Oceana Group Ltd

Good morning, ladies, gentlemen, management, staff, directors, analysts, invitees, and all other shareholders and stakeholders who have joined us virtually this morning. I am Moustak Braid, the chairman of Oceana, and thank you for taking the time being here with us this morning. I have great pleasure in welcoming you to the financial results presentation of the Oceana Group for the financial year ending 3 September 2023. Let me at the outset commend the management team for delivering a very good set of results, which was released this morning on Sense, the details which will be explained during the presentation. These results are testimony of the performance of a group with solid leadership, a group that is diversified and operating in multiple geographies across the world. These results bear witness to a group which has deep roots of over 100 years, mature with collective experience, and nimble and agile enough to adjust to a rapidly changing global environment. As was announced on census warning, we are excited that Neville Brink, Neville brings tenor as the Group CEO was extended to 31 December 2026. Neville, thanks very, very much for that. And we look forward for your leadership over the next number of years. I'm confident that his visionary leadership and experience will continue to provide the stability to execute the Group's strategy. and drive performance for the benefit of all stakeholders. Neville has galvanized a strong executive team that has led from the front and emerged successfully from the recent periods that presented the company with many challenges, and it wasn't very pleasant for me to be speaking to you during that time, but I'm very happy to be here today in a much more pleasant environment. Congratulations to the entire management team. These results speak to hard work, diligence, and careful execution of strategy in an increasingly risky environment. Since the Asiana Group's primary operations are in South Africa, I would like to reiterate concerns also raised by other institutions and organizations in corporate South Africa. We need to expedite solutions to our energy crisis. The loss in productivity, as we all know, has a very broad impact in every sector. More notably on jobs, which you can least afford. So Africa needs a growing economy to enable new jobs. We have widely read about the failure of the state-owned enterprises for the South African economy to grow unfettered. We need a logistic network of roads, harbors, rail and air that operates efficiently. I am concerned at the current situation at Transnet and request government and Transnet to act swiftly. to avert a potentially bigger crisis. Our ports are critical in the country's economic activity, and this country can ill afford this becoming a bigger problem than it already is. I wish that one day the whole world would live by Oceania's philosophy of positively impacting lives. I thank you for your indulgence, and I hand you over to Neville Prink and Zaf Mohamed to proceed with the presentation. Thank you.

Welcome, everybody. It's actually nice to see some people face-to-face. You'll notice a little goodie bag there. That was bribery to get you to come in actually early in a Monday morning and come and join us here. But it's really nice to see you. We've also got people virtually. Obviously, the management team, Oceana management team from around the world are also online. I hope the U.S. contingents are listening. I think it's 2 o'clock or 1 o'clock in the morning there, so hopefully Bjorn and Efren are actually wide awake. I'm going to test them afterwards to see if they were actually listening. But it's very nice to see you all, and a thank you to WSDAC and the board for... For that vote of confidence in extending my contract, as you know, I'm passionate about fishing, I'm passionate about this group, and I'm passionate about the staff that work for Oceana. So this is not a burden for me. My wife is very happy that I'm staying at work. So... But no, I'm very excited. Obviously, the strategy that we put together in the last two years, and you'll see some in the presentation now, is going to take three years to put together. And there's some investment that we need to do in our factories and in our vessels. It's going to take time. And I want to see that thing through to the finish. So it's going to take a lot of hard work from this team, but we're on the right journey. So I'm very excited. So let's get into the presentation. I'm going to cover a couple of slides at the beginning, and then I'm going to hand over to Zaf to do the financial reporting. And then I'll take you through some of the operational issues that drove our performance this year. And then we'll end with a little bit of an outlook in terms of what we can see for the next six months. And then I'll kind of end off in terms of the strategy of where I want to see this group go for the next couple of years. So what I want to do is, and I know you've seen this slide before, but it's a slide that I developed or a structure that I developed and have been pushing hard over the last two years. And it's around how this group actually operates and the strategy driving Each of these businesses have a clear, defined strategy. Obviously it's supported by a group and it's underpinned by a group and it's driven by a group, but they're very different businesses. Very different businesses in terms of the way they run, very different businesses in terms of the key strategy. Obviously, the first pillar is the Lucky Star brand, which is all around that iconic Lucky Star brand. How we drive that brand, how we drive consumption, how we expand that brand. It was voted the number one township brand in South Africa this last year. It is iconic. The way that it's marketed, it's