Oceana’s strategy to prioritise volumes over margins in pursuit of affordability and market share gains is paying off with the food producer reporting a strong half-year performance bolstered by improved Lucky Star sales over the Easter period.
The group is gearing up to shift Lucky Star’s second-half focus on margin enhancement while sales volumes are expected to benefit from the new canned meat facility which is in full production.
On Thursday, the Cape Town-based group told shareholders it expected half-year earnings to almost double after a strong first-half performance.
Headline earnings per share (HEPS) for the six months to end-March to be 89%-99% higher at 565c-595c. The nearly 100% jump is a sharp increase from the 60% rise it had forecast in a voluntary update last month. Earnings per share (EPS) were expected to rise by as much as 104%, it said in a statement on Thursday.
Coupled with a pleasing Lucky Star result after improved canned food sales volumes delivered in March, Oceana also attributed the growth to Daybrook’s higher fishmeal and fish oil sales volumes, which came in at record dollar prices. Overall performance was moderated by lower wild caught seafood sales volumes, the company said.
The market welcomed the news as Oceana shares rose as much as 10.24% in intraday trade, to its highest level in five months, Oceana’s share price ended the day 6.19% higher at R75.62.
Oceana, valued at R9.3bn on the JSE, is Africa’s largest fishing company. It operates in SA, Namibia and the US. Its operations are split into three categories: the Lucky Star brand; fishmeal and fish oil; and wild-caught seafood.
With consumers under pressure and looking for more affordable proteins, the group’s strategy has been to maintain relative affordability to other proteins and meet consumer demand.
In SA, Lucky Star pilchards are seen as an affordable protein and one can is used to feed a family for a meal. The cans are popular in grocery and spaza stores during load-shedding as they do not require refrigeration. Despite increasing raw material and other cost pressures, last year Oceana consciously decided not to pass the full affect onto consumers.
In its March update, it stated that lower sales volumes of Lucky Star canned products and wild-caught seafood species had moderated its strong revenue growth.
Oceana reported that Lucky Star's canned food revenue had declined by 8.7% for the period due to lower sales volumes largely, albeit it was coming off of a high base in the previous comparative period where record sales were recorded.
However, it did say Lucky Star expected stronger March sales volumes — which it confirmed on Thursday — saying this would result in a marginal decline in revenue at the interim period close.
Speaking to Business Day, Small Talk Daily analyst Anthony Clark said the strategy where Lucky Star was concerned was about defending market share and growing volumes to a certain extent before reclaiming margins.
“It was a conscious decision to remain competitive in a very tight consumer environment with protein choices available and also to maintain their market share,” Clark said pointing out that there have been new entrants in the market.
Oceana had to remain competitive against the other protein options available to the constrained consumer, “be it IQF, polony and cheaper cuts of meat”, he said. However, this resulted in a decline in operating profit, which the group is addressing having kicked off with a 9% increase this year, amid looming competition.
In January, fishing group Sea Harvest offered to buy Terrasan’s pelagic business and part of its abalone business for R965m in a deal that will be settled in new shares and cash. The proposed transaction will position Sea Harvest to diversify and sell a greater number of fish products, as well as boost some existing quotas.
Clark said that with the Saldanha brand being added to Sea Harvest’s portfolio, “we could see some greater competition.” Saldanha products include pilchards, sardines and middle-cut mackerel.
However, Oceana has been beefing up its offerings after identifying the potential to increase consumption by expanding into the attractive canned protein sector. To support this diversification in SA, it has invested R54m into its canned fish and fishmeal production facilities and R61m in constructing a new canned meat facility, both on the West Coast.
The canned meat factory in St Helena has been building stock since November last year and started marketing the Lucky Star canned meat brand to the trade in February with momentum building.
“So far it has gained very good traction,” Clark said, adding that it was bringing competition for the main canned meat shelf product, Bull Brand which the Rhodes Food Group owns.
“If you ask any retailer they always want to have a competing brand on the shelf to keep the dominant brand honest and price competitive. I see Lucky Star, given its brand awareness, gaining significant traction on the shelves of retailers, not just to benefit the consumers but also to challenge Rhodes food’s bull brands.”
Oceana is looking to tap into growth opportunities in the rest of East and West Africa. The analyst added that with Lucky Star’s product being halaal, the group was anticipating a significant pull-through in the canned product into Africa where canned meat is far more prevalent than canned pilchards.
Results for the six months to March are expected on or about June 10.
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