Oceana Group Ltd

Good morning everybody. Welcome to the Oceana Group Limited investor presentation for the six months ended 31st of March 2022. The company has come through a difficult and uncertain period which is why I'm pleased to start this meeting by announcing that the board has confirmed the appointment of Neville Brink as a permanent CEO. Congratulations Neville. Neville's permanent appointment until December 2024 is wealth of experience and valuable institutional knowledge will bring stability to the leadership team. His immediate priority will be to deliver a good second half performance, traditionally our stronger period. Neville's appointment is a significant step towards getting Oceania back on a steady, dependable course. Throughout this challenging period, the board has remained committed to the highest level of corporate governance and has acted with the best interests of the shareholders and stakeholders at heart. As you will have noted, PwC resigned as the company's external auditors late last Friday, ahead of Monday's shareholder engagement. The company provided details on the resignation and answered the shareholder questions during the engagement. The engagement followed an unprecedented low shareholder vote at our AGM in May, where just 61.98% of the shareholders voted in favor of PwC's reappointment. The disciplinary process around the CFO continues and we will update on this as soon as we are able to. Sir Ralph Puddle will continue to serve as Interim Group Financial Officer. The company engaged with Fisker on the 23rd of February 2022 and has addressed all their queries pertaining to their investigation. We await their conclusion on the matter and will continue to cooperate fully with them if requested to do so. The key reason that PwC gave us for the resignation was that they assessed there to be a significant impairment of the independence due to their significant doubt that the strained relationship as to whether there was objective and transparent communication with the board. Three months in the publication of Oceana's audited accounts, PwC are still unable to conclude the audit of the group's US subsidiary, Daybrook, and have now resigned. The delay resulted from their refusal to rely on audit opinion issued by U.S. Auditor Laporte on West Bank, Daybrook's 25% held associate, highlighting the contradictions that West Bank is jointly controlled by Daybrook. The board supports the principle of mandatory audit firm rotation and recognizes the importance of appointing independently-minded auditors. As a contingency to the outcome of the shareholder consultation process, The board has already begun a process to identify potential alternatives to PwC. Discussions with one of the big four auditing firms have progressed and the company is confident that it will be able to appoint new auditors within the required 40 business days. The business is also working on a culture initiative which will focus on restoring Team Oceana's pride in their business. This will be key to maintaining morale and our people's focus on the organization's work to recover from the recent challenges. It is important to note that the issues Oceana has experienced over the last seven months has not impacted the performance of the business and that we have remained focused on our operational performance throughout the period. Throughout this challenging time, the board has remained committed to ethical conduct. We are working to resolve outstanding issues coming out of this period and look forward to appraising you of our progress as you work to restore confidence in Oceania. Thank you. I will now hand you over to our new CEO, Neville Brink, and Ralph Baddow to carry on with the presentation of the results. Thank you.

