Unaudited Group Interim Results For The Period Ended 31 March 2020
Oceana Group Limited
Incorporated in the Republic of South Africa
(Registration number 1939/001730/06)
JSE Share Code: OCE
NSX Share Code: OCG
ISIN Number: ZAE 000025284
("Oceana" or "the company" or "the group")
UNAUDITED GROUP INTERIM RESULTS FOR THE PERIOD ENDED 31 MARCH 2020
- Revenue up 2% to R3 627 million
- Operating profit up 9% to R605 million
- Operating profit Africa operations up 18% to R514 million
- Profit before tax up 10% to R466 million
- Earnings per share up 1% to 250.4 cents
- Headline earnings per share in line with prior year at 249.8 cents
- Cash generated from operations improved to R683 million (March 2019: R194 million)
Oceana is fully committed to the preventative measures implemented by various Governments
during March to contain the spread of the novel coronavirus (COVID-19), in the countries in which
we operate, with our primary priority being to ensure the health and safety of our employees,
customers and suppliers and food security through continuity of production.
The group is classified as an essential service provider in all the countries in which we operate, being
involved in the sourcing, manufacturing and distribution of food products, including fishmeal and oil.
All our locations continue to operate with continuous monitoring and evaluation of COVID-19
standard operating procedures (SOP's) and protocols to safeguard our employees and ensure
Oceana proactively implemented several health and safety SOP's and protocols across the group in
February and early March prior to Government announced lockdowns. Our stringent SOP's include
the provision of daily transport to workers within the guidelines provided, temperature testing of all
employees and visitors, restricting access to facilities, regular sanitisation and cleansing of facilities,
provision of the requisite personal protective equipment to all employees and other social distancing
measures. In addition, all office-based employees are equipped to work remotely enabling
management and administration to function effectively during the lockdown.
In terms of living up to our culture statement of "positively impacting lives", we are working closely
with Government and charitable organisations with whom we partner, to donate water, food parcels
and essential medical equipment and supplies to help alleviate the impact of COVID-19 on
vulnerable communities. In support of the South African Governments call to increase funds
available to combat COVID-19 in these communities, Oceana's management and Board members
have voluntarily agreed to salary and fee reductions.
The group delivered a resilient operating performance for the six months ended 31 March 2020
under difficult trading conditions in the latter quarter. Performance of our 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 United States of America (USA) was curtailed on the back of the
lower prior season catch.
Group revenue increased by 2% to R3 627 million (March 2019: R3 557 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.
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.
During the period the group extracted operating efficiencies through optimisation of the SA fishmeal
fleet and cold storage capacity. Associate and joint venture losses reduced materially following
closure of the Angolan fishmeal operations and higher volumes processed through the Namibian
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
declined by 23%.
Net interest expense increased by 7% to R139 million (March 2019: R130 million). On a comparable
basis, adjusting for the financial effects of adopting IFRS 16: Leases, net interest expense decreased
by 2% primarily due to the early repayment of debt in South Africa and lower interest rates. The
average interest rate for all debt is 5.0% (March 2019: 7.0%).
The strong performance of the Africa operations together with the lower net interest expense,
resulted in group profit before tax increasing by 10% to R466 million (March 2019: R423 million).
Taxation expense increased by 26% to R153 million (March 2019: R122 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.
HEADLINE EARNINGS AND DIVIDEND
Group headline earnings per share was in-line with the prior year with the higher taxation expense
offsetting the increased profit before tax. On a comparable basis, excluding the effects of the
incremental dividends withholding tax, headline earnings increased by 4%.
Notwithstanding the pleasing performance of the business for the six months ended 31 March 2020,
the Board considered it prudent to defer its decision on an interim dividend in light of the evolving
impact of COVID-19 on the macro-economic environment and the group's operations. This
precautionary measure preserves cash and provides greater balance sheet flexibility in these
uncertain times. The board will continue to evaluate the group's operational performance and
financial prospects during the year before concluding on an interim dividend. The dividend per share
declared for the prior period to March 2019 was 123 cents per share.
FINANCIAL POSITION AND CASH FLOW
Working capital continues to be efficiently managed and the group's cash generated from operations
increased significantly to R683 million (March 2019: R194 million) following improved inventory
levels and extended payment terms secured with international frozen fish suppliers. As a result, cash
balances increased to R325 million (March 2019: R194 million).
