Oceana Group Ltd

everyone online good morning and welcome to our 2022 year end results presentation for over a century and with 75 years publicly listed on the JSE Oceana has remained a stable and operationally sound business today the leadership team will present the set of financial results that speak to the agility resilience and above all the strength of the group On behalf of the board and myself, we would like to acknowledge the commitment of the Oceania executive team under the experienced leadership of Neville Brink, the CEO, working closely with Ralph Buttle, the interim CFO, who has done a remarkable job in setting the ship to deliver these results. Of course, they've enjoyed the support of an experienced team of Oceania employees who all worked tremendously hard to produce this performance. Culture is critical in setting the tone and foundation for business strength. Together, Oceana has shown strong values that will guide this business into the future. The Board and the Exco team are fully committed to continuing the journey and are guided by the values of trust, respect, teamwork, accountability and courage. The business has been tempered by what we have endured, and I believe it has emerged much, much stronger. We are in a good place, with our higher canned fish and fish inventory available to service strong demand. Oceania is well placed for a strong start to the new financial year. We hope all of you take a break and enjoy a happy and safe festive holiday season. Relax, spend time with your loved ones and come back refreshed and ready to start strong in 2023. I will now hand you over to Neville Brink, our CEO.

Morning, everybody, and thank you for joining us. Thank you, Mushtaq. You know, when I was reflecting on this presentation, I thought about the last nine months, and it's been a whirlwind nine months. You know, we started in, I joined, and Ralph and I joined in February, and our first presentation was March, and obviously we were dealing with all the nonsense that was going on at the time. And a few months later, we presented the interim results, and at that time, we were more than 50% down. So I think six months later, when I say we, I'm talking about the board, Oceana and the staff have delivered a very credible set of results, driven by, in particular, three key pillars of our business, the Daybrook performance, the Daybrook business in the US, our lucky star Cairn Pilchards, which has done extremely well in the second half, and our fish and meal and oil business in SA, all driven a very good set of results. So I'm going to hand over to Ralph now, who's going to take you through the numbers, and then post him covering the numbers, I will look at the operational performance and give you some sort of insight into what drove those numbers. And then I'll end with a slide which kind of gives a view of how I see the structure of this group and where the opportunities exist going forward. So thank you very much, Ralph. Over to you.