Thank you, Mushtaq. And good morning, everyone. I'm going to take you through the results for the half year to March. I'm going to start with the salient features of the result. And as you can see, and as you know from our trading update released last month, It has been a difficult half, and there's really been three reasons for that. First of all, and it's a feature that I will continue to come back to throughout the presentation, is that we started the year with a significantly low level of stock, both in South Africa and in America, for different reasons, and I'll take you through those reasons. Secondly, the fishing season got off to a poor start in the first couple of months of this calendar year, and that picked up towards the last couple of months, but it was not enough to really get us back to that fully stocked position that we wanted to be in. And thirdly, we haven't been immune to the cost pressures that Everybody finds themselves in everything ranging from fuel and freight and all the other matters really resulting from the global disruptions of COVID still, as well as the war in Ukraine. So revenue was down 11%. On the other hand, operating costs, we were happy to report that we controlled the costs well. But it wasn't enough to avoid operating profit falling 41% for the half. And profit after tax fell 52%. The difference really relating to a US deferred tax balance relating to a capital assessed loss which we are not in the position to utilize in the foreseeable future. Cash generated from operations was good in terms of the cash conversion rate, and we generated 320 million rands worth of cash from an operating profit of 353. That allowed us to pay some debt, and HEPs was down 51%, pretty much in line with profit after tax. We've maintained the dividend cover that we had this time last year at 2.3 times. and we're pleased to see that net debt figure down from last year quite substantially. The debt ratios are somewhat impacted by the lower level of operating performance, but we're satisfied with the overall debt and the overall ratios. And then on the exchange rate, we have quite a decent level of offset between imports and exports, and we benefit from from the translation impact of Daybrook. So not much to really report. I don't think the RAND has been much of a feature in the half, perhaps as much as it might be a positive feature to some extent going forward into the second half. So moving on to the key headwinds and tailwinds before I get down into a little bit more detail into divisions. I've mentioned the low inventory levels, both in canned fish as well as, and that was due to the continued global supply chain disruptions of COVID. We've had increased freight costs. We've had La Nina weather conditions, so warm water on the East Coast, which affected our horse mackerel and our squid catch. higher fuel costs from the crisis or the war in Ukraine, and we also had higher quota fees in Namibia. In BCP, I'll take you through that later, but hay catchers weren't too bad, but the sizes were lower, and we had Quite a higher degree of mix, of lower value mix. CCS, I'll take you through that shortly. I do want to point out the legal costs and the audit fees that have resulted from the delay in the 2021 year-end audit. It's a significant number of 42 million rand, and we're pulling that out from the segmentals to help you understand better the underlying operating performance. Tailwind, we've got the fact that we did manage to catch a higher degree of fresh pilchards, our own landings, our own catch, and that's a significantly higher profitability that has enabled our canned fish or our lucky star segment to have a fair result given the opening stock position. And we've also benefited from the higher fish oil prices, global fish oil and fish meal prices that are resulting from the alternative protein supplies being hindered by the war in Ukraine. A mention of Hurricane Ida, the business interruption insurance, which we didn't recognize last year, even though the hurricane took place last year. I think, actually, that makes a lot of sense to put it into this year anyway, because the impact of the hurricane was to have a lower level of stock in the States. And so recognizing the insurance claim, the proceeds this year, went some way to offsetting some of that extent, but by no means the majority of it. I'll mention, I'll talk to the horse mackerel, the BCP measures later on. So if we look at then the overall segmental result, revenue down 11% and operating profit down 37%. Key drivers for Lucky Star can fish and fish meal. The lower inventory levels because of the global supply chain. and the increased freight costs. The key feature of Daybrook has been, again, the extremely low operating, opening inventory levels that resulted from last year's poor catch, which itself resulted from those weather events towards the end of the year. In BCP, we've had La Niña weather conditions that creates the warm water effect on the east coast, which affected the catch in horse mackerel and hake. And in CCS, lower occupancy levels. And also in CCS, we've got two fewer cold stores this year compared to last year, so it's not really a like-for-like position from an occupancy perspective. And you can see, just before I move off this slide, if you look at the graph on the bottom right-hand side, you can see that it's been a tough half. But you can see that traditionally, and sometimes if you go back to 2016, for example, it's a significant change of fortune in the second half, depending on what happens with the fishing in the early part of the season. And Neville's going to take you through a lot of that detail later on. Okay, so looking at Lucky Star, Lucky Star revenue down 8%, operating profit flat. So not a bad result for Lucky Star considering the decline in volumes, and it's all because of the fact that we ended up starting the year with much lower stock, the supply chain disruptions, also the looting in KZN where we were significantly impacted by stock. If you look at the bottom line, though, before the non-operating items, we are satisfied that, given that, we did have a relatively good result in the sense that it was a flat result given the reduction in revenue. The freight I've talked about, we've had an increase in local catch, which was good, which was more profitable, which also helped. Just to point out that non-operating item, it's really a transfer between non-distributable FCTR reserve to distributable reserves. Non-cash item didn't affect NAV, it's just really a transfer between reserves that has to go through profit and loss. So moving on now to some graphs which I want to show you, it really just indicates the story really of the half. You can see the dramatic reduction in the inventory levels that we brought into the year. So that's an opening stock graph on the left with opening stock for 2022, a third of the prior year and even half of the worst other year in the last five years of 2018. and that same goes on the right hand side if you look at the the fish meal and fish oil position for for the lucky star division in in south africa so significant reduction in opening stock if we had had more stock we would have sold it it's as simple as that if you come into the year with low stock and you have poor fishing at the beginning of the season, you just can't recover. So on the canned fish, you're on allocation to your customers and you're really trying to manage customer fulfillment with not the right amount of stock that you really want. If you move on then into production, it just shows actually what we've been doing during the year. So you can see a significant increase in 2022 on the left hand side there with production double what we had last year brought about by our own catch, which is about 16% of production, as well as significant importation of frozen fish. which resulted from somewhat of a let up in the global supply chain disruptions that we were facing in the second half of last year, which caused a lot of the troubles. The right hand side shows our own landings in Pilchards, so 16% contribution to the canned product. You can see here the allocation, we caught all our allocations, so we basically caught the quota. In the east, which is the pale part of the block, and we now go into H2 looking to see and confident that we can catch in the West and you can see we managed to do that last year so we're confident that that can carry on and Neville will tell you more about that later. Moving on to Daybrook, it's clear to say that this is a poor result on a poor base with poor fishing and we had as a result of the poor inventory levels resulting from poor fishing last year and the hurricane season that impacted us with Hurricane Ida. Really, that's the story of the division. If you come into the first half with no stock, as I said, you just know it's going to be a tough time. You can try and recover, but this fishing season only starts in the middle of April, so you can only really start recovering into the second half. You can see that from the graph on the bottom right hand side. I've mentioned the insurance proceeds and I've mentioned deferred tax. So again, that's the Daybrook story for the first half and then we'll take you through what we're seeing going into the second half. From a BCP perspective, poor fishing in the horse mackerel and also fewer sea days. So the maintenance, scheduled maintenance, all scheduled maintenance that happened in Namibia took a couple of vessels out, which meant a 20% fewer sea days in this half. Having said that, we've had strong demand-led pricing for our product. In fact, that's true for the canned fish operations in Lucky Star as well. From a Hake perspective, also a reduction in volumes, but offset. sorry, an increase in volumes, but offset by lower sizes and lower bycatch mix. And actually a stronger rand against the Euro, which is the main markets for those products. In both horse mackerel and hake, continuing high fuel costs resulting from Brent crude prices and the implications of the war in Ukraine. Lobster and squid. Lobster, we had a 20% reduction in the total allowable catch, and we didn't catch that reduced quota. So a concern in the lobster resource that we are doing everything we can as a major player to manage that resource and to help with the authorities to control and do what we can to try and minimize the poaching that's gone on. Squid landings impacted, as I said earlier on, by La Nina warm water conditions in the east. So with that lower activity, not only the fuel costs impacted us quite badly, but the fixed cost absorption with that lower activity also plays a part. And not a bad result last year, this time last year from BCP, so up against perhaps quite a strong comparative in that division. If we move on to CCS, again, it's a non-comparable position in CCS with two less cold stores. But also the major problem here was the port disruption in Western Cape. So Cape Town Port really battled with the COVID issues and trying to offload containers. And if you don't offer loading in time, the ships sail on, and that's impacted the occupancy levels in Cape Town quite significantly. Also, the non-operating item there of 31 million last year is the profit on the disposal of our Bayhead plant in Durban last year. Looking at the balance sheet, there's not too much to discuss on the balance sheet that I'm not going to take you through when I take you through the waterfall, the cash flow waterfall and the debt slide. So I won't dwell on this. Remember, this is a March to March situation, so it doesn't really show the key issue of the lower stock position that was actually on the 1st of October at the beginning of the half. So moving on now to the net cash position, this is a half year picture from September, from the first of October last year. You can see good cash generation and investment in building up the stock, the inventory levels with 120 million rand investment in stock. But again, we were really always chasing those sales in canned fish, unable to fulfill all the customer orders. More restocking to come. We're only really going to get back to a fully stocked position by the end of the financial year in about August, September. Nothing too much to discuss more on that slide. So looking at group debt, the last one was net cash and net of overdrafts. This is group debt. A pleasing picture here, we've got South African net debt position where we repaid some of the debt and very happy with the net debt to the ratios, plenty of unutilized facilities. And in the US, net debt as well has slightly gone up with lower cash because of the lower opening stock position, but gross debt also came down with some repayment in that respect. So happy with the overall level of group debt and happy with our hedging strategy and all good on that front. If I then move on to the final slide, I have mentioned once or twice the opening stock position during my presentation, and I think this really ends that with a picture of really the September position. So you can see March was low, September was lower, and by the time we got to March 2022, we had somewhat recovered. We are in that process of rebuilding our stock positions. We won't get there until later on in the year, but a much better position through the year as we worked hard on production of canned fish and worked hard to increase the supply of frozen fish as well as seeing some improvement or significant improvement in the last couple of months of the season. And then finally, looking at the dividend, as I said, we've kept the dividend cover of 2.3 times, consistent with that of last year, and that means a 55% interim dividend. And with that, I'll hand you over to Neville to talk about H2 and beyond.