Group long term debt is R3 617 million (March 2019: R3 589 million) of which R2 049 million (March
2019: R1 581 million) is US Dollar denominated. The increase in US Dollar denominated debt is
attributable to the higher closing exchange rate of R17.9/US Dollar (March 2019: R14.6/US Dollar)
and the refinance of the US term facility on improved terms.
REVIEW OF OPERATIONS
Canned fish and fishmeal (Africa)
This segment has delivered strong growth in operating profit of 19% due to improvements in both
the canned fish and fishmeal (Africa) divisions.
With canned pilchard volumes at 4.5 million cartons (March 2019: 4.4 million cartons) the canned
fish business delivered further growth in an environment where the disposable income of consumers
is under considerable pressure, off the back of an 11% volume growth in the prior period. This was
enabled by a strategy of maintaining relative affordability and promoting the versatility of our Lucky
Star brand. Including the effect of a price increase in November overall revenue growth for this
segment is 4%.
Canned fish production has been largely supplied by imported frozen fish given that the SA Pilchard
Total Allowable Catch (TAC) remains at a cyclical low. Consistent supply of frozen fish for Lucky Star's
canned pilchard products continued to benefit our canneries in South Africa and Namibia from both
a production and labour efficiency perspective.
The canned fish sales price increase in November together with the lower cost of local production
offset the impact of the weaker Rand on imported frozen fish. This resulted in the canned fish
business delivering an improved performance for the period.
Profitability of the African fishmeal and fish oil business improved as a result of improved fish oil
pricing, the weaker Rand, cost savings from SA fleet optimisation and elimination of operational
losses following closure of the Angolan operation.
Fishmeal and fish oil (USA)
As previously reported, landings in October 2019 were below historical averages. This together with
the lower oil yields experienced in the prior season, reduced fish oil stock available for sale during
the closed season period to March 2020 resulting in lower revenue for the reporting period.
Positively, fishmeal sales volumes have performed better than expected and remained strong with
continued demand from the USA pet food manufacturers. Pleasingly, overall pricing for both meal
and oil has increased by 3% over the prior period.
Operating profit for the period reduced to R91.4 million (March 2019: R118.2 million) due primarily
to lower fish oil sales volumes. US Dollar earnings have been converted at an average exchange rate
of R15.3/US Dollar compared to R14.3/US Dollar for the comparative period.
The 2020 fishing season commenced on 20 April 2020 with all vessels fully deployed and plant
operations functional and will run until the end of October 2020. Early season indicators are positive
with landings to the end of May approximately 30% higher than 2019 and oil yields of 10.3% (2019: 8.3%).
Horse mackerel, hake, lobster and squid
The segment has delivered 9% growth in operating profit, driven by a strong performance from the
horse mackerel and hake businesses.
Demand for Namibian and South African horse mackerel remained positive resulting in increased
sales volumes and improved US Dollar pricing. In Namibia, the ministry of fisheries announced a 5%
decline in the TAC in relation to the prior period. In South Africa, quota available to Oceana through
own and joint venture allocations remained in line with the prior period.
Improved vessel utilisation, lower fuel prices and the weaker Rand have contributed to an improved
performance for this business.
In Namibia, long-term fishing rights were announced with our joint venture partners successfully
securing seven-year rights in the horse mackerel fishery, in line with our current license conditions.
We will continue to explore additional partnership opportunities with new rightsholders while
continuing to play a positive role in the development of the Namibian fishing sector.
The 2020 Hake offshore TAC remained in line with the prior period. A strong improvement in
revenue and operating profit for this business is the result of continued European demand for
products consumed in-home, the weaker Rand and lower fuel prices.
The West Coast Rock Lobster TAC remained unchanged. Profitability was negatively impacted by
poor catch rates and the closure of the Chinese market for live lobster following the COVID-19
outbreak. In response, fishing was slowed down and product frozen for sale into other geographies
at lower margins.
There was no change to fishing rights allocated to the squid business. Poor industry catches and
lower opening inventory levels resulted in a reduction of sales volumes and lower profitability.
Commercial cold storage and logistics (CCS)
The CCS business delivered a significantly improved performance more reflective of its full potential.