Thanks, Neville. And hello, everyone. So just if I can just begin just to explain that we're presenting these accounts on a continuing operations basis with treating CCSR logistics business as a discontinued operation. I'll get back to you to that shortly. So as you can see, what we've got here is a slightly larger slide than usual, showing the continuing operations metrics in the first three blocks on the top line, and then the total position, total operating profit in the second row. So, yeah, double-digit growth in revenue and operating profit on a continuing operation basis. and on a full basis also revenue up 11% as well. The operating profit at 6% on a total basis and that just shows therefore that difference in the performance of CCS which has had some impact on the results by being slightly lower performance which we'll deal with later. On a HEPS basis, you can see the HEPS is about 6% greater than the operating profit on a continuing operations basis. And that reflects really two things, the interest charge, which has been flat on the year and therefore enhanced HEPS, as well as a slightly lower tax, effective tax rate due to the lower effective tax in the US and a higher proportion of our earnings coming from a very successful year at Daybrook. Dividend cover, we've trimmed our dividend very slightly, just really recognizing the tougher macro environment that faces us, as well as ensuring that we have an appropriate level of cash to invest and focus on ensuring that we have a good level of working capital. We also have slightly different CapEx profile. Having a year this year has been very much one of maintenance. And next year we have a couple of items of CapEx where we will invest in growth and improvements and efficiencies in our business. The net debt to EBITDA, slightly higher than last year, but last year was somewhat flattered by the fact that we started the year with very little inventory for the reasons that we'll go into throughout the course of this presentation. So still a very comfortable level of net debt to EBITDA, well below the levels that we saw in 2015 when we acquired Daybrook of over 2%. And then the bottom line there, some really healthy key performance indicators with tremendous landings in FMO, both in the States and in South Africa. Pricing has been incredibly strong throughout the year in fish oil and fish meal. Canned fish pricing up as well, very much cost push pressure and a real recovery in our operations in the canned fish environment in the second half. And then closing stock, really a fabulous block there, showing a significant increase in our closing stock position, which Neville will take you through when he breaks that down. So then looking at the income statement, you can see revenue there on a continuing operations basis, up double digits at 12%, driven by that positive pricing more than anything else, positive pricing in canned fish through the cost push, and then fish meal and fish oil, very much a commodity-driven increase through the global impact of illness pressures, Ukraine war, and other aspects. Also the weaker exchange rate certainly into the second half where we ended the year has helped the translation of our foreign earnings as well as the translation. And all that despite the fact that H1 was so significantly impacted by the lower stock levels. That's come through in gross profit, that pricing impact with a 15% increase in gross profit. And you can see at the bottom of the slide there a healthy GP margin up slightly at 30.8%. If we look then at the cost pressures, you can see sales and distribution costs up 31%, so a significant increase. And that's the higher freight and container costs and the global disruption that we all know about and have weathered throughout the year. Suffice to say, though, that's coming down, and it's coming down very quickly. So we're very pleased about what that could mean to the business going forward. Other income, that line there is really the insurance proceeds. Sorry, I've missed out operating expenditure. I think that's up 11%. But if we take out the additional audit and legal costs, which were somewhat abnormal and certainly once off of $50 million, related to the delay in the last year's accounts that were presented, as Neville said, in March, that increase is 4.5%. So the increase of that $50 million on profit is also about 4.5%. Other income, both those numbers for this year and last year relate to insurance proceeds. And whilst the insurance proceeds relate to the prior year events, being the hurricane in the States and the civil unrest and the looting that we experienced in KZN, it actually impacted our profits this year. So a timing difference in some respects, but also those insurance proceeds really covering the impact on profits that we experienced in this year. The associate and JV profit of 17.9 up from a loss last year really is the result of the performance of West Bank Fishing, our associate in the States. And then other operating items, an FCTR adjustment in the current year, and then the $10 million last year was the wind-up of the trust. So good performance, operating profit up 11% on a continuing basis. Flat interest, as I mentioned, slightly lower tax rate, which pushed profit after tax up to 17%, and providing that headline earnings of 17%. Just to talk about the discontinued operations, CCS, the logistics business, we have sold that at an enterprise value of 895 million, implying a 7.9 times multiple based on what we would consider a normalized 2021 EBITDA. We've assessed that to be a discontinued operation in terms of IFRS 5 because the board had assessed and had an intent to dispose of the operation prior to the year end. But effectively CCS's numbers in the total metrics were in and continue to be in for the full 12 months. We look to complete the CPs on that deal in the first couple of months of the new calendar year. On the left-hand side, I've just given you a set of metrics there that describe the reconciliation between continuing ops and total ops for your models. And on the right-hand side, the same thing that reconciles segmental results for CCS to the operating profit for discontinued operations. There's some IFRS rules that require you to eliminate intersegmental revenue, which is the market-related revenue and transactions between CCS and the canned fish division. So just to bear that in mind when you're feeding this into your modeling. If I go on to the revenue and operating profit for the full year, the top graph shows some great numbers for canned fish, the fish meal