Thank you, Ralph. Thank you, Mushtaq. Before I get into the forecast, I just want to firstly thank the board for having the faith in me and nominating me as a permanent CEO, and I certainly believe that I can do justice to the position. I took over this position in mid-February as interim CEO and at that time there was a very low morale in the staff. There was a lot of noise. As you know, it's been a tough year, not just in terms of the noise, but in terms of the operations. So staff were not very confident. They were not very highly motivated and In those two and a half months that I've been in the position, I've spent a lot of time both in the field, I went into the trade, I've taken my Exco team to the factories, we've got out there, I've spent some time with the senior management of the group and I can tell you that the difference between then and now is marked. People are energized, people are back on track and it really is positive. And when I read, and I actually wrote it down here, when I read statements in the press, say, can Oceana keep anyone, it actually makes me angry. We have a fantastic group of people. I've got a fantastic management team behind me. The staff are, we're responsible for 4,000 people. Oceana has strong people, strong brands, strong performance. So, you know, statements like that really do make me angry and it energizes me because I will make, I will turn these detractors around. This is a great company. So when I saw that yesterday, it really didn't make me happy. So we'll certainly turn that around. So let me talk about going forward a bit. So let's start on Lucky Star, an iconic brand, fantastic brand, remains a market share of over 85%. And we came through last year, as Ralph said, with very low stock levels. But it was exacerbated by the low procurement levels prior to the looting. So we had very low production. The looting exacerbated, and we started the year with unusually low stock. The brand has performed and if you look on the graph on the right hand side there, you can see the first two months, October and November, we were well below last year's performance. Not because of demand, that was because of stock. And since then, we have pushed hard and for the last five months, our performance per month relative to the previous year has outperformed and on a cumulative basis, we're now on a par with last year. I was talking to Lowndes Duval, the MD of Lucky Star a couple of days ago about the ability to supply demand. We still haven't got to a point where we're fully supplying demand. Demand has surprised us. It really has surprised us. In February, we put both of our factories on double time. We were pushing hard that they started producing, but as fast as we are producing, getting the releases from NRCS, it's going to the stock and it's not touching sides. I think in my presentation in early in February this year, I said to us we'd hopefully get back to a full supply point in terms of stocking the market by April. I think we still aren't there. Positive sign that demand hasn't debated. Our pricing, relative pricing, and I say relative because the cost pushes have been significant in this business. Freight costs, raw material costs, the price of cans, the steel price has pushed down to us by NAMPAC, coal that is driving our our boilers in the factories have all gone up. What we have tried to do is manage that price so we haven't passed that full price across into the consumer. We've had a second price increase now, we have been forced to have a second price increase, but it certainly is not pushing the full price through to the consumers and we have to stay relatively competitive. If you look at Lucky Star relative to our competitors, the brand is still very, very well priced. If we can move into the next slide. So, and I wanted to point out that graph on the right-hand side there. That is household food index over the last year, April 22 versus April 21. And you can see the green bar is tin pilchards. It's across the board. Our average increase is just on 10%, but relative to the other, And those are not all proteins. Those are commodities, basic commodities that our consumer buys in a regular basis. And you can see the pricing still remains very competitive. But my concern is inflation in this country and our consumer's ability to afford her normal basket of products. It is going to put a lot of pressure. Hence, our need as Lucky Star to keep that brand as affordable as possible. we are working very closely with the trade the traders sees lucky stars as iconic brand a key a key brand loss leader in it in their stable and they are working very closely with us to to give that brand to consumers at a reasonable price next slide What I wanted to show here is the procurement status as of April. So those are the countries. Each of those colors denotes a country that we import our frozen product for Lucky Star. As you know, Oceana is the single largest buyer of pilchards in the world. We import around 100,000 tons per annum. We catch of our own fish around 10,000 tons, 110,000 tons. And what we've learned over the last couple of years is we have to spread our geographies. So each of those colors denotes a country. April 21, when you can see, we had imported around 30,000 tons. We're almost double that this year. But as fast as that product is coming in, it's going out. There's two top blocks, orange and green, there's Mexico and Japan. Those are new geographies that we started to import from. It gives us a wider range, lessens our risk in terms of available product. We've also learned in the factories how to produce a range of quality. In the past, in the last couple of years, we've been very specific about what we buy from the various countries, but it had to be a certain quality. What we've learned is to minimize that risk, our factories are going to get better at producing a range of qualities from whether it be Mexico, Morocco, or Japan. And we've certainly got better at that. From a Lucky Star point of view, demand remains strong. I'm not concerned about it. We've got to manage pricing. Pricing, the cost push continues to push. We've got to manage that, be more efficient, so we don't push that full price across to the consumer. Pricing in the market is relatively competitive. We've seen the other proteins, chicken, chilled meats, baked beans, those prices are... Those price increases are in excess of our price increases, so the ability... The brand remains very competitive, and I'm confident for the rest of this year that we'll continue to see that demand and growth in Lucky Star. Our key is we've got to ensure that we have enough raw material to supply that demand, and we've got to get the market to a full supply point of view. I was asked the question, what level of supply are you at the moment? And it's probably close to 98%, so there's 2% that we still need to fill, but I would like to get to a point where we're 100% supplying the customer's demands. So a good position that Lucky Star is in. I think it bears well for the balance of this year. Our fish meal and oil business, this is an African business. As you know, we have two plants, two up the West Coast, an oil and fish meal plant. We've been in this business a long time. And this business is... a volume-driven business. It has high fixed costs, two factories that employ a large amount of people, strong costs, and it's driven by the ability to keep those factories fully operational. The anchovy, we catch two species, anchovy and red eye. Traditionally, those catches start around mid-January with red eye in particular, and then anchovy comes in about two months later. Interesting, this season, go to the next slide, Trevor. Thank you. Just to explain that. So this season started late. The right-hand block there shows months, green, March, April, May. And you can see that our catches really only started in March. So the initial part of the season, we really weren't recovering fixed costs because there was very low catches. What is being encouraging is in those three months, we've actually exceeded the same period last year where we caught in a lot earlier. You can see those bottom green, blue and orange is when we caught in January, February. This year we caught later, but strong catches in each month. So you can see those blocks are consistent. So each month is a very consistent catch. We catch in, our target this year is around 100,000 tons that we believe we will catch. as you can see by the blocks there, we're at 50,000. So we are well on track to catch them. That drives, as you start covering your fixed cost, and you start getting up to breakeven level, then suddenly comes through to the bottom line. So I am, again, encouraged by this. It is fishing, and that's the nature of fishing business. We always are subject to weather and fishing conditions and catch conditions. But certainly very encouraging that we've had a consistent catch for the last three months, driving, going through those factories, those two factories. On the right-hand side, I wanted to show some comparisons on two things. Firstly, the red dot at the bottom, that is oil yield. Now, unlike in the US, the fish that we catch in South Africa, anchovy and red eye, is fairly low in oil yield. Last year, that little red dot denotes 2%. So our average yield on oil is fairly low. What we've done in the last few months is producing, we produce the frozen product that comes from overseas markets for our canned fish. We've managed to start extracting the excess oil that runs traditionally into waste. We started being able to extract that from our production and enhancing our current oil yields that we get out of anchovy and red iron. You can see the yield has gone up from 2% to almost 5%, double. That is enormous value. The second thing is on the pricing, and that is the green bar that you're seeing there. So pricing on oil last year at around $1,500 a ton, This year, our contracts so far at $2,500 a ton, but the current contracts we are achieving right now is in excess of three thousand dollars a ton so very very strong demand for oil fish meal is the two dark blocks and you can see also strong demand not as dramatic as oil but certainly an upward trend so good pricing demand the key for us in this business is about the catches over the next couple of months i think that'll drive the business and fishing is fishing but certainly the signs at the moment are very very positive Daybrook, same business. Exactly, we're in fish meal business as I spoke about last year. A very tough year last year. One of the lowest and I'll show graphs later in the presentation about the long-term trend in Daybrook. But last year was one of the lowest seasons, certainly the lowest season in Oceania's history in Daybrook. We caught 400 million, about half of what we should be catching. This year, Obviously, we had a closed season. The season runs from April to October. We spent a lot of time in the closed season working on that factory to ensure that when we started the season that this factory would operate optimally. We have a South African very high quality engineer that we sent across there. He's probably one of the leading process engineers in fish meal in the world. And he spent the last six months at that factory looking at efficiencies, both in the offloading at vessels and the pumps and the efficiency of the factory. And since the opening that season, the season now, that factory has performed phenomenally. So we opened the season in April. We are operating all 12 vessels. As I said last time, we've got an additional vessel. All 12 vessels are fishing. One of the key components is we've got our foreign crew back. They have traditionally, over the last two years, not been on the vessels. They're back. Our productivity in terms of fishing has increased. We're in week seven. I'll talk about the graph now, week seven of fishing. But just those foreign crew that have traditionally worked on the vessels for many, many years, The amount of sets, and it was interesting talking to the, as they call him, the president, he's in South Africa for the board meeting, about the amount of sets they've been able to achieve relative to the last couple of years, sets being how many times they can actually deploy the persona in a day. And they are... 30% better than what we've seen in the last year. So it's not just about the fish being there. It's about the ability to catch fish. And certainly that is delivering at the moment. So the plant is in a great state. Let's just talk about the right-hand side of the thing. Those are the graphs, and that's showing our catch rates up to week five. Obviously, this was done last week. We're currently in week seven, and it's continued on those things. So each of those colored denotes a week. And as you can see, we are currently double what we achieved as of week five last year, and we were ahead of the five year average. And in fact, when I was looking at the figures yesterday, we were ahead of the five, 10, and 15 year average. And I'll talk about, you'll see the graph later in the presentation about the long term thing. So this business is in a good state right now. Early days, obviously weather and fishing like our business. Let's go to the next slide. So again, I just wanted to give some idea of pricing. Same as what's happened in South Africa. The difference between this business, and let me start with the top graph, that's the pricing of fish meal. As you can see, there's a steady increase. Demand is good. We're confident. The difference between this fish meal business and SA business, this business is predominantly, our fish meal is predominantly sold to the US pet food market. It is a very stable market. COVID has had a very marked effect on household pet growth, you know, over COVID people spent a lot more money, not on their pets, on owning more pets and almost spoiling their pets. And we've seen a massive growth in the pet food market and the demand for pet food. So we've pushed our level of supply. At the moment, we're looking at about 75% of our Fish meal production goes into the pet food market in the U.S. Very stable market, long-term contracts. Fish meal is an inclusion, a protein inclusion in the diet, in the feed diet. Important in that industry, and we're going to drive that. One of the downsides of not having stock is we had to let our customers down in the early part of this year. Certainly that is something that I'm going to be very conscious of this year, is that when we finish, we come through this season, that we do not run into the same position where we don't have any carryover stock into the new season. We have to give our customers, the pet food buyers, the pet food manufacturers, the confidence that they can acquire pet food or the ingredient into pet food, a fish meal ingredient, over a 12-month period. So very positive in terms of pricing and demand. Same principle in oil. In this species, the oil yield ranges between 8% and 12%. The early part of the season has been quite low. Currently, the oil yield is running at about 8.5%, lower than we expected. Not much we can do about it. It's determined by how much fat there is in the fish, and it's about feed. It has improved. When we started the season, it was around 7%. It's now at about 8.5%, and we expect that to grow over the catch as the fish grow. go later in the season and as they grow they feed more and the fat content in their flesh increases and the oil yield goes up. What is still positive is the pricing. Strong demand for pricing and it's driven by two things. One is the Peruvian catch which is the largest catcher of fish meal in the world. They produce about 50% of the world's fish meal. Their initial oil yield is about half of what they expect. Again, a very low catch anchovy, similar to us in South Africa. The oil yield should be around 2%, and they're achieving 1%. 