The strong performance was driven by higher occupancy levels, reduced operational costs following
right sizing of cold storage capacity and the non-recurrence of once-off costs incurred in the prior
period. The Western Cape facilities continued to benefit from the high levels of frozen fish procured
by Lucky Star whilst the inland facilities benefitted from new customer intake and a reduced cost base.
The positive trading of all our products has continued into April and May, aided by signs of recovery
in the SA pilchard resource and improved landings of industrial fish in South Africa and Gulf
Menhaden in the USA. Live lobster processing and sales into China have resumed.
Canned pilchard demand has remained resilient into April and May, demonstrating volume growth
against the prior period, and our ability to continue servicing this demand is strong given our well-
stocked inventory levels. Canned fish margins will however be challenged by the increased cost of
imported fish given the weaker Rand. Our strategy of driving volume through relative affordability
and product versatility remains intact with continued focus on operational efficiencies and supply
Global demand for fish meal and fish oil remains firm supported by increased Chinese production
levels and positive shifts in in-home farmed fish consumption. Global supply will be impacted by
Peruvian ability to manage COVID-19 disruption risk and bolstered by good landings in South Africa
and the USA, which are currently tracking materially above the prior period.
Rand weakness is anticipated to continue for the remainder of the financial year benefitting our
export businesses and the translation of Daybrook's earnings both of which are weighted to the
second half given the seasonality of the peak fishing periods.
Interest on unhedged South African debt in the second half will benefit from the 275-basis point
reduction in the SA Reserve Bank repo rate.
In South Africa, Cabinet has approved the extension of fishing rights to December 2021 with
exemptions granted to existing rights holders to continue fishing based on current allocations.
We expect our operations in the Western Cape to be negatively impacted by COVID-19 as the
number of infections peak, with a higher risk of business interruption in our hake and horse
mackerel segment. The risk of a large-scale impact in the immediate future is however mitigated by
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 product offerings. We continue to closely
monitor the health of our front-line employees and to adapt SOP's implemented to mitigate the risk
of high infection rates at any one of our locations.
Although the outcomes of COVID-19 on the macro environment and our operations remains
unpredictable, at this stage we believe that Oceana has sufficient headroom in terms of its debt
covenants and liquidity requirements to cover adverse cashflow effects. Stringent and proactive
measures have been implemented across the group to manage costs, and optimise working capital
and capital expenditure, with a strong focus on cash flow management during these uncertain times.
Oceana is exceptionally proud of all its employees for their committed diligence, care and
professionalism in continuing to deliver excellence and essential products during this most trying of
Any forward-looking statements set out in this announcement have not been reviewed or reported
on by the company's external auditors
This short-form announcement is the responsibility of the company's board of directors and is only a
summary of the information in the full announcement and therefore does not contain full or
complete details. Any investment decisions by investors and/or shareholders should be based on
consideration of the full announcement published on the group's website www.oceana.co.za and on
the JSE website using https://senspdf.jse.co.za/documents/2020/jse/isse/oce/HY_20.pdf.
Copies of the full announcement may be requested from the Company Secretary at
email@example.com or from the company's Sponsor Natalie.Di-Sante@standardbank.co.za.
Given lock-down regulations, these will be sent electronically upon request.
On behalf of the board
MA Brey I Soomra
Chairman (non-executive) Chief executive officer
04 June 2020
Directorate and statutory information
Directors: MA Brey (chairman), I Soomra* (chief executive officer), E Bosch (resigned
31 January 2020), ZBM Bassa, PG de Beyer, A Jakoet (appointed 14 November 2019),
S Pather, NA Pangarker, L Sennelo, NV Simamane.
Prescribed Officer: T Giles (Interim chief financial officer)
Registered Office: 9th Floor, Oceana House, 25 Jan Smuts Street, Foreshore, Cape Town, 8001
Transfer Secretaries: Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank, Johannesburg, 2196
(PO Box 62053, Marshalltown, 2107)
Sponsor - South Africa: The Standard Bank of South Africa Limited
Sponsor - Namibia: Old Mutual Investment Services (Namibia) Proprietary Limited
Auditors: Deloitte & Touche
Company Secretary: A Fortune
JSE share code: OCE
NSX share code: OCG
Date: 04-06-2020 11:05:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Email this JSE Sens Item to a Friend.