and fish oil Africa division, and the fish meal and fish oil USA division, or Daybrook. You can see some good positive results there. Horse mackerel and hake was the disappointment of the year, off a very strong base of last year, though. Operating profit at the bottom slide, you can see tough year for Lucky Star, the canned fish division. Again, chasing stock throughout the year and starting the year in an understock situation because of the KZN looting. And a great result for Fishmeal for the Daybrook operation, which was really the star performer of the year. And then Horse, Mackerel and Hake division struggling with a variety of drivers as well as low catch, low seed days. And Neville will take you through the detail there. More interesting, or certainly as interesting, is this slide here where I show you the first half situation on the left-hand side when we were overall down 36%, adjusted now for continuing ops, with Canfish struggling with its opening stock position as well as the Daybrook situation, very low level of opening stock. And remember, going into the year, into the first half, and you only start fishing again in April of the following year. So really, if you don't start with any fish meal and fish oil, you don't sell any fish meal and fish oil. Horse mackerel struggling with the lower catch and seed days. And then the second half turnaround, which we are extremely pleased about. Lucky star coming back and chasing stock and allocating stock throughout the year, but really getting to the end of the year in a much better normalized position And the same with Daybrook, excellent catches throughout the year, incredible pricing for those commodities, and ending the year in a fully stocked position in that division. Horse mackerel, unfortunately, failing to catch up and off that high base. So operating profit for the total year, a very healthy and very pleasing 11% up. Just to cover the West Bank treatment, I think suffice to say, as you've probably seen by now when we released our results yesterday, we have now reverted to equity accounting of our associate. We got there through a very, very rigorous process, getting independent accounting opinions by real experts, Kim Bromfield and Garth Coppin, the accountants listening in will probably know their names. Mazars evaluated this this view and have issued an unmodified review opinion so we are back to the Deloitte position that we had in 2020 and probably the bottom line the most importantly of all it has no impact on the net profit it has no impact on net asset value but we believe it is a fairer and better reflection of of the way in which we account for our associate So if I take you through the balance sheet now, a couple of things I'd like to point out there. PPE down slightly for depreciation in a year in which, as I said, it was very much a kind of a maintenance year of normal maintenance capex. Intangible assets, that's on the second line, note one. If you look at the Note 6, the FCTR, those numbers both up by about a billion, which very much relates to the higher exchange rate on translation, with the RAND that finished the year at 18.2 compared to last year's 15.1. Other assets increased mainly due to interest rate hedging. That other assets is our associate equity accounted line as well. And then in current assets in the block there I've highlighted and pulled out the inventory line. And the inventory line again is all about the fact that we have a very different working capital position at the end of this financial year having had a very low inventory position at the end of last year. That's also the reason for the lower cash position where last year was flattered by the stock situation, the inventory situation. Assets held for sale both on the top of the page and the bottom of the page is the CCS Disposal. And then the long-term loans, we've got long-term loans. If you take the long-term and the short-term component of that, our term debt is at 3 billion. I'll take you through that in a subsequent slide. It's slightly down with a repayment of about 250 million this year. And then I'll take you through all the rest in the loan slide to follow. Just a quick look at the working capital slide on the left. In most businesses, perhaps working capital is a focus on reducing it. For a fishing business, our focus is making sure it's optimized. And if anything, when you're chasing fish, making sure that you have plenty of raw materials coming into the canning operation through the factory, as well as making sure you have plenty of stock in finished goods in Lucky Star to present to the retail market and in the wholesale market on fish meal and fish oil to make sure that during the closed season, you're continuing to supply the market appropriately. CAPEX, as I've said, a year of maintenance CAPEX, and we put in the block below that for 2023. Looking forward, we have a boiler replacement and some Freon conversions, which will add about 150 or 200 million, along with the Daybrook plant enhancements, which will elevate the CAPEX for 2023. Then looking at the debt analysis, as I've indicated, we've got about $3 billion of gross debt on our balance sheet. In Africa, we have the $1.2 billion of gross debt, net debt impacted by the high level of working capital. If I look at the USA, the gross debt of $100 million, which is about $1.8 billion, making up the $3 billion. And again, slightly higher net debt because of the lower cash for the increased working capital. Net debt to EBITDA, 2.29. And the consolidated leverage ratio, 1.7. As I said, very happy with that level, slightly up from the flattering number from last year. And importantly, I think we're very pleased that our US debt is completely hedged out until September 2024, which in the current environment is a good place to be. And then finally, the net cash, the cash flow waterfall graph, cash operating profit with 100% cash conversion rate. And then the working capital changes, again, to repeat, as I've said throughout, that's the correction, if you like, in our inventory positions. The next three blocks, interest and tax paid, capital expenditure and debt service, I've covered in my commentary, nothing unusual there. Dividends, they're also normal. We have slightly reduced the dividend payout ratio, as I said, with a slight increase in our coverage. We're paying out a final dividend 291 cents. And the total dividend of the year is off just 3% for the year, which we think is a prudent position to be in. And then if I hum back to Neville to take us through the operational performance.

