Preliminary Summarised Consolidated Audited Results For The Year Ended 30 September 2017
Oceana Group Limited
Incorporated in the Republic of South Africa
(Registration number 1939/001730/06)
JSE Share Code: OCE
NSX Share Code: OCG
ISIN Number: ZAE 000025284
("Oceana" or "the company" or "the group")
PRELIMINARY SUMMARISED CONSOLIDATED AUDITED RESULTS
FOR THE YEAR ENDED 30 SEPTEMBER 2017
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2017
Audited Audited
Year Year
ended ended
30 Sept 30 Sept
2017 2016 Change
Notes R'000 R'000 %
Revenue 6 807 927 8 243 988 (17)
Cost of sales 4 360 013 5 051 014 (14)
Gross profit 2 447 914 3 192 974 (23)
Sales and distribution expenditure 548 078 599 036 (9)
Marketing expenditure 48 299 62 702 (23)
Overhead expenditure 795 533 1 022 029 (22)
Net foreign exchange loss/(gain) 60 940 (72 723) (184)
Operating profit before associate and joint venture income 995 064 1 581 930 (37)
Associate and joint venture income 6 364 47 561 (87)
Operating profit before other operating items 1 001 428 1 629 491 (39)
Other operating income/(expense) items 3 8 701 100 187 (91)
Operating profit 1 010 129 1 729 678 (42)
Investment income 29 248 22 089 32
Interest paid (372 405) (385 202) (3)
Profit before taxation 666 972 1 366 565 (51)
Taxation 187 622 408 276 (54)
Profit after taxation 479 350 958 289 (50)
Other comprehensive (loss)/income
Items that may be reclassified subsequently to profit or loss:
Movement on foreign currency translation reserve (145 763) 716
Movement on foreign currency translation reserve from associate and
joint ventures (8 234) (24 847)
Movement on cash flow hedging reserve 9 438 (49 517)
Movement on fuel hedging reserve 1 757
Income tax related to loss recognised in equity 70 2 508
Other comprehensive loss, net of taxation (144 489) (69 383)
Total comprehensive income for the year 334 861 888 906 (62)
Profit after taxation attributable to:
Shareholders of Oceana Group Limited 468 310 916 446 (49)
Non-controlling interests 11 040 41 843 (74)
479 350 958 289 (50)
Total comprehensive income attributable to:
Shareholders of Oceana Group Limited 323 821 847 063 (62)
Non-controlling interests 11 040 41 843 (74)
334 861 888 906 (62)
Earnings per share (cents)
- Basic 401.3 785.8 (49)
- Diluted 366.5 715.5 (49)
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 September 2017
Audited Audited
30 Sept 30 Sept
2017 2016
Notes R'000 R'000
ASSETS
Non-current assets 6 493 594 6 735 686
Property, plant and equipment 1 604 099 1 669 373
Intangible assets 4 434 878 4 605 275
Derivative assets 4 1 837 7 636
Deferred taxation 27 616 27 714
Investments and loans 425 164 425 688
Current assets 3 549 631 4 371 115
Inventories 1 201 049 1 393 337
Accounts receivable 1 071 444 1 551 170
Taxation 55 098 113 666
Cash and cash equivalents 1 222 040 1 312 942
Total assets 10 043 225 11 106 801
EQUITY AND LIABILITIES
Capital and reserves 3 756 629 4 007 699
Stated capital 1 184 194 1 188 680
Foreign currency translation reserve 265 912 419 909
Capital redemption reserve 130
Cash flow hedging reserve (12 148) (21 656)
Share-based payment reserve 92 586 102 083
Distributable reserves 2 134 148 2 215 919
Interest of own shareholders 3 664 692 3 905 065
Non-controlling interests 91 937 102 634
Non-current liabilities 3 924 245 5 121 783
Liability for share-based payments 17 019 100 126
Long-term loan 3 209 875 4 145 142
Derivative liabilities 5 6 283 176 301
Deferred taxation 691 068 700 214
Current liabilities 2 362 351 1 977 319
Accounts payable and provisions 1 221 941 1 341 938
Current portion - long-term loan 954 026 584 652
Current portion - derivative liabilities 5 164 181
Taxation 22 203 50 729
Total equity and liabilities 10 043 225 11 106 801