all around. People used to say it's a fishing company. It's not a fishing company. It's an FMCG brand-driven company. And the strategy around it is how do we take that thing further. There's always a bit of confusion. You'll notice this little red block in the middle there that covers fish meal and Lucky Star. And I think it's important for me to just explain why we have this little bit of confusion. In Lucky Star, we have two canneries. When you have a cannery, you have to have a fish meal plant. When you produce cans, you cut the head off, you cut the tail off, take some guts out and you put it into a fish meal plant. That fish meal plant is part of that business. So from a counting point of view, from a numbers point of view, we account for it in Lucky Star because we share resources, we share people, we share overheads. From a strategy point of view, it sits on the other side, in the fish meal. The strategy around fish meal. So we've got two businesses, and I'll talk about the second pillar. We've got the US business, which is a fish meal and oil business, and we've got the SA business, which is the two fish meal plants in South Africa. Those is all around growing consumption and growing output. And I'll talk a bit about, you'll see some slides about why we think that market is going to grow, and it's driven by the aquaculture industry, which has got massive upside. And we feed into that. We may not be directly in aquaculture, but indirectly we're in fish meal and oil. So those two fish mill plants sit in both sides of the fence, and that's the fish mill and oil business. And I'll talk a bit about where that business is going and what drove that business this year and where we see it going in the future. Now, on the far right-hand side is the wild-caught seafood, and that's human consumption seafood, where we are in a full value chain. We have vessels. We have factories. We have marketing. We've got sales. We've got accounting. All... deliver all catching finite resource, and that's a key difference between this business. It's a finite resource. We get a quota, we can only catch so much. And what we've got to do is try and add value. How do we take costs out of the business, make it effective to catch as effective as possible, and to drive value? And that's the key business, whether you're in hake or squid or horse mackerel or king clip, same principle, sold to different market, but the same key strategy. Again, just a high-level overview of where we are. We operate in five fishing geographies across the world, 36 customer geographies. About 50% of our revenue is in the SADC countries, obviously Lucky Star being the biggest one, but Horse Mackle, Some of the hake goes into the southern countries. Then in North America, that 15% represents the pet food market that our fish meal goes into. In Europe, obviously the fish oil is the Scandinavian salmon farmers that buy all our fish oil. Big market. But also all of our hake, squid, king clip, monk goes into the European market. In the Far East, obviously, lobster and aquaculture. A big driver of our revenue is the aquaculture industry in China and Thailand, Malaysia, where we supply fish meal into their farms. A little bit in Australia, which is hake. And then in Africa, the further part of Africa, a lot of our horse mackerel goes west, in particular in West Africa, Nigeria, DRC. We operate 33 vessels across the world, from a small little lobster vessel that's 12 meters long, has a crew of six, to a major mid-water trawler that's 110 meters long, has 120 people on board, full, almost like a cruise ship, that stays out to sea at a month at a time. So a wide range of vessels and factories. We've got five factories around the world. And we have employed just over 3,500 people. So a very diverse group in terms of geographies, currencies, species, and markets that we're sold to. And that is the strength of Oceana. And if you look at the performance this year, two of our businesses did extremely well, and one business struggled. It had some upside, but that's the beauty. We're not in one particular species like some of our competitors, that if that species doesn't do well, they suffer. Now, hopefully all of them will fire at some point together and hopefully none of them will not fire together as well. So it's part of the strategy and we will continue. And it's certainly some of the things we're looking forward is to continue that diversification strategy. Where else do we go within the context of what we are as a fishing company? When I was thinking about this presentation, I said, what are the key things that drove the performance this year? And I think these are the, I've tried to highlight the five key drivers of the performance. Firstly, the performance of Lucky Star. And this is really a phenomenal performance due to Lawrence and his team, and he's sitting there in an extremely difficult environment. If you look at most of the performances of FMCG companies in this country this year, they've all seen massive drops in volume, And they've seen drops in margin. So it's been very difficult to drive a volume strategy with a constrained consumer. And that's what we've seen in this country. Consumers are really struggling. And when we spoke last year and when we said, what are we going to do? The key was to drive volume, but the only way you can drive volume is to maintain pricing. So we've worked very, very closely with the trade. Lawrence is in terms of managing the trade and ourselves margined. when you're on an everyday selling price, normal selling price, you try and make sure that the trade don't take excessive margins. When you go on promotion, You go deep, and they put in, and we put in. And it's been very, very effective. So we've seen a 9% growth in volume in Lucky