1% of 2.5 million tons of fish is a massive reduction in the availability of oil, and hence the price has been pushed up. The second reason, and I spoke about it last time, was the Ukraine-Russian war. Ukraine is a major producer of vegetable oils, as is Russia. And with the war, there's a shortage. So there is a correlation between vegetable oil and fish oil. And those two conditions have pushed the price. And as you can see, our latest price, and we've contracted about 75% of our anticipated production already. And those numbers are around $3,000 a ton. So very positive going forward. The key for this business is catch rates. Again, I'm going to talk about it just now. the long-term thing but you know we've we've had a very good start the key is to continue with that start and get be a more effective of be more effective about mitigating unusual weather conditions so I'll talk a bit about later the BCP business The businesses that I'm very familiar with obviously came from that side of the business. Very good year last year. Also opened with lower stocks, but catch rates have been disappointing in the early part of the year. Across all the species, horse mackerel, obviously we operate in both, in two geographies, two vessels in Namibia, one in South Africa. The Namibian catch rates in the early part of the year, October to January, were very sporadic and well below norms. They have picked up very nicely in the last couple of months. The big difference in this business is the two Namibian vessels had to do class surveys. You do that every two and a half years. Unfortunately, both vessels were scheduled for class surveys. It's a normal statutory requirement in keeping the vessels safe from a safety point of view, so they went through the class surveys. it's not about it's not only about the cost it's also about the vessels therefore not fishing so they're not producing product energy so it's a normal cycle but it has has affected this business what again is positive is is pricing that bottom graph that you see there is the pricing of horse mackle horse mackle obviously is a low cost affordable protein competes very much with our lucky star brand and the chicken and chilled meats that we compete in and what we're seeing and and All the horse mackerel that we catch is sold into southern Africa. DRC, Mozambique, Zimbabwe, Zambia, South Africa is a big market for us. And people, given the economic conditions that they're facing, are trading down. So we've seen strong demand for horse mackerel, very well priced. So from a demand side point of view, I'm very confident. Obviously, it does depend on fishing. Namibia has been reasonable. South Africa... And as Ralph alluded to, we catch on the east coast of South Africa, from PE down to Cape St. Francis, and catch rates haven't been as per normal. They've been sporadic. And it is to do with the weather conditions. It's not a function of resource and biomass. It's a function of weather conditions. The La Nina effect on the east coast, the warming of the waters, has definitely affected the species. That is a... That is a natural occurrence that happens every four or five years. It takes a while to dissipate. We've seen it slowly dissipating, but it definitely has affected fishing. The hake and squid and horse mackerel catches on the east coast haven't been as we expected. On the hake side, similar to hake catches in the early part of the season have been, as I said, sporadic. We operate five sea freezer vessels, factory vessels that fish at sea that produce a H&G product. The bigger product goes to Europe, the smaller product stays in South Africa. The bigger product obviously commands a higher price. What we've seen in the last two or three months is the size mix of the catch has been smaller take. That's very positive from a long-term sustainability. Smaller Hague growing to bigger Hague and from a long-term sustainability it is positive. But from a pure economic point of view in the short term, obviously there's a lower return from smaller Hague. So it is. And then the other thing we've been catching a high level of bycatch. Bycatch is allowed. But obviously, when you're trawling for hack, you catch a range of other species. The level of bycatch has been a lot of low value bycatch, not high value bycatch. So it has affected this business. Still a very strong business, very positive. as I spoke about in February, we've come through the long-term rights. We have now 15-year rights on this business. And this is important for this business because it gives us the security of tenure and visibility of where we're going in the future to reinvest in this business. And something that we are looking at going forward is how do we How do we upgrade our vessels? How do we look at increasing efficiency, increasing productivity through those vessels? So that is, there will be some investment in our Hake fleet over the next couple of years, now that we know we have 15 years. That graph on the bottom is showing our percentage of the TAC. After the long-term rights, Oceania now has around 13% of the TAC, up on two years ago. And that's despite a 5% reduction in the TAC. The TAC has come down this year, which is a natural cycle. But certainly that's this business. Tough, first off. I think it'll be difficult the second half. There is some improvement in pricing in Europe. Given the Ukrainian war, a lot of the cod that comes from Russia and Ukraine goes into the European market. With the sanctions now being imposed, we're seeing the European market looking for alternate replacement stock for that, and Hake, our bigger Hake, which we generally will catch in the second half, is a good replacement with strong demand out of the UK, which is a new market for us. So it is a good position to be in. I don't expect the lights to be shot out by Hake for this year, but the business is a good business. Commercial coal storage, also a tough time. Remember, commercial coal storage is a very stable, long-term business affected largely by economic conditions that exist in its market. given the tough times that South Africa has gone through in the last two years with COVID, the effect on the global freight and logistics markets, we've seen a lack of a reduction in the imports into this country and it has affected this business. This business is very has a very high fixed cost base. You need to maintain an occupancy level in excess of 75% to keep this business stable. And we've seen that occupancy come off over the last six months with limited imports. And it's not just limited imports, it's the imports have been slow. Logistics have been affected In terms of time, containers are taking double the time to reach South Africa or to be exported from South Africa, and that has affected this business. In the short term, and you see that little blue bar there, that's the April occupancies. We've had some improvement in Gauteng. In one of our facilities there, we've secured a long-term tenant, which has pushed the Gauteng occupancy, and this is a long-term fixed contract. occupancy up to over 90%. In the Western Cape, we have three stores. We've seen the start of what's called the loose fish. This is the foreign fleet that catch tuna and a number of other species in international waters and come and offload it into the Cape Town Dunkin' Dock and it's sold into the international market. Those catches have started and that is very lucrative because it's spot and our pricing is obviously priced accordingly. So there's been some small movement, but this is not a business that turns around quickly. It's a stable business and will slowly, I think, recover as the economy and the state of the freight industry recovers. Okay, then I want to talk, Ralph and I will talk a little bit about the Daybrook performance. And over the last few months, there's been a lot of press written about our investment in the US. Why did we invest? Was the investment worthwhile? Has it paid dividends? And why are we so heavily invested in the fish meal business? Remember, we've been in the fish meal business for many, many years in South Africa. We then decided to go into the US in 2014-15 and it was driven by certain decisions and I want to just kind of explore those decisions a little bit to give a context of why we believe the fish meal business and in particular our investment in the States was a good investment and will continue to be a good investment. So the key to this is the drive in consumption of seafood. Seafood is expected to continue to grow and it's a function of affordability and health. People are wanting to eat more healthier. And you can see the top graph there showing the growth in per capita consumption of seafood. It's expected to grow by 15% between now and 2020. And that's outside of the population growth. So that's just per capita. It's from 21.5 kilos to 22.5 kilos per person over the year. And it's consistent across all of the geographies. It's not just in, obviously driven by China. China is a major consumer of seafood. And you can see the projected growth rates. The second aspect is the availability of seafood. Wild capture of seafood has been fairly, that bottom graph, you can see the green line there, that green line denotes wild capture of seafood for human consumption. And it's been fairly stable, around 65 million tons over the last, in fact I've seen stats going back 50 years, Despite some negative criticism in the press about we're fishing these waters out, wild capture of the commercial species, the big commercial species, has been fairly stable. One goes up, one goes down, but it's fairly stable over years. But the point is it's static. There isn't growth. There aren't more fish to be caught. The brown graph, the flat graph, is wild capture of seafood that is converted into fish meal. What is the key to this graph is the growth in aquaculture. Aquaculture, obviously to supply the growing need and requirement for seafood and in terms of food security has been phenomenal. And in 2015, aquaculture exceeded the volume of wild capture. And as you can see now, it exceeds the volume of, well, it is projected to exceed by 2030 and that'll continue to grow. now obviously aquaculture is a key customer of ours where does our fish mill go our fish mill goes into the production of feed into the aquaculture industry and fish meal and fish oil are regarded as the most effective feed there are other proteins that that can be used as a substitute for fish meal and fish oil. But the digestibility and the growth conversion rate that fish meal and fish oil gives far exceeds anything rapeseed oil, sunflower oil, bone meal oil. Bone meal, those all are substitutes, but are certainly not as effective as fish meal. So the demand for fish meal will continue because of the demand and the growth in the aquaculture industry. And this is not going to stop. So our belief is that this industry, and in particular Daybrook, is an industry that has a long-term growth trend. Go to the next slide, Trevor. The second aspect that I want to talk about, the one difference about daybrook as opposed to our fish meal in South Africa is daybrook is a species and it's called manhaden and the way it's managed there is on effort. We are not restricted by a TAC. In South Africa and many economies, the way they manage seafood resources is you are restricted in terms of tonnage. The US, we are restricted in terms of time. We can catch between April and October, and if we are more effective, we can catch more. So we're not limited by the amount we can catch. And we certainly, and it'll be certainly a function of myself, and I will work with a team in America, is how do we improve our efficiency to take fish out of the water there? We can take more out. We've had a low season. So this graph I wanted to show was, this is pre-Oceana acquisition, and it goes right through to the period. And you can see there, those are catch rates. The blue graphs show the catch rates over the year. On the left-hand side is an unusual way of measuring. In America, they measure it in million fish. You can see the average that has been over the last 20 years, and this is Daybrook, this is not our position, this is our catches, or pre-our catches and our catches. We average about 600 million fish over the long term. The other important note is that this, as you can see, we took it over in 2014, and we've had that business for seven years. In the seven years that we've owned this business, five of them have been well above the long-term average. One year was just below, and last year we had a tough year, and we had a cyclone Ida, and as you can see, 400 million fish. But the one key thing, if you look at that graph, is after an event, Katrina, the BP oil spill, there is a marked jump in catch rates over the next period. So positive because obviously you're not pulling the full expected catch, the fish are still there, you just can't catch it. It is very positive going forward. The other point that I want to raise here is those black graphs at the bottom. That is up to week six. We're in week seven, and I can tell you week seven has been no different. We've been catching. We're halfway through week seven. And the catch rates in week six is well above the long-term average. So very positive catches so far. So... again, I come back to this criticism. This is a business we want to be in. This is a business we believe in. This is a business that we can make a difference if we are smart about how we can catch us. We can't control weather. And we'll have to learn how to be when there is weather, how we get back to sea as quickly as possible. And I've had conversations with the management there already about Heng being a little bit smarter that when there is a cyclone event or a hurricane, that it only takes us out for a period of time we can get back to sea as quickly as possible. the foreign fleet, the foreign crew that are back in our vessel, the ability to develop nets that are lighter so it can sink faster. Those are things that we can do because we are not limited by TAC. We're not limited by volume. We're limited by time. We can be more effective. So that is the long term. I am positive about this business for the rest of this year, but this is not about this year. This is about this investment going to the future. This is an investment we believe in and we want to grow. I'm going to ask Ralph just to cover the next two slides. just in terms of the financial performance of the last couple of years.

