Oceana Group Ltd

Before I start, can you play this video? Because I don't know how many of you actually know what Daybrook looks like. And I was watching this video and I thought, we talk a little about Daybrook and Daybrook has been our star this year and you'll see in the performance. I thought it'd be just before we start and this wasn't planned. I just wanted a loop, but that's a typical Daybrook vessel. We've got 12 of those. We fish in about... three meters of water to three to six meters of water. Those two little boats in the back get dropped in. They purse the fish, and the mothership sucks it out. So this is a sizable business. We all talk about Daybrook, and it's a million miles away in Louisiana. That's not the Mississippi. The Mississippi is on the far side, and that's a typical vessel. The mothership has got a hole that carries the fish, but it's a fantastic operation and has done fantastically well this year. So I just thought it important just to have a look at this before we start the presentation. OK, let's get in. It's looping, and if you want to see the full video later, that's the size of the factory. It's not small. So let's get started. So first of all, a formal welcome to everybody that have made the time to come and join us today. My ex-co is here, and there are a couple of the board members that are here, so you're welcome to tackle them afterwards and ask them some questions, but they're here to deliver a set of good news. And I wanted to start, and I think some of you have seen this what I call the pillars and something that I introduced when I started in this position just over a year ago, is just to kind of define how this business operates. And we essentially operate in three pillars, and they're very different businesses. between the three pillars. The first one is really an FMCG company. And obviously, there's statutory entities within these pillars. But these are the operating businesses that drive Oceana. So the first one being Lucky Star, which is a branded FMCG business, not a fishing business. It essentially drives demand. That Lucky Star brand has got huge consumer acceptance, huge strength in the market. And what Lawrence and his team do is to drive demand. Combined with that, they have a very, very successful procurement arm that goes out and sources fish. Only 10% of the fish that Lucky Star requires comes from our own vessel. So it's not a fishing business. It's a procurement business that is a procurement branded business. and they don't only do canned fish. As you know, in the last couple of years, we expanded out the canned fish side, so we're doing canned foods, and I'll talk a bit about that business a little bit later in terms of what their plans are. So a very unique type of business. Obviously, the one negative of this is a weak RAND affects this business. 90% of our procurement comes from all over the world and is affected by the strength of the RAND. The middle pillar is our fish, meal, and oil business. And in that pillar, we have two businesses, identical businesses, both fish, meal, and oil. Both have vessels that fish, have a factory that produces oil and meal, and we sell that product worldwide to customers. to the aquaculture industry, the pet food, the U.S. pet food industry. Both businesses are identical. They're both exactly the same. The only difference between them is one is New Leans, catches a manhaden species, and one is an essay and catches anchovy and herring. So both, and those businesses are commodity businesses. We are price takers rather than price setters in that. We are a small player in the market, and I'll talk a bit about the supply and demand when I get down to that, of what drives the pricing in that market. And then on the right-hand side, the wild-caught seafood. That's our traditional business that comes from 100 years. That's where Oceana started in the lobster business many, many years ago. And those are all our quota-based businesses in Namibia and in SA, and then five species, lobster, squid, horse mackerel, and hake, which are very... finite in terms of tonnage that you can catch. So the drive there is all about efficiencies and value added. So very different businesses, very different strategies in terms of driving this business. And one of the successes of Oceana is the diversity of our businesses. We're not in a single species. We're not in a single geography. We're in multiple geographies, multiple species, and multiple currencies, and hence the performance, unlike some of our competitors. So that's the kind of scene, and I want to just again take you through, and I know there have been a number of presentations over the last couple of weeks from other corporates, and we're all singing from the same hymn book. We're all singing, although our elastic, Anthony, is still intact. And we've all been faced with the same sort of pressures, you know, inflation rates, and that's the CPI there, but food inflation running at 14% in SA. I was in Barcelona a couple of weeks ago, Spanish food inflation running at 19%. Inflation in the States, the same thing, even the pet food industry where we supply. is having high inflation rates. Consumer business index, showing that minus 23 there, or 21, that was in January. The consumer confidence index is probably lower than that at the moment. So all facing interest rate hikes in both the U.S. and ourselves. And exchange rate. Now, exchange rate, obviously, and people always ask us, are we a Rand hedge company? We are very hedged, but it's all about timing. You know, predominantly our exports, whether it be in the US or in SA, are in the second half of the year. We catch in the first half of our financial period, from October through to March, and most of our product tends to be sold in the second part of the year. So that's the two halves. Whereas our imports, which is predominantly Lucky Star, tends to happen in the first part of the financial year. So it is Rand Edge, but it's all about timing. And we try and manage that process. You're going to see a set of results now. Zaf will come on after me and present the results. I will then go through. So after this slide, he will come and go through our group financial results. But I thought I'd just, before he gets into the numbers, just give you a high-level view of what has driven performance this year. Okay. Obviously, one of the key things was opening stock across the board, not only in Lucky Star, across the board, all of our businesses. We certainly had some footfalls in 2021 and 2021 when we had that mass looting in Natal. We battled to replace that stock because of the effect of COVID on worldwide logistics. So it took us a while to get stock in. We made a conscious decision in 2022 that we would not go into 2023 with very low stock levels. So we actually held stock because, in fact, Bjorn and his team let down our customers, our pet food customers, in the early part of 2021. We had simply no stock. So across the board, we held stock, and we started the year with a very, very good opening stock or inventories across all of the species. Lucky Star, as a business... And the strategy was a deliberate strategy that we would drive volume. Our consumers and the South African consumers are under huge pressure at the moment, as you've seen from these various presentations. They are struggling to make ends meet. Food is a key component of that. And Lawrence and his team have decided we are driving a volume agenda. And you'll see the numbers later when I go into operation. It has come at the cost of margin. But we believe that is the right strategy. And we will recover that margin in the second half, or a portion of that margin in the second half. So it has been around driving promotions. Customer base, not our consumers, our customer base, being the retailers and the wholesalers, have been very supportive of their strategy. They know Lucky Star is a drawcard into their stores. They use it very effectively with us. They've been very close to us. We've controlled the selling price on shelf. Normally it's around 22 rand a can, and we're very conscious that price point, and it's across all commodities, that price point for our consumers is critical. If we push it too far, we'll see volumes drop off the cliff. So we are conscious about driving that strategy, and I'll talk about it a little bit later, but that has certainly been part of the success of the first half. So strong, strong lucky star offtake, strong acceptance. fish oil and fish meal prices, and I'll show you some graphs just now what is driving that, but that has been a large driver of the Daybreak performance. Not only did they have the stock, but the pricing of a particular fish oil was at record levels. Now, that may not remain forever. I think it'll hold for a reasonable amount of time, but those prices have gone from Around $2,000 to, at the moment, up between $4,000 and $5,000 a ton. So very, very strong offtake and pricing of oil and fish meal. And I'll show you some graphs about supply and demand in those sectors that has driven the performance for the first six months, but also will continue going forward, certainly in the foreseeable future, to hold those prices. And then across the board, in our other product sectors, and I'm talking about hake, horse mackerel, squid, all of the businesses that we are selling. And remember, we're in the kind of middle to lower income bracket in terms of food products that we sell. So hake is not a top-end market. In the European market, hake is a staple whitefish that is sold across the board to Western European consumers. And it is key. Horse mackerel is a low-cost protein that we sell into Africa. And all of those products, we're seeing strong price growth. So all of them at levels that we haven't seen for a long time. So very strong demand for our product base. We're not, with the exception of possibly lobster, which is at the top end of the spectrum, going into the Chinese market. Most of our products are in that middle bracket, middle to low-end bracket, and we've seen strong price growth across the board. And the last... point that I wanted to make and it's not part of this the six months performance but it is part of what what management had to deal with in those fiction and and this deal has as now being concluded the the as you see the date was the 4th of April very complex deal took us a year and a half to to conclude this deal but I'm very pleased to say that it management steered ourselves through this thing and concluded it in in and that'll come through in the second half's performance So those are the four pillars that drove performance in the year. I'm now going to ask Zef to go through the financials, and then I'll come back and take you in a little bit more depth into the driving forces behind the performance.

