Aquaculture is a growing industry in contrast to sea fishing and this is benefiting Oceana’s US operations, where it catches fish to produce fish oil used in salmon farming.
Oceana released its results to end-September and reported a 22% spike in revenue to R10bn in part because of high fish oil prices, due to a global shortage.
Oceana owns Daybrook Fisheries in the US which catches Menhaden fish, used for fish oil. Fish oil is an essential part of feeding salmon that are farmed in growing numbers, due to an increased demand for sushi globally.
On Monday, the share price closed 3.1% higher at R67.83 but less than expected from headline earnings rising almost 28% to R980m.
The earnings results are seen by the market as being at their peak, said Smalltalkdaily analyst Anthony Clark, explaining why the share price only moved up a little. The market is not expecting such a positive performance in 2024, as fish oil prices may drop and fishing is a cyclical business. However, Clark thinks Oceana will continue to grow sales and profit.
The firm said on Monday the fish oil price is unlikely to drop until late 2024, due to shortages in Peru, the world’s largest fish oil producer. At the same time, there is a consistent demand for the product as farmed salmon need fish oil which cannot be replaced with another food source.
The firm also benefited from extra stock on hand in the US at the start of the financial year and had enough stock when shortages ensued. “The strategy of holding higher inventory levels enabled us to capitalise on the ongoing demand for canned fish, fishmeal and fish oil to be serviced,” it said.
In SA, demand for Lucky Star tinned fish remains high as a can of pilchards is seen as an affordable protein that feeds a family.
Oceana dropped operating margins on Lucky Star from just more than 10% to 8.5% in order to keep prices low and volumes high. As a result, sales of pilchards grew 9%, but revenue only 4%.
“The consumer is under pressure so we will continue to keep prices of Lucky Star competitive,” CEO Neville Brink said.
“Lucky Star is one of those iconic brands that is reasonably priced. It doesn’t need to be refrigerated. And people enjoy the taste. They’re not eating it because they have to, [but because] they enjoy it,” he said.
Oceana expects to sell more pilchards over the festive season, as the chicken price is expected to increase since producers are making losses and need to recoup their higher expenses.
Meanwhile, Oceana became the latest company to flag performance issues at local ports which, along with failing infrastructure, could disrupt Lucky Star’s global supply chain.
On a positive note, it said because the 15-year fishing rights allocation process (FRAP) — in which the government decides how much of each fish species each firm can catch — is almost complete, it can invest locally.
Brink told Business Day, “it gives me certainty because I’m not going to lose, you know, 30% or 40% of my rights”.
In SA, it is investing in factory infrastructure to speed up how quickly boats offload hake as it is taking too long and lags the speed of its US factories. The longer fishing boats spend on shore offloading fish, the less time they are at sea catching them.
Oceana, which was founded more than a century ago, operates in SA, Namibia and the US. Oceana is also launching a Lucky Star brand of corned beef that is popular in Namibia and Botswana and seen as a meat substitute.
The company is getting great help too from its foreign earnings, which are mostly in US dollar and offers a hedge against the weakening rand.
“The benefit of the diversification across species, geographies and currencies enabled the group to remain resilient in a challenging operating environment,” the firm said.
Operating profit increased 18.2% to R1.2bn. The canned fish and fishmeal segment in Africa brought in the greatest profit with 55.6%, but the fishmeal and fish oil side of the business in the US generated the greatest operating profit with 56.5%.
Profit for continuing operations was up 25.2% to R990m, total profit 74.6% to R1.3bn, and headline earnings per share (Heps), a common profit measure in SA that excludes certain items, for continuing operations rose 77.4% to 808.8c.
Discontinued operations included the sale of its subsidiary Commercial Cold Storage (CCS Logistics).
The company declared a final dividend of 305c per share, bringing the total to 435c for the year — a year-on-year increase of 25.7%.
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