Thank you, Ralph. I'm going to start off with Daybrook, a business in the US. I spent quite a lot of time there this year, two extensive trips working with the new MD and the management at the factory. and a very good performance. But what is pleasing about this performance is we had a good catching year, but not an exceptional catching year. As you can see in the graph there on the left-hand side, we caught just over 700 million fish, 200,000 tons of product. But it was the way the factory worked. The key for us in that business is fish come and go as is fishing. It's how effective you are when fish are there. And our partner in West Bank really managed that fishery well. The additional vessel we put in last year performed extremely well the kimberly k together with the uh the skiffs with the jet engines that were put in in the early part of this year and across the board that business performed well at the factory side we had no breakdowns at all we put a quality engineer in that business in the early part of this year a south african that has worked in in namibia and in south africa in our fish mill plants highly experienced he spent a lot of time with the with the staff there, and that factory literally purred throughout the year. You know, it works flat out, 180 tons an hour that that factory can produce, and it didn't have one single breakdown. So across the board, the business worked well. And the key for us is to keep, you know, we will have weather. We had Hurricane Ian this year, which had a bit of effect on the business, but we got back to fishing quickly, and that's going to be the key for me. Weather is part of the gulf. You are going to have hurricanes, you are going to have cyclones. It's how quickly you can recover from those, how quickly you can get back to fishing and processing. So very good performance from that business. As you can see the numbers, and Ralph has spoken about the numbers. The one mistake we made at the end of last year is we ended up with very little stock and in fact we let our customers down. Our main customers there are the pet food manufacturers that buy from us and they buy on a very consistent basis. They know exactly what production they need and they need a monthly fixed amount. In the early part of this year we simply didn't have the stock and I was determined not to make that mistake this year. We've carried over substantial stock, and I'll look at that just now, so that we are well set. It's not just about the supplier, it's about managing our customer relationships. And then the one question that Ralph gets asked many times is, has this business been a good buy? Has it been accretive? I'm going to ask him to cover this slide because the analysts have asked him repeatedly over the last couple of months about this question. Thanks, Neville.

