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Oceana impacted by stronger rand, lower prices

Nov 20 2017 14:20
Carin Smith


Company Data

OCEANA GROUP LIMITED [JSE:OCE]

Last traded 80
Change -1
% Change -1
Cumulative volume 107535
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Cape Town - Oceana's financial performance for the financial year ending on September 30 2017 has primarily been impacted by a stronger rand, lower global fishmeal prices and a slowdown in South African consumer spend, CEO Francois Kuttel told Fin24.

Group revenue, from continuing operations, decreased by 15% to R6 808m, while revenue gains from improved pricing in most sectors has been materially offset by the negative effect of a stronger rand on export and foreign revenues, and lower global fishmeal and fish oil prices.

US dollar revenue for 2017 was converted at an average exchange rate of R13.37/dollar compared to R14.79/dollar for the comparative period.

Group operating profit before other operating items had decreased by 39% to R1 001m. This decrease is primarily attributed to the revenue impact and was further exacerbated by an adverse movement in net foreign exchange, from a gain of R73m in 2016 to a loss of R61m in the reporting period.
These movements were primarily due to the effects of forward exchange contracts to cover the cost of imported frozen fish for our canned fish business. In addition, material improvements in Oceana's cost base due to group-wide procurement efficiencies have been offset by reduced pilchard landings, among other things.

Net interest expense for the year is R343m. The average interest rate for all debt is currently 7.3% (2016: 7.1%).

Headline earnings for the year decreased by 44% compared to the prior year.

In the context of this year’s performance relative to the level of gearing in the group, the board said it considers it prudent to conserve cash and forego the payment of a final dividend. It is anticipated that the group will resume dividend payments in 2018.

Disappointed

"We are disappointed with the results. For a number of years we presented fairly stable results, so this is a bit of a setback. That being said, I think we identified some challenges. We have been quite open an honest about the areas where we could improve and have plans to address it," Kuttel told Fin24.

He said the biggest challenges impacting the group over the past financial year were as a result of fish meal and fish oil prices that came down as well as foreign exchange in SA due to a stronger rand. Kuttel added, though, that fish meal prices have started to lift from the level of about six months ago.

Kuttel said one of the areas in the company's control would be to improve on its hake fishing strategy. The company will also look at certain other areas like its cold storage areas for improved strategies.

According to Kuttel, the group's US investment did well from an efficiency point of view, despite the challenge due to the lower fish oil and fish meal process. The group is happy with the production process in the US. As for the group's African operations, it will be looking at greater efficiencies.

As for acquisitions, the group is not "overly aggressive", Kuttel told Fin24. At the same time it has identified some smaller opportunities in this regard and has not ring fenced geographically at all.

Prospects

The group regards African operations as well-positioned to deliver growth in the year ahead. In South Africa it expects recent improved demand in canned fish to continue into the New Year. However, production costs in the canned fish business could be negatively impacted by a weaker rand and lower local pilchard landings.

Improved vessel utilisation across all divisions will be a focus area. In Namibia, the group is committed to ensuring that it satisfies government expectations and regulatory requirements for quota renewal.

US operations

The strong volume performance at Daybrook this year, despite lower prices and oil yields, reinforces the group's view regarding the potential of this resource. There are signs of a recovery in both fishmeal and fish oil pricing with global demand being stimulated by lower prices and improved demand in Asia.

Daybrook's performance for the first half of the year will, however, continue to be impacted by lower prices due to forward sale contracts, which is normal practice, concluded on approximately 70% of inventory on hand at the financial year-end.

The process of finalising a suitable US-based partner for the 75% equity stake in Westbank is ongoing and the process is expected to be concluded prior to the commencement of the 2018 fishing season.

"We will continue to leverage on our size to make Oceana a more efficient business. Balance sheet strength and improved profitability are key focus areas for the year ahead," the group said in a Sens statement.

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