Star. Unusual. You'll see some stats just now about what they've done. With an acceptable drop in margin. We have taken a bit of a margin drop, but it wasn't acceptable. We accepted the number of 8.9% operating margin. If you look at some of the other FMCG companies, you see much bigger drops in margin, and they've taken a knock-in volume. And that strategy will continue. How do we... increase the consumption of pilchards, make it a wider consumption, eat more frequently, and extend the brand, the Lucky Star brand, not only in canned fish, but outside of canned fish. And I'll talk a bit about that. The second driver of the performance was obviously the fish oil price, phenomenal fish oil price. And we can't take credit for that. That happened to be circumstances that led to a shortage of oil worldwide. But what we did do well is we made sure we had the stock. So we spent a lot of money, and hopefully Bjorn is listening, but his team there in America really spent a lot of time over the last year making sure that that plant operated at an optimal level. We fish and process for seven and a half months in the year. That fish meal plant operates at 120 tons an hour, seven days a week. We switch off at about four o'clock on a Sunday, and we clean the plant, and we back up running eight, nine o'clock on a Monday. And that goes for seven and a half months flat out. They process 200,000 tons of fish meal through that plant. And in the seven and a half months, they had a total of 18 hours downtime. Now, we couldn't have taken advantage of this pricing if we hadn't done that. That's the key. When there's fish, and I always say you can't contract to the sea. When there's fish, you need to maximize it and turn it around in that plant. And some of the work we're going to do with Suleiman's businesses in the fish mill and all this, do exactly what we did in Daybrook. Drive that throughput. So that's the second point that... On the wild-caught side, tough year. But what was positive was that there is a strong demand for seafood worldwide. People are becoming more health-conscious. They want sustainable, particularly sustainable, the whole ESG drive that you are catching on a sustainable basis, that you're not depleting the resource. So across the board, in all of our species, we're almost at record prices, whether it be hake or horse mackerel or king clip or squid. So it has offset some of the negativity with catch rates, and I'll talk a bit about catch rates in Wildcourt now because they had a tough season. Fortunately, the pricing mitigated some of the increasing costs driven by poor catch rates. The fourth area is all about inventory management. And you could say that's a standard thing. All companies should manage inventory properly. But we made a conscious decision. Because of the nature of our fishing and the nature of... It's not something you can go and buy off the shelf. You have to plan that when there's fish, you can buy it. So the two areas we focused on. One was in Lawrence's business where we said... You remember in 2021, we came to that looting period. We had low stocks. We had to drive up and we spent, and it came at cost of working capital. We put a lot of stock into the system. When we opened the year with 3.2 million cartons, that's about four months stock. And that allowed us to drive that volume strategy because we knew we had the stock, the trade. Trade don't want to invest in something if you're going to run out of stock. They prepare to invest because they know that pulls people through their stores. So that focus has been in the stock management. And we've done it again this year. You'll see the figures later on. in terms of what we're opening this year with. And the second one was on the Daybrook side, where we had very good catches, we carried stock forward. And remember, our customers in Daybrook are not spot buyers. The two main buyers, one is the pet food market in the US, and they buy consistently. They plan their production. Blue Buffalo, one of our big customers, buys 4,000 tons of fish meal every month. He wants to know he's got 4,000 tons. If we do not carry stock across from one season to the next, remember we closed from November to April, he runs out of stock, he then will come up with a new formulation, which means he takes fish meal out of a particular product and finds an alternative protein, whether it's soya or bone meal. Once he does that, very hard to get back. So that is key for us to carry that stock and give it. For salmon farmers, there's been a massive growth in salmon farming throughout the world. Salmon has become very popular. It's farmed salmon. It's relatively inexpensive. You've seen sushi has become worldwide. And those salmon farms have just grown. And we're supplying those farms. And again, those farms buy oil from us because there is no alternative. The high amigas that we have in our oil, in manhattan and anchovy, aren't replaceable. So they need those on a regular basis. And it's to do with the health of the fish and the growth rate of the salmon. So again, we held stock at the end of last year to supply them into the new season. And the numbers came through. And then obviously, and Zaf will talk a little bit more about this, is managing a balance sheet. And obviously we've seen a number of companies that are given the high interest rates that are suffering with high levels of debt. And we've made a conscious decision to pay down some of that debt, both in the U.S., because of this windfall on the oil price and in the sale of the CCS. So that all went down, and you'll see our net debt and EBITDA levels have come down. So those are the key drivers. I'll go into a lot more detail after Zass' presentation, but I'm going to hand over to him to take you through the numbers. Thanks, Zass.