Zef? Thank you, Neville. Good morning, everyone. I'm going to present a very good set of results today. And the people that are responsible for that set of results is sitting in the audience amongst you. So it's not just Neville and myself. There's a whole team behind the set of results that I'm about to share with you. So feel free to pat them on the back as we go along. So Ocean has delivered a strong first half performance, as Neville said, in very tough operating conditions, characterized by distressed consumers grappling with lower disposable income. Revenue from continuing operations, as you can see there, was up by 48%, and that was across the business. as he said, to record fish oil prices, strong demand for affordable protein, and improved inventory levels. You'll hear me talk a lot about inventory during the course of the presentation. The numbers obviously exclude CCS Logistics, which was sold after 31st of March and is accounted for as a discontinued operation. We've included detailed financial statements in the pack. We've got an appendix, so I won't be going through a full income statement. I'll be going through the highlights. But you're more than welcome to have a look at the actual pack. It will be available on our website together with the interim results booklet. The increase in operating profit, as you can see, they have 88%, primarily driven by the performance of our US business, Daybrook. And that contributed 57% of the $648 million that we delivered in the first half, a considerable contribution. Headline index per share was significantly up, although of a low base from last year. And an interim dividend of $0.130 per share has been declared. The reduction in the net debt to EBITDA is positive. You can see the net debt to EBITDA ratio there of 1.6 times. And given the high interest rate environment in both the US and South Africa, we feel that this is a very, very comfortable level to be in going into the rest of the year. The net debt to EBITDA excludes the impact of CCS, which was effective the 4th of April. And that has a circa 0.2 times impact on the number, all things being equal. We wanted to just give you a few of the years that we've had our half-year results, and we chose a five-year view. And you'll see there that revenue of $4.5 billion and operating profit of $648 million is probably the best first half result that Ocean has achieved over the past five years. And this is primarily the result of the strong demand and pricing, as Neville mentioned, across the product range, and more importantly, the improved stock availability. Operating margin was impacted by cost pressures in South Africa, as you all know, and you've seen from other companies' results. But this was offset by Daybrook delivering what was a record operating margin of 36%, as well as operating profit of $370 million for the first half. You can see the advantage of having a diversified portfolio across species, geographies, and currencies. And that gives us the ability to absorb some of the impact of the input costs and counter the effects of tough operating conditions. Talking to working capital, as you know, and Neville and I have both mentioned now the importance of inventory. The recent reported results have been characterized by low inventory levels post-COVID supply chain disruptions, as well as the KZN civil unrest. The increase in investment in inventory results in stronger stock levels at 156 days versus 107 days in the prior period. This results in 41% increase in net working capital, but that also means that we're going to the second half with higher canned fish, fish meal, and fish oil inventory, which is positive. For us, there are two major focus areas in our capital expenditure program. In the short to near term, we've invested significantly in optimizing plant throughput and vessel utilization in the US. For the medium term, we continue to upgrade our vessels, particularly Hake, post the finalization of FRAP. We're also investing in energy solutions in our South African operations and expand our production facilities on the west coast of South Africa. From a debt analysis point of view, having strong cash duration is very, very helpful, as you can imagine. But in South Africa, we've repaid term debt, while our net debt is higher, primarily due to our investment in inventory. In the United States, the leverage ratio improvement is largely due to higher EBITDA, with settlement of some $7 million of debt during the period. We remain well positioned in the current high interest rate environment, at 61% of total debt hedged. The closing exchange rate was 17 rand 80 to the US dollar at 31st March 2023, compared to 14 rand 60 for the previous year. The recent weakening of the rand will increase margin pressure on Lucky Star, as Neville mentioned, as our stock is replenished. However, we may remain naturally hedged with a high proportion of foreign currency earnings weighted towards the second half of the year. From a cash point of view, and it's pleasing for me to stand up here and talk about cash in the economy that we are, and the fact that we've generated cash from operations for about $784 million. And that was primarily due to robust pricing and demand for our products. The networking capital movement represents cash utilized of 680 million in South Africa and cash generated of 458 million in the U.S. and is impacted by the seasonality of the differing fishing seasons, as Neville mentioned earlier. In South Africa, we procure most of our frozen fish inventory during the latter part of the first half, while the U.S. fishing season starts around mid-April and continues through to October of each year, positively impacting the second half. Short-term debt of 851 million was raised during the period, primarily to fund working capital, as well as capital expenditure in South Africa. From a capital allocation point of view, the majority of the CCS sales proceeds received on the 4th of April was used to settle term debt of 550 million in South Africa. Given that our term debt in the US is due to be repaid by September 2024, as well as the increase in cash generated by Daybrook, we are currently in advanced negotiations to refinance the debt before it becomes a short-term liability at 30th September 2023. We will continue to allocate capital to maintain inventory levels across the business, enhance our fleet and production capability, as well as invest in energy solutions. Reduction in debt across both geographies remains a high priority, considering the high interest rate environment, as well as to create balance sheet capacity for growth. With that, I thank you and hand you back to Neville, who will cover our operational performance.