This business has generated cumulative profit of over R1.5 billion over the last seven years. And it's been accretive from day one. And whilst in the last couple of years through very difficult operation, trading in 2019, 2020, and a hurricane in 2021, that accretion kind of came off somewhat. We're back on track with an excellent year in 2022 with improvements to production. And going into 2023, we have a really good stock position. So it's been generating HEPs accretion on average of 2.5% a year. and cumulatively has added 18% of accretion to shareholders over the course of seven years.

This graph, what I want to show here, and it's about, again, was this business a good buy and where are we with this business and what's the future like? So what I've tried to show here is the global fish meal output and the global fish oil output. And you can see over the last six years, it's fairly steady. Fish meal production consistently around 5 million tons and on the oil side, about 1.2 million tons. Oceana itself, in both operations in South Africa and in the U.S., on the fish mill side produce about 80,000 tons. So a fraction. So this is really a commodity market. And on the oil side, we produce 38,000 tons. So we're tiny in the broader spectrum of this industry. But what's important is those two graphs at the bottom, those two pie charts. The bulk of fish meal and the bulk of fish oil goes into the aquaculture market. In the US, we have a competitive advantage because we're located in the US and a lot of our product goes to the pet food business. But what is driving price behind these two commodities? And the price is driven by the aquaculture market. I was looking at the FOA figures in 2021. Total production of fish, aquaculture and wild, sits at about 180 million tons. In 2021, aquaculture reached 90 million tonnes. So the prediction is in 2022, aquaculture will become larger than wild caught fish in the world. And that aquaculture industry is growing exponentially. So you've got a static supply on both fish meal and fish oil, fairly static over the last six years. You've got a growing demand side driven by the aquaculture industry. So from a pricing point of view, the expectation is we'll continue to have strong demand, exceeding supply, and hence a growing price. And that's what's come through this year. You know, on our pricing on both fish meal and fish oil, And you can see on the right-hand side there, the top graph, the dark blue, is our sales volumes throughout the last five years. And you can see in this latest year, we didn't have exceptional sales, obviously driven by the lack of stock in the early part of the new year. Yet our performance was very good. But the gold line there shows our pricing. And pricing has been very strong, both on fish meal and then on fish oil particularly. Again, Our sales volumes wasn't exceptional, but pricing has been driven up partly because of the Ukraine war and the shortage of vegetable oil, but also because of the production out of Peru, and they had very low oil yields. I was looking... last couple of days, that the second season, as they call it in Peru, their second anchovy season, they've just started, good catches, but their oil yield, again, is very low. They normally produce about 3% oil from anchovy. Their current oil yield is around 0.9%, so one-third of what traditionally they see. So again, we expect pricing to hold at those kind of levels at $3,500 per tonne pricing, which is very, very positive. You can see it's come from the low $2,000 a tonne. And on the left hand side, and it's again this issue about stock and managing our stock to our customers. As you can see in 21, we had almost only 10,000 tons of fish meal and about 1,000 tons of oil. This year we've carried over three times as much, 30,000 tons of fish meal and just over 7,000 tons of oil. So we're very well set for the start of this year. All of that fish meal and oil has been pre-committed to our customers at current prices. So those are fixed in the books for the balance of this year. And then obviously we get back fishing in April of next year and hopefully the season will be continued. So very good set of results, very good position to be in. At this point in time, obviously, we closed. Our season closes at the end of October. We spend the next four or five months literally stripping that factory down to its base. The one thing that we are investing in this year is in upgrading the factory. So on the plant side, as I said, the one key thing that you want to do is turn your vessels around as quickly as possible. The vessels fish, it's a day fishery only, so they go out in the morning, they come back that evening, and we have 12 vessels. All 12 vessels come back to the quayside that evening. The key is how quickly we can turn those vessels around so when there are fish, they can get back to the fishing grounds. So in this closed season, we are increasingly what we call raw pits. That's the storage facilities that you pump from the vessels into the factory. We have three at the moment. We're increasing that to six. So we double the capacity so we can pump out of the vessels quicker. We're also putting in new tricanters, which is the machine that basically separates the oil and the water. When you cook the fish and press it, you extract all the moisture, and then you separate that moisture between oil and water. We've fairly old tricanters. We've got six tricanters there. We are going to replace it with a new one. We're going to run in tandem for the early part of the season. But again, it's all about improving the throughput through that factory so that we can turn the vessels around when there's fish. On the West Bank fleet, we're working very closely with our partners, West Bank, to improve the ability of those vessels to fish quicker. As I said earlier, we've got the new vessels, the two skiffs you see in the photograph there. Those are the fishing, pursing vessels. They were fitted with jet engines for the first time and worked extremely well. The plan is to retrofit all of the other 11 vessels with those jet engines to improve the both the speed of catch and the the sound that you know we were using conventional prop engines on that and it's interesting when we we didn't expect this but we the the fish are not as as as uh alerted when we're fishing so we're able to actually circle the full school of fish with these jet engines so a lot of work around um So improvements in technology, net quality, net strength and weight so that the nets can sink faster. So a lot of work going over this next season so that when we start the season in April next year we're well set for having another good year. The last point just on this, everyone talks about weather and cyclones and weather is part of life in the Gulf. You're going to go have cyclones, you're going to have hurricanes. The key for us and that management team is when there is weather, how soon can we get back at sea? How many days do we lose? We are investing in generators, a generator at the factory so that we're not linked to the power from the state. So when there's a power outage, we can continue. We've put in water tanks so we can run the dryers and the decanters. We've put accommodation at the factory because of the lay of the land, how flat it is there. Often the floods come through and you can't get to the plant, but we can keep staff at the plant in our accommodation. So a lot of work around keeping that plant going when you have weather and weather's going to happen. So a very good performance from that business and I think this is a great business going forward given what's happening in the market and given what's happened with that resource, a strong resource. On the canned fish and fish mill, now this is obviously our South African business and we have two parts of the business. Remember we have two factories in SA and both factories have a canning plant and a fish mill plant. You have to have the two together because you produce offal from your canning side, you cut the heads and the tails off and it goes into a fish mill plant. We also have a share in the Namibian