Favourable prices could not salvage Oceana’s earnings as it reports 12.5% decline in HEPS

SOUTH AFRICA – Oceana Group, one of Africa’s largest fishing groups, has reported an 8.1% decline in revenue for the year ended 30 September 2021 to R7.633 billion (US$505m).

This is attributed to lower canned fish, fishmeal and fish oil sales volumes, lower occupancy levels in the commercial cold storage segment, and a stronger exchange rate on export and US dollar translated revenue.

The decline in earnings was offset by favourable pricing across most products but higher fixed cost absorption from lower fresh fish landings impacted gross margins, which reduced to 33.7%

Its operating profit declined by 14.3% to R1.185 billion (US$78m) with Headline earnings decreasing by 11.2% to R652 million (US$43m) with headline earnings per share down by 12.5% from 628.4 cent per share to 550 cents per share.

Looking at its canned fish and fishmeal business, it realised a 5% dip in sales in South Africa, partially offset by an 11% increase in the SADC and rest of Africa based on improved demand.

Meanwhile, fishmeal and fish oil unit in USA registered 36% drop in operating profit as result of lower catch rates and lower production volumes.

The decline in revenue and operating profit was exacerbated by an 11% strengthening of the rand.

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Horse mackerel, hake, lobster and squid segment delivered 11% growth in operating profit, driven by strong demand for fresh fish.

Its Commercial Cold Storage and logistics (CCS) performed well as careful cost management and increased revenue per pallet offset supply chain disruptions and global container shortages.

According to Oceana, the group’s underlying performance for the year was negated by extraneous events to include disruptions of Lucky Star canned fish operations by civil unrest and looting in KwaZulu-Natal (“KZN”) and also its USA operations were affected by Hurricane Ida, which made landfall on 29th August 2021.

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Oceana in the clear

Release of the financial results comes after a delay of almost five months.

Oceana had postponed the publication of the results following concerns by a whistle-blower regarding the accounting treatment of US-based Westbank Fishing.

The company instituted a forensic investigation, which was conducted by ENSafrica.

Last month, Oceana’s auditor PwC raised yet another concern, this time regarding the dating of signatures on an internal document for a US$4 million (~R60.5 million) insurance claim, leading to another delay.

“ENS Forensics performed a comprehensive review and was able to confirm no further impact to the consolidated financial statements as a result of the backdating of any insurance claims.

“However, the investigation did identify other instances of backdating, although none of those instances impacted the annual financial statements,” said Oceana.

The group said it views the document backdating in “serious light” and will undertake disciplinary action and training to address the issue.

Oceana added that the investigations concluded that none of the issues that were investigated resulted in financial loss and there was no evidence of fraud or criminal conduct.

The matter at hand has so far led to the resignation of its CEO, Imraan Soomra and Company Secretary, Adela Fortune. Its Chief Financial Officer Hajra Karrim was also put on a “precautionary” suspension.

Oceana excepts further dip in earnings

Looking into the future, Ocean’s basic headline earnings per share (HEPS) and basic earnings per share (EPS) for the half-year period ending 31 March 2022 are expected to be more than 20% lower than in H1 2021.

This is mainly due to lower opening fishmeal and fish oil inventory and exceptionally low canned fish inventory levels resulting from last year’s civil unrest and ongoing global supply chain constraints.

The company has also experienced low horse mackerel and squid catches due to La Niña weather conditions.

Local and global market demand and pricing remain strong across all operating segments, which will drive performance in the second half of the year (ending 30 September 2022), traditionally the stronger half.

Uncertainty about the effect of the Ukraine war on oil prices could, however, increase operational cost pressures.

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