Okay, so I'm going to cover the operational businesses now and those pillars that you saw there. And I'll give you some insight in terms of what drove the performance. And at the end of the presentation, I'll give you some insight in terms of what we see for the next six months. So I'm going to start off on the wild-caught side. And I've done this on each of the presentations, just giving a map to orientate you in terms of where we are and how we operate. So we've got this business is all about SA. We have horse mackerel and other businesses in Namibia and South Africa. A horse mackerel vessel, two in Namibia, one in South Africa. We've got a hake business in South Africa. And then we have both coast lobster and squid, the squid on the east coast. And we have an east coast lobster species. And then we have a... West Coast lobster species, and we export all over the world. The lobster goes to both the States and China, hake and squid mainly to Western Europe, and the horse mackerel to our SADC and Southern African countries. So that is the expanse of both geography's businesses. Now to the numbers. So this is the total businesses combined. So this is all of those species I spoke about. A reasonable performance relative to last year. But in terms of long-term standards, I think it's certainly a business that we need we had a few foot faults, and I'll talk about where it is. That business is mainly driven by our horse mackerel business, which has been very good this year. Namibian horse mackerel catchers have been extremely positive up on last year. South African horse mackerel catchers have been up and down. We started this year with a dry dock. We are a planned main engine maintenance player. A little bit early to tell, but the Namibian side has been very, very positive. Good catch rates, good market demand, strong deliveries into the SADC countries from Mozambique all the way to the DRC. So very, very good Namibian side. As you can see, the catch rates and the sea days in the Namibian side are well up. On the SA, that should turn around the second half because we don't have any planned maintenance for the second half on Desert Diamond. The La Nina effect, and you've all heard of El Nina and La Nina. La Nina is a warming of the waters, in particular that affected the east coast of South Africa. That La Nina effect is starting to dissipate now, and we expect those catch rates and the waters and the climatic conditions on the east coast, where predominantly Desert Diamond fishes, to start improving in the second half. So that, certainly we're looking at Desert Diamond improving. On the Namibian side, demand remains very, very strong. Both vessels have sufficient quota to catch for the balance of this year. So we expect that performance to come through for certainly going into the second half of the year. On our Hake side, and this is when I spoke about foot faults. A great business, a business we like being in, strong demand from the consumers. Our product goes into mainly Western Europe, a little bit into South Africa. The key about this is there's two issues. One is catch rates, and you can see catch rates have come off a little bit over the long term. It hasn't, and that, again, was affected by this La Nina effect on the East Coast. That, again, we think will dissipate. But where we weren't as good as we could have been is in terms of keeping those vessels at sea. When you're operating a fishing business, when a vessel's tied alongside, it's not making money. We have normal planned maintenance, but that fleet is aging, and we've now got the 15-year rights. We had a few breakdowns on two of the big vessels, which affected this business, and so they simply weren't out there fishing. So a business that I certainly believe in. It is a business that's been around for a long time. And we will be investing quite heavily over the next two years in this fleet. We've now got the 15-year rights. There's an appeal process that's happening now through DAF. But essentially, the 15 rights are there for us. We know exactly what quota. The resource itself, the Hague resource, is very stable. Scientists are telling us that the biomass is healthy. We had a 5% increase in this quota this year. So a business that, from a longevity point of view, is there for us to develop. But we need to invest in that vessels. And currently we have our flagship, the Beatrice, which is our biggest Hague vessel, freezer factory vessel, in dry dock with a major upgrade. It's been tied up through this process for almost three and a half months. It is hoped we're probably going to be finished in about 30 days' time and then goes back to sea. And there's significant investment in increased production, increased freezing capacity, and factory capacity. So a business that I'm looking for a lot more coming for the second half and going into next year. The two smaller businesses are Squid and Lobster. Squid, it has a very positive season. Squid goes mainly to, well, not mainly, 100% to Europe. None of the squid that you eat in this country comes from South African squid. It's all imported. Cheaper squid that comes from the Falklands or Argentina. Our squid goes 100% to Europe. Western Europe mainly, and that performance has been very good. So strong performance from the squid industry. Lobster on the south coast, we've got two species. The south coast was a deep water lobster, very good, strong performance, good biomass, very healthy biomass because it's a deep water lobster, has done well. On the west coast, as I've spoken about before, subject to poaching, We're a player in that game. We continue to work with DAF to try and manage poaching, but poaching has not got under control. Long term, I'm very concerned that that species will disappear because there simply isn't enough capacity within government to control the poaching on the West Coast. We'll stay in the business as long as possible. We stay in the business because we can work with DAF to try and manage that poaching level, but It is a business. I don't see a long-term future. But it's a small part of our business. So Squid has done well. South Coast Lobster has done well. West Coast continues to perform but is declining in size every year. Then the canned fish side. And again, I've put this map. And you remember when we... In the pillars, we spoke about the different pillars. In the way our segmental reports includes all of our fish meal and because they're statutory companies, going forward, we will try, and it is my intention, to separate them in pillars. So we'll clearly be able to define for you and ourselves the separation between fish meal and canned fish. But this, the way we're presenting it now, is a combination of the South African business, which includes the fish meal and oil, and our Lucky Star business combined. So just to give you again, we've got the location of our business. We've got two factories in SA, one in Namibia. And then we have three contract factories, one in Thailand and two in China. We source our product. As I said earlier in the presentation, 10% of our product that we can in Lucky Star comes from our own vessels. 