Thanks, Neville. So on the left, you can see that Daybrook has contributed profits every year, except for the last year. Operating profit, 2.5 billion, and even after interest, you're talking about a billion rand cumulatively. But if you look on the right, you've got the gold standard of HEPs accretion. We did issue shares as well. And in every year, again, apart from last year, the accretion has been positive and the trend is up. So in other words, the accretion has been compounding apart from last year. So, you know, it's generated shareholder value. It's been an investment that has beaten the cost of equity and whack. And it also hasn't affected the pre-acquisition dividend practice that we had. If you go on to the next slide, then we've got a scorecard here. So we've set out the measures in which we would judge this business. And we've got two ambers. The first one is an attractive IRR. As I've said, it's been heaps accretive. But we recognize there's been some volatility. So the accretion, the ability for this business to add shareholder value comes with some volatility. The second one, value creation through fleet expansion. This business, we've looked after. It's in good shape and we're confident that we've set this business up, the plant up, to be able to process more fish than we're currently catching and we believe that we're doing that because we expect that we can catch that fish. We've increased geographical diversification, but again, it comes with a certain amount of price volatility of the product. We've had an increase of exposure to US dollars, so hard currency revenues, and we're happy to have that. And the diversification of Oceana's supply. So the Gulf of Mohegan, as Neville said, is a well-managed and sustainable resource. And then finally, we have a fish meal and fish oil business here. We have one in America. And we are able to put those businesses together from a global perspective and manage the commodity and understand the pricing to optimize the group's performance in the product. So it's a good business. It's a sustainable resource. It's a business that's well set up for the future. And we're very happy with it. And it's adding shareholder value.