Thank you, Neville. It's a lot better to stand up here with a good set of results compared to the company that I came from. The less said about that, the better. Oceana has continued with its strong performance from the second half of last year and the first half of this year, despite the tough trading environment. The numbers presented exclude CCS Logistics, which was sold in April 2023 and has been treated as a discontinued operation. Detailed financial statements have been included in the appendix to this presentation and the results booklet, which is available on our website. Revenue from continuing operations increased by 23% to a record 10 billion rand. There was strong demand for affordable protein. Sorry, I need to move the slide . There we go. I'm not going to start again. I was practicing talking to my microwave last night. Revenue from continuing operations increased by 23% to a record 10 billion rand. There was strong demand for affordable protein and improved pricing across all products, particularly fish oil, as well as the effect of the weaker rand exchange rate on export and U.S. dollar translated revenue. To put this increased demand for protein in perspective, Lucky Star sold approximately 240 million cans in the SA market, which is equivalent of about 650,000 cans a day. Operating profit of 1.5 billion rand is the highest since 2016, our previous highest operating profit. This was driven by 39% profit growth of our US business, Daybrook, which delivered a record 810 million rand, exceeding last year's high of 584 million. The US contributed 56% towards operating profit for the group. Headline earnings per share was up 29% to 808.8 cents per share, supported by higher U.S. earnings, which is taxed at a lower rate, as well as the benefit of lower interest on debt. A final dividend of 305 cents per share has been declared, bringing the total dividend for the year to 435 cents per share, an increase of 26% on the 346 cents per share paid last year. The significant improvement in the group's net debt to EBITDA ratio from 1.7 times to 1.2 times is pleasing, given the current high interest rate environment in both countries, which provides capacity to grow, as well as fund future capex. On a five-year view, You can see the advantage of having a diversified business is evident in the consistent and significant revenue and operating profit growth, particularly over the past three years. This is primarily as a result of investment in the business to benefit from the continued strong demand and pricing across our product range, together with improved inventory levels. We have had two consecutive years of strong performance from Daybrook. Although it only contributes 27% of revenue, it now constitutes more than half of our operating profit. The contribution of the U.S. business has grown from 33% to 56% over the past five years. Our operating profit margin, which was impacted by cost pressures in South Africa and offset by Dave Rook's performance, remains healthy. The benefit of the diversification across species, geographies, and currencies enabled the group to absorb the impact of increasing input costs and remain resilient in a challenging operating environment, particularly in South Africa, which placed consumers under increased pressure. Operating profit grew 20%, driven by record earnings of 810 million from Daybrook. Although margins were under pressure in Lucky Star, it was still able to grow earnings by 4% to 496 million rand, benefiting from its focus on canned fish volume growth and strong commodity prices for fish meal and fish oil in the Africa business. The wild-caught business contributed R127 million, and following the commencement of our vessel upgrade program, is now a better place to take advantage of firm demand and pricing and expected improvements in catch rates. It is worth noting that the full impact of rising input costs in the canned fish business was not passed on to consumers as we adopted a strategy to maintain affordability, as mentioned by Neville. Margins were also negatively impacted by lower catch volumes and fish oil yields in both the SA and the U.S. fish meal and fish oil operations. In addition, we had poorer vessel utilization and catch rates in our SA hake and horse mackerel fleets and costs directly related to load shedding in our SA land-based operations. The group disposed of its interest in CCS logistics with effect from April 2023 and realized a profit of 477 million rand before tax, which is excluded from headline earnings per share. Net interest expense increased to 192 million rand, However, excluding interest related to lease liabilities of 38 million rand, the net interest expense reduced to 154 million compared to 168 million rand in the prior period due to term debt repayments during the year. The interest expense was adversely impacted by unhedged interest rate increases, the translation of US dollar interest at a weaker rand exchange rate, and higher SA short-term borrowings to replenish inventory levels. The decrease in the effective tax rate was due mainly to the mix of higher US earnings, which is taxed at a lower rate than SA earnings. Neville mentioned working capital. This is a key part of our business. Canned fish, fish meal, and fish oil represents the bulk of our inventory holdings. A large proportion of supply into our business is cyclical, which requires the maintenance of appropriate inventory levels and active working capital management throughout the year to meet demand for our products. Reported results in previous periods have been adversely affected by lower inventory levels, post-COVID supply chain disruptions, and the KZN civil unrest. As a result, we embarked on a program to build inventory during the prior year. This strategy will hold us in good stead, particularly considering