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.