Neville? Just before I go to questions, I know there's been some reports in the press about a lobby in the States about restricting our ability to catch and reducing what we call TAE to a TAC. And this lobby comes from the recreational fishermen, very strong recreational fishing fleet in that Gulf of Mexico, small vessels that go and fish on the weekend for a range of fish. and there's a lobby to try and restrict both the distance that we come to shore, how close we come to shore, at the moment it's a quarter mile, and to try and convert this to a, what they call TAC, a limited volume. That went to a Senate vote last Friday and it went in our favor and that lobby was defeated. But what I want to say is, and we are going to work closely with the fishermen, the recreational fishermen, because we do not want this to continue to bubble below the surface because it's not supported by science. In the U.S., The science shows that the commercial industry takes about 2% of the biomass. Now, traditional fish science in South Africa, our standard model is we take about 20% of the sustainable biomass, which allows that biomass to rejuvenate and be sustainable. So we are working with the scientists and we were going to work with the recreational lobby to try and bring them on side. But certainly that is not if we were concerned about it. It has now gone to the Senate. It was subject to a vote. The vote went in our favor. So certainly for the foreseeable future, that won't come back to a vote. But that doesn't mean that it is not a concern of ours. So we are going to be working with the scientists. the local lobbyist in that area and it's one of the areas I'm going to be visiting the states in three weeks time. I'm going to be spending some time with Francois to discuss the matter and see if we can get some sort of understanding between ourselves and the recreational fishermen to alleviate this problem. So maybe just to end, From my side as in my new position as of yesterday, I am confident about this business. If you look at our product range and most of our products are either at the lower end of the scale, we are affordable protein for the bulk of the consumer base. Demand across the board for all of our products, I would say all of our brands, including lobster, which is a small part of our business, is extremely strong. Pricing on average is above all normal. Our ability to give affordable protein to the consumer is there. There are cost pushes. Inflation is a concern for me as a business and as a country, not only in this country. As you know, inflation in the U.S. is now close to 8%, inflation in Europe at 8%. We have some strong cost pushes across the board. We need to be more effective about managing that, not pass those all onto the consumer. And then we're a fishing business. Fishing is always going to be cyclical, it's always going to be unpredictable. We've got to be more effective at fishing. Certainly the signs this year are that fish are reasonably placed. So in all of the species that we are currently catching, they are reasonable to better than they've been for the last couple of years. So I certainly believe the second half is going to be markedly better than the first half. It does depend on that fishing continuing over this next three months. And then the last thing is logistics. Logistics is an issue. We've got to catch the fish. We know the customer wants the fish. Our ability to get it to that customer as quickly as possible. And that is being constrained given the logistic challenges we have with movement of containers and vessels around the world. So both incoming raw material for Lucky Star and outgoing product to our export markets. But I think we're in a good position. I really am confident for the second half of this year. And I'll leave it on that and take any questions.