90% is sourced from around the world. And in the maps there, you can see We buy right across the coast from Mexico to North Africa, Mauritania and Morocco, and in the Pacific in the Japanese waters that we secure. And obviously it's not a linear chain. We don't buy exactly how much we need each month. When the fish are available, we buy a large portion of it. And that generally comes in that kind of October through to January period when most of our raw material came in. Last year, when we had the looting and we had to replace that stock. It took us four or five months to build up stock levels. We invested heavily in raw material. The lead time to get stock to a customer is about five months. From the time that you go and do the contract with a Mexican to supply the product, whether it goes to China or to our own factories, to going through processing and then clearance from the regulator NRCS, and then getting it either into our store room somewhere in Durban or in Cape Town. So it's a long lead time. I think that is key to the performance this year. Currently, as we sit now, if we had to stop every single, stop buying any raw material, we have five and a half months stock currently in the system. Not all produced into cans, but five and a half months. So we very well stock going into the second half. The other positive point that I just want to make there in the bottom left there, that is the graph of the TAC for pilchards this year. Now, you remember 50, 60 years ago, all of the pilchards that went into Lucky Star came from our own canneries, either in Namibia or South Africa. And the TAC in those years, as you can see, almost 100,000 tons in SA 10 years ago, 15 years ago, and the same in Namibia. That disappeared automatically. What is positive over the last four or five years is the growth of that TAC. Now sitting at 39,000 tons, and that's almost a 30% increase in last year. So positive recovery in SA of pilchards. Namibia, there remains a moratorium on it. We do believe that there are some signs that pilchards are coming back, still too early to say, but certainly in South Africa, a very positive sign. The key to that is obviously the margins on our own caught fish are far greater than the margins from frozen imports. Obviously, it's free fish in inverted commas. We don't pay for it. There's a catching cost, but it's certainly a lot more margin accretive than frozen fish, so very positive. So to the numbers. As I said, we had a record sale of volume Lucky Star. Five million cartons. Never done that in the history of Lucky Star. A deliberate strategy. It came at a cost of margin. And you can see the operating profit has moved from 165 to 134 million. And the operating margin has taken a knock. Like most manufacturers, there's a strong cost push across the board. And I'll show you some of the figures now on the next slide. But strong cost push. And we... simply couldn't recover that initially through the consumer. So remember when a large, and I'll talk about it, and let me go straight to that slide. So these are the main drivers of our cost in Lakhistan in particular. The biggest one being 50% being the frozen raw material that we buy from all over the world. And you can see in that second to last quarter, across all of those, we had strong drivers, a 20% increase in raw material. Our freight costs went through the roof, both on the canned and the frozen product. Our tomato paste went up. Our canned price went up. What you've seen in that second block in the graph is a lot of them have started to moderate. So frozen fish, and that's in RAND terms. In dollar terms, our frozen fish is down 20%. The problem is obviously the RAND has depreciated from 18 to 20 in the last three, four months. So that has eaten a lot of that away. Certainly in the second half, and the other point to make, we put a price increase through in the early part of this year. So in this financial half, the PI only affects probably one month of the year. The PI was put in in late January. The effective date would have been early February. So the positive effect of that PI only will come through in the second half. our price with all of those moderating cost pushes coming off in particular freight as you can see freight is now back to the levels almost back to the levels it was pre-covered Freight costs for us is a big component of the raw material cost. And it went through the roof over the COVID period. As world economies are slowing down, the need for freight and containers is dissipating. We're seeing those container costs come right down. So we expect to claw back a lot of the margins in the second half. Whether we'll get back to historical margins, that obviously we'll have to see how that goes out. Just to give you again the idea of supply, the most important graph there is that bottom left one. That is our current stock holding of canned fish in the system right now. And as you can see, it's well ahead of previous periods. And currently, as I say there, 5 million cartons currently in stock for the second half. The key for me going forward is where does pricing go? Anthony and I were talking earlier about those price points that every one of our competitors, the commodity, I mean, the protein sector are feeling. How far can you push the consumer? In what state is that consumer? And right now, the South African consumer is under huge pressure. We are, and our strategy, Lawrence's strategy, is to try and manage that price as best as possible. given that we haven't seen the benefit of the price increase come through, and we'll see it in the second half, we certainly can hold the current pricing for the next few months, depending on where the RAND goes. The RAND, and if the RAND blows out, and we don't know where that's going to go, that will affect us, but more than likely will only affect the next financial year. Certainly won't affect this financial year, given our current stock holdings. And it is a dilemma that we can't control where the rand is going. When we import 90% of our raw material, it is a big factor in this game. So the key for me is not whether consumers buy Lucky Star or not. It's whether consumers can afford any protein. And if anybody asks me, what are you worried about now? It's the state of the consumer. What are they eating? We know they are down trading and they have down traded into Lucky Star. Very positive. The one... The positive thing about load shedding, you don't need a fridge for Lucky Star and you don't need a cook Lucky Star. You can eat it. You can store it. We've seen in the sparser stores and the small retail operates that are carrying frozen product, in particular chicken, which is a big competitor of ours, they manage it on an adjusted time basis. They're only carrying enough stock for today's sale. So they'd rather run out of stock then then lose stock in their in their cold store in their in their fridge then it goes off so a key component for us is drive pricing managed pricing our lucky star on shelf is sitting somewhere between 22 and 25 rand a can that's for a tall can and it is very well priced at the moment that's at current exchange rate and and based on our stock we we expect the the alternate proteins in particular chicken and you've all seen their results they're going to have to push pricing they are currently selling below cost so again it's not about affordability it's relative affordability in a in a market that the consumer is under huge pressure so A good business for us, a good business for the second half, I think, I know. Going forward, we will always be able to recover some of the