Lucky Star owner Oceana says it is well-positioned to meet rising demand for affordable protein as SA faces a potential shortfall in processed meat supply after a government ban on poultry imports from Brazil.
The department of agriculture in May banned all poultry products from Brazil, including live birds, eggs and frozen meat, due to concerns about avian influenza.
Brazil is the world’s top poultry exporter and SA’s dominant source of imported mechanically deboned meat (MDM), chicken offal and other affordable cuts.
The ban has triggered fears of a shortage, especially in processed meat products which rely on Brazilian MDM.
Demand for more affordable proteins is set to increase in the wake of the ban; however, according to Oceana CEO Neville Brink, it is still too early to quantify the effect.
“We are very well placed from a Lucky Star point of view to take advantage of the potential shortage of other proteins,” Brink told Business Day on Monday.
“[However], that does not necessarily mean we are going to push pricing. We believe in keeping Lucky Star affordable and that philosophy has always been the case.”
Oceana has increased Lucky Star inventory for the six months to end-March 41% compared with the previous comparable period, enabling the company to maintain high service levels and ensure consistent supply to retailers.
“The worst thing we could do is run out of Lucky Star Pilchards. That brand has built up such a following,” Brink said.
“There is a cost of inventory, but we think it’s more than balanced by our ability to strategically supply the market and get additional earnings out of the factory.”
While the full effect of the ban is still unfolding, Brink said the potential shortages had not yet hit the local market but was expected to do so soon.
“There is still supply in the system but as that supply starts running out, we think we are going to see other proteins go up and we will hold our prices at Lucky Star,” he said.
“The lead time for importing from Brazil is six to eight weeks before the product gets here. So even if they unban the products now it’s still going to take two, three months to get it here and then they’re going to have to produce it. So there is going to be a shortage, without a doubt.”
Earlier, Oceana reported a decline in interim profit driven by a drop in global fish oil prices after the recovery of the Peruvian anchovy resource.
This was despite an improved performance in its SA operations and strong results from its flagship Lucky Star foods division, the group said.
Interim headline earnings per share (HEPS) fell 43.9% to 324.9c.
Revenue rose 2.9% to R5.2bn, boosted by higher sales volumes of canned foods, fishmeal and fish oil in Africa, hake and Namibian horse mackerel, and firm pricing in the wild caught seafood segment.
However, the group’s gross profit margin narrowed, with operating profit falling 33.5% due to US subsidiary Daybrook’s weaker performance.
Lucky Star was a standout performer, posting a rise in operating profit, underpinned by sales of a record 5.1-million cartons. Increased local production and improved efficiencies after factory upgrades helped drive growth.
The wild caught seafood segment benefited from improved hake catch volumes and stable demand with operating profit more than quadrupling.
Higher working capital requirements, including increased frozen fish imports, pushed net debt to R3.5bn.
Oceana cut dividend payouts by 43.6% to 110c.
The group said it would continue to focus on reducing debt, managing costs, and sustaining momentum in local segments. The outlook for the second half remains mixed, with Oceana expecting further pressure in fishmeal and fish oil markets, but Lucky Star and wild caught seafood are expected to provide continued support.
“With strong Lucky Star inventory levels in place, Oceana is well-positioned to meet consumer demand in the second half,” CFO Zaf Mahomed said.
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