as vulnerable communities all over the country. This has included the distribution of 12,000 food parcels and 45,000 cans of Lucky Star to help feed distressed communities, including the critical small-scale fishing sector. We have also provided food parcels to thousands of employees, while a special fund has been set up to reward our staff for their commitment in ensuring an uninterrupted supply of food. In addition, Oceana has made available over 146,000 litres of water every day from our various desalination facilities and other sites to government and relief organisations to assist communities without access to clean water.”
In respect of long term fishing rights, Soomra said that in South Africa, Cabinet had approved the extension of fishing rights to December 2021 with exemptions granted to existing rights holders to continue fishing based on current allocations while in Namibia fishing rights of our partners have been extended for a further seven years. “It is worth pointing out that,” he said, “given the diverse nature of the business, only 16% of Oceana’s fish supply is up for renewal in 2021.
“Coming out of this COVID-19 emergency is the need for greater collaboration between government and industry. In the fishing sector, there is now a deeper understanding of each other’s challenges. This can only be positive as we outline what policy should look like going forward.”