margin from a weakening RAND, but it's what the affordability level of our consumers, and that's what worries me going forward. And again, I've just shown some figures. I mean, you all know it. I mean, top left there is just the growth, the value growth for our product, Lucky Star, relative to the food basket. And you can see it. And again, it's indicative of where the consumer is. She's trying to find affordable products. alternatives for a family to stay relevant and stay to feed the family. Food inflation there at just below 14%. And I certainly don't think food inflation is going to stop there. Over the next couple of months, we haven't seen the height of food inflation. It's only starting to come through now. So where it stops, I don't know. We will try and manage within that range in keeping Lucky Star affordable. Just on some of the pelagic side, this is the catches. So again, positive from our side. The graph top left there is the catch rate of our pilchards, our own pilchards that our own vessels are catching. And as you can see, so we've not only had a good increase in the TAC, so we've got more to catch, the catch rates itself have been very positive. So indicative of what the scientists are telling us, the resource is out there, and we can catch it. So it's driving. The industrial fish, which again, and I'll talk a little bit about industrial fish more so when we get to the daybooking, but this sector of our business, the South African Fishing businesses have the two arms of being Lucky Star and our industrial fish. Catches of industrial fish in the first half have been very good. Remember, most of our fishing only starts late February, so it's a little bit early to tell. Our catches are good, and most of the sales come through in the second half. From November through to the late part of January, our factories are closed for upgrades and refurbishment. We start fishing in about... mid-February, and then we run through right until the end of the year, until October, November. So far, catches on industrial fish and and what we call red eye herring, which is a puckle which we allow to catch as much as we can, have been very good. So looking for a strong showing, again, talks to the margins. The fish meal and the fish oil business is part of the Lucky Star margin. So that coming through in the second half, given where pricing is on both oil and meal, should see a strong recovery of margin in the second half. And then the star performer of our business in the first half, Daybrook, Fish, Meat and Oil. As I showed you in that slide, that's the factory. This photo was actually taken when we only had 11 vessels. We now have the 12th vessel that is the kind of flagship. Just to give you an idea of... So this is a broad value chain of both SA and Daybrook's performance. A factory in New Orleans. Main market for them in the fish mill side is our pet food business. Predominantly goes into that US pet food market. They do a bit into the aquaculture industry in New Orleans. in China. And on the oil, our main customer being the Norwegian salmon farmers. That salmon industry is growing tremendously, the aquaculture industry. And that's where most of our oil goes. In SA, we have two fish and oil factories. Oil goes to the same market as the US. Most of its fish meal, because it has a higher protein level, goes to the Chinese aquaculture industry. And we do a little bit in Africa. So that's the scope of the business. Just to give you an idea, if you look in the bottom there, in terms of tonnages, and I just want to read it there. So you can see the size of the Daybrook, double the size of the SA business. 230,000 tons versus 120,000 tons in terms of tonnages. Performance, a phenomenal performance. And again, largely driven because we had that opening stock. We had both fish meal and oil available for the market. Operating profit, you know, and it's a bit unfair to compare because of the lack of stock in the first half. But it's driven by the pricing in particular of oil. It's up 60%. But both fish meal and oil have seen strong growth in the And you can see the volume at the bottom left-hand side in terms of what we sold last year, same period versus this year. So fish meal prices and fish oil prices are strongly up. This is a graph that I put together, and I know we've had a lot of, not criticism, but questions about whether Daybrook was a good investment. And it goes back to Francois Cattell's time, and the board made a call, and the fundamentals of why we invested in this business remain as strong now as it was there. We had a couple of years where we went through COVID, And we went to the Hurricane Ida, which affected this business. But the fundamentals of this business still remain good. And it's all around this supply and demand graph. As you can see, this is an indication from what's called the IFO Conference, International Fish, Meal, and Fish Oil Conference. It happens every year where they do a kind of prediction of where oil and meal are. supply is going to come from. And in 2023, there's a prediction that both oil and meal supply will drop, driven largely by the Peruvian catch. When this slide was done, the Peruvian catch in those graphs were estimating they have two periods of TAC, they do an interim TAC and they do a second TAC later in the year. This graph there in the top left-hand side was estimating that the TAC would be around 1.5 million tonnes, which is 30% below what their normal tonnage is. The latest figures that came through on Friday was they've announced a TAC of a million tonnes, so a gain down on that. So from a supply point of view in the fish meal plant, we're expecting fish meal supply to be certainly lower in this year and going into next year. Remember, they produce for the longer term. And not only is the supply going to be lower, the season has started probably four to six weeks later than anticipated. Normally it starts earlier, but because the research strips were not picking up the numbers that they were hoping for, they delayed and delayed it. They've named out a call that they're going to start now. So even at a million tons, the view or the The concern about not catching that full quota remains as is. So I predict that there certainly will be a shortage of fish meal going forward. And obviously... It translates into oil. Last year, the Peruvian oil catch was low, but what was more pertinent to the oil was the oil yield. Now, normally, the Peruvian oil yield is around, on average, about 4%. Last year, it was below 2%. So not only did they catch less fish, less fatty fish, and it comes from the fat, the fat that was in the fish was much, much lower, which resulted in a low oil yield. So both on a long-term going forward, we expect less supply of fish meal and fish oil, and particularly the Peruvian, which competes directly with us in oil, because anchovy from the Peruvian catch and our anchovy are very high in omega-3s, and that's the ingredient in the oil that the Norwegian salmon farmers are looking for. There's many oils. We have a unique... value that our oil gives those Canadian, sorry, that the salmon farmers is this omega-3s. And it's not available in all fish oils. It is particularly high in ours and theirs. So there is a shortage. So And it talks about where pricing is going to go going forward. At $4,500, $5,000, which is at the moment a record