operation in Belfast Bay. So we have three factories. This part of the business that I'm focusing on here is the fish meal and oil sales, exactly the same as Daybrook. Obviously, different species. There we catch a manhaden, here we catch anchovy. And again, this business did extremely well. Good sales, steady sales on the fish meal side. I'll talk about the volumes just now. But what we have done is been more effective in collecting oil. So you see the oil sales, they've jumped up tremendously and we moved our oil yield from around 2.5% to 5%. And what we've done effectively in the process of canning the Lucky Star, a lot of our imported fish coming from the Pacific is very high in fat content. So what we've done is as we process it, we invert the can and we tap off the excess oil that doesn't need to go in the can. We put it through our tricanters and it's increased our yield and in fact doubled our yield. Given the price that we've seen in the world market, that has been extremely beneficial to this part of the business. So this business has done extremely well. The other key component of this business, you know, as I said, in Daybrook we are, Daybrook is not quota-based, it's effort-based, so you can catch as much as you can over the period. In this business, it's quota-based. The total anchovy quota is around 300,000 tonnes, plus a bycatch component of red eye, which is South Atlantic herring, of around 70,000 tonnes. So in total, the industry can catch around 370,000 tonnes. the last couple of years we've averaged somewhere between 120 000 tons and 200 000 tons so we lose we leave approximately one third of the quota in the sea there's where the opportunity is so same same principle in as we've adopted in in in daybrook how do we become more effective in catching this fish so there's huge opportunity to increase our throughput through our factories and these factories are volume based we know the demand will be there how can we put more more product through this factory so strong performance from this side of the business um on the canning side this is the lucky star business As you can see, as Ralph alluded to, very poor start in the year. Last year, at the end of the year, we had the looting effect in Durban, in our warehouse in Durban. The replacement stock coming from all over the world, our supply was slow because of the logistics challenges the world had with containers, so it took us a while to start building up stock. And if you remember in March and in April, I spoke about Lucky Star being on allocation. We stayed on allocation. We were restricting customers in terms of what they could have so we could spread it. We probably ran at about 90 to 95% deliveries. So we certainly weren't giving the market exactly what we want. And then from about June, July, we started getting back into full stock. And you can see the performance. Second half, very strong performance from Lucky Star. Very strong consumer demand. And it is a function of where consumers are at the moment. All consumers, in particular our consumers, our Lucky Star consumers, are under extreme pressure with with the level of food inflation and the level of disposable income and the high unemployment rate in this country. So we've seen a strong move into Lucky Star, and we certainly have, we believe, have people buying down into Lucky Star, so it's well positioned. The key for this business is all about pricing. We have to manage pricing here. It is an affordable protein, and by affordable I mean relatively affordable. We compete not in the poultry market, we compete in the broader protein market. We compete against IQF chicken, polonies, offal, heads and feet, chicken heads and feet. And it's that market that, and those consumers are very discerning in the way they buy product. And that's hence Lucky Star's pricing. We are under pressure. The freight costs this year have been exorbitant. 400% increase in containerization, bringing raw material from all of our countries. And it has put a lot of pressure on this business. We have put through a price increase now, a further 8% price increase, which will only be effective in the early part of next year, in January. and we have to manage that pricing because we are very conscious about our consumers so we will manage that pricing our imported product we are lucky stars probably the single biggest buyer of pilchards in the world we we process around a hundred thousand tons of that hundred thousand tons about ten thousand tons is caught through our own fleet and about ninety thousand tons is brought in from all over the world from as far as mexico right to japan and mauritania and morocco so big, wide geography in terms of source, and we have to manage that process. And this is just to give you an indication of where we ended the year and what our procurement was. As you can see, last year we had very low procurement. It was a function of the looting. This year we've procured almost 100,000 tons, and hence the investment in working capital and stock. I think this is a very healthy investment. We've procured over 30,000 tons in the last year. two and a half months at the end of the year that graph in the bottom right we were holding that's in finished stock and raw material around three and a half million cartons remember we sell about nine million cartons a year and as of two weeks ago our total supply chain that's raw material sitting in China or Taiwan and in our factories and finished goods was around five million cartons. So we've put a lot of working capital into stock and we are very well positioned for full supply going in for the next five million cartons is almost six months stock, slightly more than six months stock. So we are very well positioned. We will not have stock shortages going into the new year. And that was key for me to drive. There is a cost push because that stock has been more expensive given where the rand is. We do take hedging, so we try and manage that. But we can push some of it to the consumers. We haven't pushed all of it, and that will put some pressure on our margins going forward. I just want to talk a bit about Lucky Star and the brand itself and what we focus on and traditionally Lucky Star has always been a canned fish business and you can see on the left hand side there the canned pilchards, the tuna, the mackerel, the sardines. And the strategy has been around two key elements. Availability, making sure it's in every single store, every sparser store, every township, every wholesaler. And the second point is affordability, relative affordability. And that strategy remains the same. On the right hand side, we started, you know, Lucky Star over the years has not really gone into canned foods. And in the last two years, we've really started to extend that brand franchise. It is an iconic brand. It's trusted by our consumers. They love this brand. And we believe it can be extended way beyond Lucky Star. And as you can see this on the left hand, top left there, corn meat, a new product that we launched fairly recently. We are currently co-packing it with another supplier. It's been running for about eight months now and that brand has literally taken off. And a couple of months ago, we decided to bring it in-house. We've bought a canning line, and that is busy being installed in St. Lena Bay as we speak, to bring that production in-house. And we believe that has huge legs. And the bottom side there, we introduced a soya product in the early part of this year. It's just going into the market now. Very affordable product, well below the 20 rand a can. We think given what's happened in the consumers, it has convenience, it has taste, and it's very affordable. The strategy around there in terms of extending Lucky Star is around versatility, giving something new to the consumers, and innovation. So that is a focus for me and for the Lucky Star team is how far can we take Lucky Star? Just some awards that I think is important to announce. Two awards that we received this year. the icon brand so the number number two um brand in the country and number one food brand on the left hand side and on the right side