Oceana’s Profit Surge: Riding the Waves of Success in South Africa’s Seafood Market Amid Global Challenges

  • Financial Triumph: Oceana Group posts impressive results with a 22.6% revenue surge, reaching R10.0 billion, and a 25.2% increase in profit after tax.
  • Strategic Resilience: Diversification shields Oceana from challenges, enabling a 19.8% growth in operating profit, demonstrating resilience amid economic uncertainties.
  • Forward-Looking Initiatives: Oceana outlines strategic moves, including a major capital expenditure project and continued consumer-focused strategies, ensuring future growth.
By Lethabo Ntsoane

In a recent announcement, Oceana Group Limited, a key player in the South African fishing industry, revealed robust financial results for the fiscal year ending on September 30, 2023. The company’s audited group results highlight impressive growth in revenue, operating profit, and earnings, signalling resilience in the face of economic challenges.

Financial Performance Overview

Revenue Surges to New Heights

Oceana reported a substantial increase in revenue, reaching R10.0 billion, a remarkable 22.6% jump from the previous fiscal year. This surge was propelled by heightened demand for affordable protein, driving consumption and sales volumes. The company strategically held higher inventory levels, allowing it to capitalize on the sustained demand for canned fish, fishmeal, and fish oil.

Operating Profit and Earnings Soar

Operating profit experienced a robust 19.8% growth, reaching R1.5 billion. The company’s strategic moves, such as diversification across species and geographies, proved effective in maintaining resilience in a challenging environment marked by high inflation, rising interest rates, and currency volatility.

Profit after tax saw a substantial increase of 25.2%, totaling R990 million. Earnings per share (EPS) and headline earnings per share (HEPS) rose by 29.1% and 29.2%, respectively, reflecting the company’s strong financial performance.

Neville Brink’s Leadership Extended

The company’s Board expressed confidence in the leadership of Neville Brink, extending his tenure as Chief Executive Officer (CEO) to December 31, 2026. This move signals the Board’s commitment to continuity in executing the group’s strategy and driving sustained performance.

Operational Highlights

Segmental Performance

Canned Fish and Fishmeal (Africa)

Metric2023 (Rm)2022 (Rm)% Change
Revenue5,5534,61020.5
Operating Profit4964764.2

The canned fish and fishmeal segment witnessed a sales volume growth of 9.0%, with Lucky Star delivering a resilient performance despite cost pressures. The operating margin, however, experienced a reduction due to factors such as energy costs, tin can expenses, and the impact of the weaker exchange rate on imported frozen fish.

Fishmeal and Fish Oil (USA)

Metric2023 (Rm)2022 (Rm)% Change
Revenue2,6971,94638.6
Operating Profit81058438.7

The USA segment, Daybrook, achieved a 30.2% increase in operating profit in US dollar terms. Record global pricing for fish oil, along with favorable exchange rates and insurance proceeds, contributed to the segment’s strong performance. The cancellation of Peru’s anchovy fishing season further bolstered fishmeal and fish oil prices.

Wild Caught Seafood

Metric2023 (Rm)2022 (Rm)% Change
Revenue1,7371,5929.1
Operating Profit127150(15.3)

Challenges in the horse mackerel and hake segments, including lower catch rates and adverse weather conditions, impacted sales volumes. However, firm demand and export pricing for horse mackerel, along with strategic moves, contributed to the segment’s overall resilience.

Cash Flow and Financial Position

Strengthened Balance Sheet

Oceana demonstrated prudent financial management by settling R767 million in term debt during the fiscal year. This aligns with the company’s debt reduction plan, resulting in a net debt of R2,035 million, showcasing a significant improvement in the net debt to EBITDA ratio.

Capital Expenditure and Debt Reduction

Capital expenditure increased by 120.2%, reaching R458 million. The company strategically allocated funds for upgrades and enhancements, including the optimization of processing capacity and efficiencies in its fishmeal business.

Debt reduction initiatives were successful, with gross debt decreasing by 21.6% in South Africa and 20.8% in US-dollar terms in the US. The Group remained compliant with all lender covenant requirements for both South African and US debt.

Dividend Declaration

The Board declared a final dividend of 305 cents per share, bringing the total dividend for the year to 435 cents per share. This represents a commendable 25.7% increase, reflecting the company’s commitment to delivering value to its shareholders.

Future Outlook and Strategic Initiatives

Consumer-Focused Strategy

Anticipating continued financial pressure on South African consumers, Oceana’s management plans to maintain its strategy of growing Lucky Star consumption through availability, relative affordability, and strategic promotional activities. The company remains responsive to currency fluctuations, utilizing its natural hedge against rand volatility due to its high exposure to foreign currency earnings.

Strategic Investments

The Fishmeal (Africa) business has initiated a major three-year phased capital expenditure project, investing R330 million to optimize processing capacity and efficiencies at its West Coast facilities. This includes the conversion to a value- and quality-enhancing steam drying process at the Laaiplek facility.

Global Fishing Season and Market Dynamics

The closure of the 2023 US Gulf Menhaden fishing season saw higher closing inventory levels, positioning Daybrook for a strong performance in the new financial year. Peru’s anchovy quota announcement for the second season in 2023, while higher than anticipated, is not expected to fully restore global fish oil supply levels, supporting continued strong pricing.

Fishing Rights Allocation Process (FRAP) and Corporate Moves

The Fishing Rights Allocation Process (FRAP) appeals process is largely complete, providing certainty for Oceana to invest confidently in its South African operations. The disposal of Commercial Cold Storage and Logistics (CCS Logistics) for R760 million marked a strategic move, realizing a profit of R477 million before taxation and contributing to an increase in earnings per share.

Board and Leadership Changes

Strengthening Governance

Several changes were made to the Board and committees, enhancing governance structures. Notably, Zaf Mahomed was appointed as Chief Financial Officer (CFO), and Jayesh Jaga assumed the role of Company Secretary.

Commitment to Diversity

The Board’s commitment to diversity is evident in the retirement of Zarina Bassa as an independent non-executive director and the appointment of Thoko Mokgosi-Mwantembe as the chairperson of the Remuneration Committee.

Conclusion

Oceana Group’s commendable financial performance, strategic initiatives, and commitment to responsible governance position the company for sustained growth. As it navigates the complexities of the fishing industry, Oceana remains a key player in South Africa’s economic landscape, contributing to the nation’s food security and economic prosperity. Investors, consumers, and industry observers will be keenly watching Oceana’s trajectory as it continues to navigate the dynamic and challenging waters of the global seafood market.

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Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted: Email: lethabo@rateweb.co.za Twitter: @NtsoaneLethabo