high, I don't expect that to last forever. But certainly in the short term, the balance of this year and the early part of next year, we believe those oil prices will hold. So positive. And the other key component is... I don't think it'll ever go back to the traditional levels of what we've seen over the last 10 or 15 years, $2,000, $2,000. It is almost going to reset itself. Where it's going to reset itself, I'm not sure. But it certainly won't be at the traditional levels. So that graph showed you an idea of the supply side. This is about demand. And that top left-hand graph is showing demand. the total tonnage of aquaculture and wild capture. And you can see in about 2021, Aquaculture, world production of aquaculture exceeded wildcatch for the first time ever. Now wildcatch is, and I see figures every year, wildcatch has been fairly static for the last 20, 30 years. One species goes up, one species goes down. But worldwide it is finite. We cannot catch more on a sustainable basis than the numbers there. Aquaculture is going through the roof. The biggest aquaculture species in the world is carp out of China. Not one kilo comes out of China to supply the Chinese market. So we expect aquaculture and the demand, and the key component of that is aquaculture needs fish feed, fish oils and fish meal as an ingredient in the feed that goes into aquaculture. So from a demand point of view, we're going to continue to see that demand consistent increased growth in demand for fish feed or fish meal and oil. And hence, again, I go back to the point, was Daybrook a good investment? Certainly the fundamentals and the strategic value that we saw then remain as good, if not stronger, in the current times. And then I've put a graph there, and it's an interesting graph. This is the pet food market in the US over the last couple of years. A large portion of that growth was driven by COVID. Over COVID, not only in the US and worldwide, people invested in pets. over that COVID period. They were at home, they didn't need to spend their disposable income on other things, and they invested in pets. We saw a strong growth in the US pet food market over the last couple of years. That is starting to dissipate, and people are not going to get rid of their pets, but they're not going to invest the same sort of... So they're also feeling the effect of inflation. We saw massive growth on treats and blankets and any pet food type product, but that helped our growth in the pet food market. So From a US point of view, we will continue to drive our business into that pet food market. From a location point of view, there's freight costs and logistics that it is more effective to supply that market. What is positive, if that market does dissipate, we can just as easily move it into the Chinese aquaculture market. So our product can move around. We will, at the moment, concentrate on that pet food market. It's a very consistent market. Bjorn gets from the pet food manufacturers an annual or six-monthly contract. He knows exactly what the kind of volumes are. We commit to that. We commit to pricing. So it is fairly predictable. There is some pressure now because of the... U.S. inflation levels increasing, and people are starting to feel the pinch, as are in South Africa. We're seeing that coming off a bit. But certainly for the balance of the year, we will still consider that market. And we'll traditionally stay with that market, but we do have alternatives. So both from a supply and an amount, very good fundamentals in the daybreak market. U.S. and SA. Remember we are in SA and the same fundamentals exist for our SA fish mill and fish oil business. This is giving an indication of where we are right now. Remember the season in Daybrook starts on the 16th of April. We start fishing. We have a 28 week fishing period. The fishing generally starts slowly and then builds up in July, August, September, our main fishing periods when we start catching. We catch in what is called, it's quite unique to America, we don't measure it in tons, we measure it in million fish. Last year we caught 703 million fish. This year, this is after week six when we did this slide. So we're missing one week, and we had a good week last week. We're at well over 200 million fish at the moment. So very, very good start to the fishing season in the U.S. What I always say is, you know, you can't contract with the fish. We've got weather, touch wood, you know, we don't have another hurricane or cyclone or something like that. But certainly the indications are very, very strong for this season. As you can see, the numbers are well up on the five-year average, well up in last year. And as of week seven, we are... I think it's 25% of time and we're at 30% of catch at 700 million. So if this continues, it'll give us good supply, not only for this year, for next year. And that is the key component. I think this year we will have a good year, irrespective if we catch 700 million fish or 500 million fish. So I think from a Daybrook point of view, I'm very confident that this year will be a very good year. What I would like is that we have a decent catch so we can have the same kind of... carry forward stock that we had coming into this year. So this is all about business. So very good start. I don't want to jinx it, Bjorn, and hopefully it continues. Bjorn is here from the States for the board meeting and for the presentation and is happy to answer questions if necessary. Then going forward, what are we going to concentrate on? So as I said, in the wild good side, I think we'll continue to see good pricing. Generally, demand for stable and lower income products will remain high. Horse mackerel, we simply can't supply enough. The catch rates are good in horse mackerel. We are going to drive efficiencies through all of the vessels. The Beatrice, which is our flagship hake vessel, will come out of the dry dock and should enter the season in the second half. Fuel costs is a big component of this business. It is fairly stable at around $75 a barrel. It went up to $120 a barrel a year and a half ago, and prior to that it was at $40. At the moment, pricing is reasonable, and certainly we do have a hedging policy on fuel. We hedge 25% of our fuel needs. So fuel is a big component, but it is at a reasonable rate. The investment in the fleet, Inna and her team are spending a lot of money, and it's not only this year, it'll be for the next probably year and a half, we will invest in all four of the Hague fleets, the Hague vessels. And then we have a number of joint venture partnerships in both Squid and a couple of the other wildcourts that we are developing at the moment to enhance the efficiencies of those fleets and that catch rate. On the lucky star side, as I said, great stock levels. So certainly not concerned about the supply side. Just again, a stat. In 2021, our service levels were around 78%. Sorry, 22. In 2023, our service levels for the first six months were at 95%. So we were giving 95% of every order that was ordered by any consumer was delivered, which is, by FMCD standards, is extremely high. We are in every spaza, every tiny little corner cafe, every retailer and every wholesaler. Very, very good stock holdings. We are going to continue the volume strategy. We are... as far as possible, not going to try and increase the price to consume. We almost have a moral