Thanks, Neville. We do have a few questions. I think the first one will be for Rolf. It's from Errol Scheer at Sasfin Asset Managers. One of the issues with the collapse of Steinhoff was with allegedly fraudulent transactions between Steinhoff and group companies or group entities ordered by different auditors. What has the board done to ensure that the same cannot occur with Daybrook West Bank?

Thanks, Errol. I think the important thing to note is that we had a comprehensive independent forensic investigation from ENS Forensics. From that, we had an audit that was ongoing and delayed for those reasons. And PricewaterhouseCoopers signed off on our accounts on the 25th of March and even though we've parted company with Pricewaterhouse now, that opinion hasn't changed and there's no reason for us or for anybody to suggest that there was any fraudulent activity.

Neville, the next one for you from Anthony Clark at Small Talk Daily. You have had a torrid first half period with lots of drama that has shaken investor and market confidence. How are you as a new CEO addressing these pressing matters to rebuild credibility and trust with investors and the market?

I think that's something that myself and the board are working very closely together. I've been in this business for 27 years, and I can tell you that governance and integrity is key to this business. So this is not something that we've suddenly failed. This is a sequence of events that have happened, but governance is strong in this business. As far as building confidence, it'll all be about performance. I'm going to drive this company. I know I've got the management team behind me, and I've got a strong management team. I'm going to be out there driving performance. The best way to convince the market is through performance, and I certainly believe that we can do that. This company is 104 years old. We've got a long track history. We've got great people with great products. There's no reason that this little hiccup that we've had in the last six months is a long-term trend. This business has got a great future.

Thanks, Neville. Another one from Anthony Clark. Can you give us a feeling as to how your recent price increase, and this is talking to Lucky Star, how your recent price increase, given all protein resources are rising to consumers, have been taken by the market? And I guess an add-on to that is just a general update on the current market and consumer conditions within Lucky Star.

Well, you saw the graph that I put up there. So what we have done is we've, through efficiency, managed to limit. We haven't passed on the full increase of the various ingredients to Lucky Star to the consumer. Our brand remains very competitive. And the one key thing that you've got to understand with Lucky Star, unlike chicken, Lucky Star is used as a full meal replacement. When... Mrs. Housewife or a mother serves Lucky Star, she takes Lucky Star and she adds it to starch, she adds it to rice, she adds it to and it is used as a full meal. So we've got to manage that and I certainly believe that we will not pass the full cost pushes through to the consumer and our pricing at the moment is very competitive versus other protein sources.