the kazi brand awards was lucky star was voted the number one township brand in the country phenomenal performance and hence my belief that this brand can be extended far beyond canned fish and it will be part of the strategy going forward um bcp um tough year this year for bcp you know these are the species horse mackerel hake lobs and squid on the horse mackerel side we operated both in namibia and south africa certainly catch rates were affected and i always say when you when you're fishing whether you when you your costs on a vessel are predominantly fixed. If you put a net in the water, you catch one kilo or ten tons, your costs are the same. You're still consuming the same amount of fuel, you're still consuming the same amount of food, you're still running that vessel. So catch rates drive this business and we've seen poor catch rates both in Namibia and in South Africa. Partly we believe in terms of weather conditions, sea conditions. The scientists on both fronts, both in Namibia and South Africa, are saying the resource is in a healthy state. Both resources, the indications are for next year the biomass is not going to change. We'll have similar TACs. So it is a function of, especially on the east coast of South Africa where there's diamondfishes, The La Nina effect, the warming of the waters and we believe the fish are going deeper. We hope certainly that that will turn around this year but it has been a tough performance for this business. Same principle on the Hague side, catch rates and We had a number of main engine repairs. So the two big vessels were out for a while. So they weren't at sea. So both these businesses suffered. But again, it shows the diversity of Oceana. We have a number of different businesses and a number of different geographies. And all businesses go on fire all the time. And this business has had a tough year, but it's been carried by the other three businesses. So tough business. Hopefully, certainly hoping that those catch rates improve going forward. Two smaller businesses, and I think it's important just to talk about them, the lobster business. We have a South Coast lobster, which is the East Coast deepwater lobster. That resource is very, very well managed. It is not subject to poaching because it's caught at 250 meters down with industrial vessels, and that resource is strong. We had a very good performance from the South Coast. I haven't put the graph here on the West Coast, but West Coast is really under threat because of the levels of poaching. And we've embarked on a program where we are consolidating with other players in the industry to try and maximize the cost effect of a reducing quota on the West Coast. Squid has been a disappointing year, again, because of the warming of the waters in the East Coast. As you can see the graph there, you have, this is a two-year species, squid only live two years, and you have these highs and lows. generally when you have the lows that you can see on the bottom graph, the preceding years, sorry, the next couple of years tend to grow up to the higher level. So it'll be interesting to see. We've just gone into the sea now. Catches have been average, nothing fantastic, but our prime season is December, January, and we'll see how that goes. So a tough year for BCP, tough year across the board, but certainly hopefully we'll improve that in the new year. Just some issues that we are going to spend. Obviously, we've gone through the FRAP process in South Africa recently. It is subject to appeals. We understand that all of the appeals and the applicants of the DAF have completed all the appeals. All of the appeals are sitting on the minister's desk now, and we're certainly hoping that either the later part of this year or the early part of next year, she'll finalise on those appeals, and we will then have 15-year rights. We don't expect any major changes, but obviously that is subject to the Minister. But what is pleasing is we now have certainty in terms of our rights, 15-year rights. We can certainly invest in our fishing assets, and that is the plan for BCP, both on the Hague and the horse mackerel side, to invest in upgrades, in converting those, freon freezing plants into ammonia plants and while we are converting those plants to upgrade factories and enhance capacity in those businesses so a lot of work is going to be done and a lot of capital will be spent in this business over the next couple of years just driving this good businesses, good margins tough conditions this year but a business that has longevity so good business now i just want to talk a bit about how i see the business and you'll and the way i've kind of depicted it here is we have essentially three pillars of business uh in the in the oceana stable on the left hand side there is what i call the lucky star branded business remember this the md of this business is responsible for the growth of the brand he has He can draw supply from a number of canneries, our own canneries. We have two canneries in SA, one in the Vulfus Bay. And he also operates out of China and Taiwan. And his key objective is to leverage the Lucky Star brand, increase consumption, and at the same time optimize the capacity through our own factories. So this is a branded business that sources as much raw materials as it wants and drives consumption. So there isn't a limit in terms of how far Lucky Star can go. Push consumption and we can certainly get the supply. The second pillar of our business is the fish mill, and this includes both our own business, our own factories in SA, and Daybrook. Both businesses are exactly the same. It's a commodity-based business. We don't control pricing, but as I alluded to earlier, supply, I believe, will, I mean, demand will exceed supply going forward. So this business is all about volume, maximized catch, both in Namibia, both in the US and in SA. How do we drive volume? Drive efficiency, make sure that those factories are running at 100%. Just an indication, in 2021, our two factories in South Africa produced 3.5 million cartons. In 2022, we produced four and a half million cartons. The capacity of those factories is six million cartons. So the drive for us is to push more volume through our own two factories, which will push down price. And then optimize value. So try and get those costs down. So same strategy, we have one sales office that drives the fish mill and oil sales around the world that is based in the US. It manages both the SA sales and the US sales. So it's a collective strategy of how we drive volume and maximize value. And on the right-hand side, what I call is our wild caught seafood, human consumption seafood, which is all our quota-based businesses, the BCP side. In that side, obviously, we are restricted by quotas, so we can only catch what government give us, either in terms of effort or TAC. So we've got to protect the quota, and I think we've done that through the FRAP process. I think we're well set for the next 15 years. We've got to optimize value. We've become more efficient at catching. When we catch, fishing is always up and down. But when there are fish there, how do we be more effective in catching those things? We are, in the smaller part of our businesses, increasing our partnership, both in the squid side, where we partnered with an Eastern Cape business, where we're going to utilize their vessels, our vessels, to maximize output. And then there is a possibility of, you know, acquisitive growth. And this would be in this section to buy another fishing business, whether it be in aquaculture or in a wild caught business. So going forward, this is the way that I will depict our business to try and manage this business and to show you where our growth is going to come from. So all three businesses are in good stead and I'm certainly very positive for the next year, certainly the next six months. And then, as you know, Oceana has always been a year of two halves where we fish predominantly in the second half and we build and we recapitalize in the first half. So looking forward to a very good year next year. I think I've covered everything and happy to take questions.