obligation to try and keep the SA consumer fed. Food security in this country is a massive, massive problem. And I know Noel Doyle said it in his presentation that the elastic has snapped. I don't think the elastic has snapped with Lucky Star yet. We've still kept this brand affordable. We will try as far as possible to manage that process. and manage that price. And given that, as you saw in the slides, that the cost pushes are not in that second half, we've almost weathered that first part. Our price increase went through in February. We'll only see the effect of that positive price increase come through the second half. So I certainly believe we'll claw back some of that margin. How much we'll claw, we will have to see. But certainly the volume strategy will be. And people need affordable protein. So the slogan that Lorenz always has, availability and affordability. It's got to be available, it's got to be in every store, and it's got to be affordable. And it's a relative affordable game. Affordable is a subjective term, but in terms of other proteins, we are very affordable. We'll have to assess where the RAND is, and I don't know where the RAND is going to go. But that, as I said, I think will only affect 2024, when we have to go out in the market and buy. We are constantly buying product from the world supply. We're constantly fixing the exchange rate as we buy products. We're trying to take forward views in terms of where the RAND's going. But that is something that's open. The one just at the bottom there, canned meat facility. We are investing behind Lucky Star. Lucky Star is an iconic brand, been around for 70 years, got strong consumer acceptance, strong loyalty. We believe it has value to grow it outside of canned cultures. We have commissioned, well not commissioned, we are busy building a new factory up the west coast. It will be finished around end of September, commissioning first product early October, and that is outside of canned fish. It will be in canned food. Alternative, affordable proteins under the Lucky Star label. We're going to create another 60 jobs on the West Coast. It's a standalone factory. Initially, when we started putting this factory up, the view was put it in the current After we started putting it together, our view changed and we have a lobster factory which we've closed. We own that factory. The facility was ideal and we've now gone and put a canning operation in that factory. exciting for us. I think it'll open a whole range of new opportunities. We are going into canned meat, corn meat, and other products. Again, it has to be in that consumer profile that enjoys and is loyal to Lucky Star, so we would certainly not do something that would damage the brand, but we think it has a huge opportunity to grow that brand to a consumer that is under pressure. So, very exciting from that point of view. And then on the fish, meal, and oil side, again, very good stocks. So it's not only that we had good stocks for the first half, we've got great stocks going into the second half. Fishing has been very positive, both in SA side and in the US side. Anchovy in SA and herring catches are well up in last year. Daybrook's performance for the first seven weeks have been very positive. Pricing on both oil and meals expected to be good. Maybe just to comment a bit on what Daybrook did over the closed season. It's one thing to catch fish. It's another thing to process through your factory. So Daybrook invested in the close season from October to April. We spent a lot of money and a lot of effort in increasing the capacity at the factory, increase the raw, what we call raw fish boxes, which is the storage pits. When the vessel comes in, we've got 12 vessels that land. Their fishing period is one day. When they come in, all 12 vessels come in in a very short space of time. The key is to get those vessels discharged as quickly as possible. And one of them is we've increased our capacity on land of the raw fish stock by 25%. So we can move more from the vessel into that and turn those vessels around and get them out. And that's part of it. And then we've invested in what's called tricanters, which is a piece of machinery that separates oil and solids. Again, it was a bottleneck in the factory to increase production. That factory now is running at somewhere between 110 and 120 tons an hour through that factory. So phenomenal performance. And again, it's about... When the fish are there, you're always going to have weather. You're always going to have climatic conditions. But when the fish are there, get those vessels, turn around as quickly as possible, put the fish in the factory and process it. So that has certainly worked, and that's part of the reason we're seeing those. So it's not only because the fish are there. Bjorn and his team have been able to turn those vessels around and get them back at sea because we know there will be weather. And then, obviously, the two wild caught in the fish mill and oil business, if the rain blows out, we are diversified. So it's, you know, that's one, and I said it in the earlier, one of the strengths of OCEAN is our diversification. We have the ability when the RAND moves one way or the other to mitigate poor performances. We've got a multitude of businesses, some, and not all will do well, not all will do badly, but we are fairly balanced. And we've seen, Hake has had a poor performance this year. Lucky Star has had some pressure. They're still doing extremely well, but we've been mitigated by export-driven businesses. So it is a good balance going forward. And unlike some of our opposition, which are very species-dominated or country-dominated or geography-dominated, this business is all about diversity. The performance... as much as I'm very proud of the performance, a little bit exaggerated because we had a very poor year. It comes off a low base. So the performance is exceptionally good, but in 2022, the first half was low because we had no stock. So I think what you've got to read into this is that it wasn't by luck. There was a planned strategy to hold stock. Secondly, going in the second half, the fundamentals remain good for this business. Lucky Star is positioned correctly in terms of where she is, where the product is positioned. We'll manage that process. Our stock levels and our catching in all of our other geographies are good. We're going to invest in the fleet in Hake. Generally, the fundamentals for this business going forward, certainly for the next six to 12 months, are very, very positive. And then, as Zaf said, our balance sheet is probably very healthy at the moment. We've used the debt. We've used the proceeds from the solo CCS to reduce some debt. The performance in the US is doing well. And if we can reduce some debt going forward in the US, we will do that term debt. So certainly the opportunities for us going forward to utilize that balance sheet if opportunities come about, and I'm not saying there are any at the moment, but if you look at businesses across the world, there's a lot of businesses for sale at the moment in the seafood sector. So Oceana is very well placed with our balance sheet and with our expectation of performance going forward to take advantage of that. So generally... Very pleasing performance, and I'm happy to take any questions. Well, Zaf and I are happy to take so many questions.