Thanks, Neville. Rolf, this one for you. Miriam from MIBFA. Can you give an indication how big is fuel in your annual costs? Will we see an impact from rising rates, and I assume that's talking to interest rates in the US, in your US debt?

So, thank you for that question. I think in a normal year, fuel would be about 8 or 9, maybe 10% of the overall production costs. I think obviously with the denominator, volatile, and the numerator, the oil price at the moment, Volatile, that could be perhaps double that at the current time. But about 8%, I think, is probably about right.

And the question on the interest rates?

Our interest rates in the States are fixed, so 100% fixed. We're about a third fixed in local, in South African debt.

A question from Paul Stegers, which I think has been answered, but I'll give you an opportunity to elaborate if needed. Can you show profit growth on H2 2020 levels, besides obviously growing on H2 2021 levels?

Yeah, just to go back to the previous question, I said fixed, I should have said hedged or swapped. And then Paul, yeah, we're confident about the second half. But if I was to give you some comment on second half on second half, I'd probably be narrowing a range. And, you know, I'm unable to do that at this stage.

Let me just comment in, you know. The conditions are certainly favorable, but fishing is fishing. That's the nature of the business we're in. So very difficult to give you a firm answer, but certainly the early indications are certainly looking positive.

So unable by JSC regulations to give you an answer.

Another question from Anthony Clark. Neville, I think this is for you. With Russian sanctions and the removal from the global whitefish market of a sizable tonnage of product, what benefits is Oceana seen to its export markets?

Yeah, it hasn't translated yet. And our hake business, obviously 50% of our hake business, our larger hake, goes to Europe. And in the last two months, we've started to see price come through. But our early catches of hake have predominantly been small hake, which has been sold to the local market. Where we compete with the Russians, Russian hake and cod, is in the European market, and that should come through in the second half. As we start, when our fleet moves further south and west, we start catching bigger hake, and that is predominantly hake that goes to the European market. So, you know, I... That is certainly an area we've seen strong demand. And one of the reasons we are now selling to the UK, which is a new market for us, is because that was traditionally a Russian cod market, which is no longer going to that market. So there are some positive signs coming out, but it's still early days.

Another one from Anthony, and I think this refers across the board, but probably more specifically to Lucky Star. How much of your rising input costs have you managed to claw back from price increases?

All I can say is that we haven't clawed back the pull, and we don't want to. We're very conscious about our consumer. So we believe that we can claw back some of the revenue from increased volume. We are not pushing all of the cost increases through to our consumer. Our consumer at the moment is very vulnerable, and we're very conscious about that consumer. So we've got to manage our business smarter to try and minimize those cost increases. And they have been sizable. And it's something that I'm working with the team to do to try and minimize the push through to the consumer.

Neville, this one for you as well from Maneer at Denka Capital. Tiger brands have been marketing quite aggressively on cupultures and price at a discount. Are they taking market share?

At the moment, our market share, I mean, Lucky Star is an iconic brand. And it's interesting, when economic times are tough, and it applies to any brand, when economic times are tough, consumers revert to the brand they trust. And certainly they trust Lucky Star. We know our market share has not, in fact, our market share is at a record high. So, no, they've had very little effect on us. And Lucky Star is a household name with our thing, and they trust that brand. So it has had very little effect on us.

Thanks, Neville. Rolf, a question for you from Samil at SPG Securities. Could you indicate why the legal and audit costs were attributed to the canned fish division, firstly? And secondly, were there penalties incurred at Oceana, as Oceana could not supply customers in the U.S. business and the Lucky Star business?

Thanks, Emil. The first question, why did we apply the cost to Lucky Star? We don't have a head office segment, so that segment sits in the Lucky Star, the local operation of Lucky Star operations and Lucky Star marketing. We then set ourselves a budgeted chargeout rate to the rest of the group, and that is looking forward for the full year. So we have quite a lot of volatility between first and second half, so we don't readjust that in the first half and then have to do something completely different in the second half. So those costs are in lucky star in the first half, and we'll perhaps have an adjustment through the full year. Second question was the penalties for not fulfilling customer orders in the States. No penalties. It's just that if there is no product, there is no penalty.

Rolf, another question for you from Nick Krieger at Signal Asset. What is the market value of the cold storage properties?

Hi, Nick. If I had to give you a thumbs up, I mean, how do you value properties? I think commercial properties have to be valued really as if you're valuing the business unit and CCS itself. Somewhere between 800 and a billion, if I had to give you my sense of it.

A question from Kristen Collins at Excelsa Capital. Could you provide the outlook for Lucky Star in the second half? What are you seeing in terms of consumer trends and substitutions between protein products? I think you probably covered the outlook. Maybe, Neville, maybe there's a question on substitution between protein products.

Can you just repeat that question?

What are you seeing in terms of consumer trends and substitutions between protein products?

You know, obviously inflation is a concern for us at the moment and Lucky Star is extremely well priced relative to the other proteins. If you see the CPI in IQF chicken and all of the other competitive products, Lucky Star is very well positioned. So, you know, certainly I think demand will continue to grow for Lucky Star.

Another question from Nick Cricker at Signal Asset. Lucky Star is a very strong brand. I'm surprised that the operating margin is so low given the very high gross margins in the business. Can you bridge the gap between gross margin and operating margins in this business? Is there space to cut costs?

Nick, I think you've got to bear in mind that when we talk Lucky Star in this segment, it's canned product as well as fish meal and fish oil. So there's a few moving parts in that segment all operating here in the Western Cape and a lot of volatility, of course, in all of those components.

I have no further questions at this point in time. I'll just give one second to refresh. Yeah, that's all the questions.

Thank you very much for your attendance, and thank you very much for your questions that you've asked as well. I hope we've satisfied all your questions. But if there are any further queries, then I'm sure you've got contact management. They'd be happy to answer your further questions. Thank you very much, and have a good day. Thank you.

Thanks very much.