Thanks, Neville. First question is from Murray Moore at Aylton Co. Why is it so important that West Bank be classified as an associate rather than a joint operation? Does it have anything to do with the potential loss of U.S. fishing rights?

Is that a question for me? Yeah, no, it doesn't have any impact, really. It doesn't really matter. It has no impact on NAV. It's not important to us, but what's important to us is getting the answer right and making sure that our accounting treatment is appropriate and correct. By accounting for it as an equity-accounted transaction as an associate, it reflects the way in which we operate this business. It reflects the fact that we don't control it. It's a transaction that was put in place with that in mind. It was approved by MARAD back in 2015. They're aware of the course of events of this year. They renewed our fishing rights. And in fact, if you look at the Daybrook accounts, in fact, the Daybrook accounts being prepared on US GAAP doesn't even reflect IFRS 11 anyway. So we're back to what we think is the right answer. It's the way we manage the business. But not important and no impact.

Thanks, Rolf. Next question from Munir Ahmed at Denker Capital. Well done on a good H2 recovery. You also seem to have achieved a great selling price on CCS. Is it possible to quantify the synergy losses from the CCS sale? Will there be a significant net increase in storage costs for Lucky Star?

So, Trevor, it's interesting you're answering that question because you are wholly responsible for putting together a great deal. But I'll try and answer the questions. Impact on storage costs. There is no impact on storage costs. We have a fixed agreement with the acquirer for one year at market-related rates. And then it will be set at market-related rates from then on. And in terms of reabsorption of fixed cost, there is an element of reabsorption. Most of it will be variable. It will then dissipate. But that was taken into account in setting and negotiating the price.

The total capacity of commercial coal storeys is around 100,000 pallets. The Oceana group uses about 10% of there. So we're a very small user of there. And there is plenty of cold source space. So to me, it's not a concern for me going forward.

Thanks, Neville. Next question is from Nick Kricha at Signal Asset. Daybrook was bought for $382 million, which translates to 6.5 billion rand today. The enterprise value of Oceana is 8 billion, which means investors are only paying 1.5 billion for the South African business. It is obvious to me that Daybrook needs to be separately listed and spun out to investors in order to unlock value. Surely this easy value unlock is also obvious to management.

Is that a question for me? It's an interesting question, Nick.

Perhaps it's something that Zaf can apply his mind to in the new year. But I think it sits well in the stable of Oceana. Oceana, there are synergies in the way in which we make our fishmule and fish oil operations happen. efficient in both geographies. We actually consolidate the output and sell them on a commodities basis globally, on the global market. So we are a fish meal and fish oil business. And I think there are benefits in retaining it. I don't think we are considering an unbundling at this point.

Thanks, Rolf. Next question from Anthony Clark from Small Talk Daily. Neville, this is for you. Thank you for the presentation. You were fortunate with no TAC cut in HIC, unlike other sector counters. Can you discuss your thoughts on the TAC in 2023, given the biomass is very well managed?

So, on the HIC side, the expectation is we're going to have a 5% increase in TAC. The... The FRAP process, we were fortunate we didn't lose any quota, so going forward we in fact will have more quota. Certainly the demand is very strong, so I'm not concerned about the long-term stability of Hague. It's very well managed, it's MSC accredited, and the scientists believe that that resource will be stable for a long time. So no, I'm not concerned about Hague.

Thanks, Neville. Next question from Jovan Jackson at Laurium Capital. Well done on a good set of results. In terms of Daybrook, how do you drive efficiency with the vessels if you don't control the business? Have you needed to change the fishing SLA with Westbank?

No. Obviously, we're a partner in that business. And the way that our supply agreement works is that it's based on his volume. So we don't have to incentivize West Bank to catch fish. It's all about his own profitability. Volumes drive his profitability, and he's very much incentivized to drive volumes. So his key is to get those vessels operating as fast and as quickly as possible. Hence him putting a 12th vessel in. We are considering going forward a further vessel in capacity increase. So there doesn't need to be a separate incentive. He is very, very driven in terms of pushing volume through that business.

Another question from Nick.

Maybe just to add, you know, I'm sure all the analysts know Francois. Francois is a fisherman by heart. He comes from a fishing family. If there's anybody who can drive fishing, it's Mr. Cattell. So we have a great partner in that fishing business.

Another question from Nick Kruger at Signal Asset. What will Oceana do with the proceeds from CCS? Question one. And question two, industry feedback indicates that the market for Lucky Star can grow to 12 million cartons. Does Oceana have plans to achieve this target?

So obviously the CCS deal is not concluded yet. There are certainly CPs that have to be met, both from our Competitions Commission and from DAF. We don't expect any problems, but that deal will hopefully be concluded by February next year. As far as the cash, we obviously, and we were talking about it earlier, I think we have to be very prudent at the moment. I think this world is going to go through a tough time in the next two years. you know, politically, socially, people really are battling mass inflation, low growth rate. So I think the prudent way is to manage that balance sheet, and we will, at appropriate time, consider how we're going to allocate that cash. But right now, I think the way we're managing our balance sheet is very prudent.

And the second question about reaching 12 million cartons, Lucky Star?

Obviously, that's the target. I mean, why 12 million? Why not 15 million? So, you know, I would be pushing loans to drive volume on a consistent basis. We don't believe there's a shortage of pilchards out there. We can secure more. And that will be the drive. It's always about volume. We were restricted this year. If we'd had a normal supply in the early part of this year, I think we'd have exceeded the 9 million cartons we did this year. That will be a constant drive, and it goes about affordability. Consumers are looking for a protein that is convenient and affordable, and that's the key game. If the RAND obviously is a major factor in importing of protein, of frozen raw material. Where the RAND goes and how that affects affordability, we will have to manage. The expectation is that the RAND will strengthen over the next couple of months. We still have a lot of product to buy this year. As I said, we've got 5 million cartons, but we still want to buy another 5 million cartons, and we haven't gone into the market yet. So it's about managing that price, and then volume will follow.

Thanks, Neville. That seems to be the end of the questions.

Thank you, everybody. I appreciate you joining us today and have a good afternoon.