There's a few questions online.

Okay. Trevor? So we've got some questions online, and if people want to ask some questions, there's a roving mic, and I'm happy to answer them.

Yeah, let's kick off with an online question from Sandhili at Tumbo Wealth. What drove settlement of asset debt instead of offshore debt, which is more problematic to the capital structure? Mr. Mohamed.

Am I standing in front of the speaker? Sorry. Let me stand here. So the first one is I think our net debt to EBITDA ratio is a lot better in the US than it is in South Africa. Neville and I were there a week ago, a week and a half ago. A week and a half. We met with the banks in the US, and we're in the process of refinancing that using the excess cash that's been generated over the past six months to settle a portion of the $93 million of debt. You will recall that when we bought Daybrook in 2015, we financed about $142 million, which we've paid about $50 million thus far. And we hope to pay off a little bit more. I don't want to give away too much of my negotiation with the banks, so I'll not say any more. But I think we're happy with the level of debt in the US. Of course, it remains a priority to reduce our debt in a high interest rate environment. Trevor, does that answer the question? Yeah, thanks, Steph.

Yeah, Santilli's got a three-point question. So the second part of the question, can you sustain performance from the international business and what sort of EBIT margin can you maintain on these operations going forward?

So we had a 36% operating margin for the first six months, which I would say is exceptional. That's largely driven by catch. As you know, catch rates in the US have been good and continue to be good. Neville spoke about the six weeks that we've had so far. The oil yield is also a very important point. We've put in some equipment to make sure that the oil yield is significant. It also depends, obviously, on Peru and what that does with the third part, which is oil prices. So I think for us, I think 36% is high, but I'm the accountant. I'll let the CEO talk a little bit more on whether he thinks it's sustainable.

I think I've really answered the question in terms of where we believe the second half is. But the big... unknown is fishing. We're in a fishing business. The beauty is we're not in one geography or one species, so we do have the multitude, but we've still got to catch the fish. From a demand point of view, we are quite confident the demand will stay and the pricing will stay. It's about the supply. So certainly for the short term, I think we'll certainly maintain that, and then it depends on how catches go.

But I think on a long-term basis, probably around 30% margin would be appropriate.

Thank you. Sandile's third question is about capital allocation, Zaf, which I think you covered. But I'm going to ask it anyway, and maybe just add the question from Tyler as well, which is also around capital allocation. So Sandile's question, what is your envisaged capital allocation for 23 and 24, respectively? And then on top of that, Tyler's asking, how are you aiming to pay down your US debt? Is that a priority in terms of capital allocation?

So I think the first one is, priority number one is reducing debt. I don't think in a high-interest rate environment it's worth having any form of debt or a level of debt that's too high. I think the other one is it gives us a balance sheet capacity for growth, as Neville said, that we're able to grow our business and present those opportunities for us to do so. And to have a balance sheet that's ready to do so is important to us. Priority number one is to reduce our debt. I think where we are as a business as well, and we've learned our lesson in terms of the inventory and going into post-COVID and post the KZN unrest, that we want to be well stocked. I think that's come through in these set of results. I think you'll see that that value will push through into the second half, as Neville spoke about. For me, it's really about what happens in the year following. So we want to have a balance sheet that is able to be more working capital orientated rather than having too much of debt.

Maybe before we go on to the next online question, are there any questions in the audience?

Thanks. Hi. Just two questions. Just on the South African CapEx on your Hague fleet, maybe you could just give us an indication of how much you need to spend. And it sounds like there's a growth and efficiency element to that CapEx as well. So maybe you could just unpack what that would mean. And I'll put another one after that.

So in our team, where is it? It's sitting there at the back there. So in our team, I've presented a kind of fleet plan expansion project to me on Friday so the the the numbers are still under negotiation but I will say to you is probably spending a hundred million on that on the on the beaches as we stand now and about 50% of that is in capacity expansion and about 50% is in freezing conversion we are That vessel is currently a Freon-operated vessel. We're converting to ammonia because Freon is being phased out over the next five or six years, so we have to convert that vessel. And thereafter, then, the question will be, what do we do with the other vessel? There is an indication that we may replace the vessel, but at the moment, we are looking at what's out there.

Okay, thanks. And then maybe just another one on Namibia and just an update on the quota environment there.

The Namibian quota environment is fluid, put it that way. It's very difficult to predict. What I can say to you is that you get a right in Namibia that entitles you to fish. It doesn't give you quota. The minister makes a call every year how he allocates that quota. So it's not like South Africa where if you get 10% of the quota, the TAC, you get 10% for 15 years. But what I will say to you is that there is sufficient evidence quota to go out and purchase. So if you take our current vessels now, we have two operations, two vessels there. We probably have 25% of our own quota and 75% we buy. And we've been very effective at buying enough quota. So I'm not concerned about that we won't have enough quota. The key is obviously what price we pay for it. And right now it is fairly reasonable in terms of what we're paying and because the margins are good and the selling prices, I'm quite comfortable. That is always a concern, and industry has had a number of meetings with the minister to try and get a better level of certainty because it is difficult to invest in a fleet when overnight you can take your quota away. But because of the nature of how they sell quota there and they manage the quota, we can always acquire quota. So it never means we'll run out of quota. The only effect is what we pay for it and the effect on margin.

Okay, we've got another online question from Vessel to Bear. Congratulations on a very good operational performance. How have volumes reacted so far to the Lucky Star price increases?

Fantastic. You saw 5 million cartons. Yeah, so that 5 million cartons, obviously we've had a Over the last 14 months, we've probably had a 20% PI. Just over 20%, Lawrence, if I'm correct. So, like any manufacturing company, we've had a lot of pressure on cost push. Certainly, we put that PI in February. We've held the price, driven it, and that 5 million cartons hasn't stopped as of end of March. We've seen a continuous, so for April and May, still good volume sales. So, I'm... And that price point is, to me, is key. And I remember, I don't know, six or seven years ago, Lucky Star pushed the price too far and just went over that price point. And you saw sales drop off almost immediately. And I think it's with any commodity, any protein. We've got to be very, very careful. And Lawrence has been very good at just managing that. And obviously, we're assessing competitive proteins all the time. But as, again, I said, it's not about whether... more cheaper than chicken or not is what the consumer can afford at the moment. And that is a bigger concern to me than anything else.

Okay, another online question from Corbis Soliers, Allweather Capital. Morning, well done on a good set of results. On the fish oil sales in Daybook, can you go into a bit more detail on how the price is agreed with your customers? And how much is sold forward and for how long? Was everything sold at spot?

So it's a normal contract. I don't want to give too many details away because then you'll battle it. But it's a normal negotiation. We do contract forward. So the salmon farmers that buy from us need to know that they're getting the supply of fish oil. They are concerned because of the Peruvian catch in there. And the level of this uncertainty around the Peruvian TAC has spooked them because it is an essential ingredient in salmon feed. The omega oils that are existent in our oil, they have to have. So at the moment, we contract about four months forward. And it's fairly consistent. So there's no concern for me about going forward for the balance of this year.

Thanks, Neville. We don't have any more online questions at this point. Anybody else in the audience with a question?

No questions is good. Well then, thank you everybody. Thanks for joining us on this Monday morning and join us for a snack afterwards and if I can answer any of your questions then I'm happy to take it myself. Thanks very much.