the poor challenges currently being faced in SAE. Without the need to rapidly replenish stocks of raw fish in the current year, we were in a much better position to negotiate terms with our suppliers, with creditor days increasing from 55 days to 67 days. Lucky Star's working capital increased year on year, having reached optimal stock levels to meet growing consumption and to mitigate cyclicality of supply. Daybrook continued with its strategy of building stock during the fishing season to meet off-season contract commitments to May 2024. From a capital expenditure point of view, during the past two years, we invested significantly in optimizing plant throughput and vessel utilization in the US, which has been a major contributing factor in our ability to benefit from record prices. We invested a further 37 million rand before the 2023 fishing season, which contributed to our ability to achieve production rates of over 120 tons per hour with only 18 hours of downtime. In South Africa, we invested 54 million rand in our canned fish and fish meal production facilities and 61 million rand on the construction of the new canned meat facility, both on the West Coast. The new canned meat factory in St. Helena Bay has been commissioned in the new financial year, enabling Lucky Star to continue to leverage both brand strength and depth of distribution into new canned food categories. With the confidence to invest post the FRAP process, we commenced our program to upgrade and enhance our Hague fishing fleet and spent 106 million Rand on the Beatrice Medrine, our flagship Hague trawler during the year. Later in the presentation, you'll see a beautiful picture of the Beatrice. The balance of the capital expenditure was largely replacement in nature. Going forward in South Africa, we are applying the learnings from our U.S. operation as we expand capacity in our West Coast fish meal and fish oil business. We also have significant compliance-related capex, including refrigeration conversion of our fleet, and we will look to improve capacity at the same time as we have done in the past. This will require incremental capex of 600 million rand, phased over three years, which will be managed with due regard to market conditions. Neville mentioned our debt position. The group settled 767 million Rand term debt during the year, compared to 220 million in the previous year, in line with our debt reduction plan. We ended the year with net debt of 2 billion Rand compared to 2.6 billion in 2022, mainly due to term debt settlement, partially offset by higher working capital requirements in SA and the translation of US dollar debt at a weaker exchange rate. Gross debt reduced by 22% in SA and by 21% in the US. The $21 million repayment in the U.S. included a $15 million prepayment and refinance of the remaining debt on more favorable terms. We are fully hedged on U.S. debt until September 2024 and currently receive interest on excess cash at 4.4% compared to interest that we pay at a hedge rate of 2.75%, benefiting from the removal of some covenant requirements of the previous facility. The significant improvement in the net debt to EBITDA ratio from 1.7 times to 1.2 times is particularly pleasing given the high interest rate environment in both the US and SA. This was achieved due to the 20% increase in EBITDA from 1.5 billion to 1.8 billion, while net debt reduced at the same time by 21%. From a five-year point of view, in terms of looking at our debt and how it's progressed over that period, Over the past five years, we have reduced gross debt by R1.2 billion, excluding the exchange rate impact on U.S. debt, which is a further R300 million. This is now our lowest debt position since the Daybrook acquisition in 2015. In the same period, we have significantly reduced our net debt to EBITDA from 2.2 times to 1.2 times. Due to our US rates being hedged, our strategy has been to also pay down SA debt due to high interest rates in South Africa. From a net cash perspective, the group delivered strong cash generation and significant improvement in free cash conversion to 82% in the current year, while the prior year was impacted by the increase in inventory. Daybrook's strong performance resulted in cash generated from operations after working capital changes, of approximately 1.2 billion rand. We generated 270 million more cash operating profit at 1.8 billion, which is a 17% increase compared to 2022. The net working capital movement represents cash utilized of 445 million in South Africa and cash generated of 291 million in the US. The group paid down 310 million rand in SA net debt and 368 million in US net debt during the current financial year. From a capital allocation point of view and looking at the priorities for us as we move forward, we are very pleased to have restored our working capital to satisfactory levels as we look to optimize this going forward and proactively manage our cyclical inputs in a tough operating environment. We will continue to reinvest in our business with a three-year phased CapEx program as we invest post-FRAP and grow the business to benefit from efficiencies and firmer product demand and pricing. Dividends will continue to be based on operating performance, CapEx requirements and debt levels, taking cognizance of market expectations. The group will continue to manage debt prudently We will take SA and U.S. interest rates and currency differentials into consideration, bearing in mind our U.S. interest rate hedge ends in September 2024, as well as the likelihood that interest rates in both countries are expected to decline in the medium term. We will also continue with our strategy of creating balance sheet capacity for organic and acquisitive growth. I would like to hand back to Neville, who will go through our operational performance. Thank you.