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2017
Audited Audited
Year Year
ended ended
30 Sept 30 Sept
2017 2016
R'000 R'000
Balance at the beginning of the year 4 007 699 3 564 286
Total comprehensive income for the year 334 861 888 906
Profit after taxation 479 350 958 289
Movement on foreign currency translation reserve (145 763) 716
Movement on foreign currency translation reserve from associate and joint ventures (8 234) (24 847)
Movement on cash flow hedging reserve 9 438 (49 517)
Movement on fuel hedging reserve 1 757
Income tax related to loss recognised in equity 70 2 508
Decrease in treasury shares held by share trusts 1 235 1 281
Share-based payment expense 9 664 28 973
Share-based payment exercised (24 740)
Profit on sale of treasury shares 1 153 1 136
Non-controlling interest on disposal of business (56)
Oceana Empowerment Trust dividend distribution (29 734) (24 632)
Dividends (543 509) (452 195)
Balance at the end of the year 3 756 629 4 007 699
Comprising:
Stated capital 1 184 194 1 188 680
Foreign currency translation reserve 265 912 419 909
Capital redemption reserve 130
Cash flow hedging reserve (12 148) (21 656)
Share-based payment reserve 92 586 102 083
Distributable reserve 2 134 148 2 215 919
Non-controlling interests 91 937 102 634
Balance at the end of the year 3 756 629 4 007 699
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 September 2017
Audited Audited
Year Year
ended ended
30 Sept 30 Sept
2017 2016
Notes R'000 R'000
Cash flow from operating activities
Operating profit before associate and joint venture income 995 064 1 581 930
Adjustment for non-cash and other items 151 605 144 647
Cash operating profit before working capital changes 1 146 669 1 726 577
Working capital changes 560 579 (95 483)
Cash generated from operations 1 707 248 1 631 094
Investment income received 37 966 86 470
Interest paid (344 895) (337 497)
Taxation paid (148 456) (707 658)
Special distribution of profits to Oceana Empowerment Trust Beneficiaries (15 469)
Dividends paid (573 243) (476 827)
Net cash inflow from operating activities 678 620 180 113
Cash outflow from investing activities (191 097) (56 352)
Replacement capital expenditure (139 746) (196 424)
Expansion capital expenditure (14 730) (13 883)
Replacement of intangible assets (38 772) (31 281)
Proceeds on disposal of property, plant and equipment 15 900 1 382
(Payment)/proceeds on disposal of non-current assets held for sale 6 (2 900) 114 314
Proceeds on disposal of businesses 73 371
Movement on loans and advances (11 167) 6 564
Increased contribution to joint venture (10 078)
Decrease/(increase) of investment 318 (317)
Cash (outflow)/inflow from financing activities (553 613) 1 954
Proceeds from issue of share capital 2 387 2 417
Short-term borrowings repaid (831 260) (281 438)
Long-term loan raised 300 000 300 000
Equity-settled share-based payment (24 740)
Cost associated with debt raising (19 025)
Net (decrease)/increase in cash and cash equivalents (66 090) 125 715
Net cash and cash equivalents at the beginning of the year 1 312 942 1 181 273
Effect of exchange rate changes (24 812) 5 954
Net cash and cash equivalents at the end of the year 1 222 040 1 312 942
NOTES TO THE SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 September 2017
1. BASIS OF PREPARATION
The summarised consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings
Requirements for preliminary reports, and the requirements of the Companies Act, 71 of 2008, applicable to summary financial
statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and
the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial
Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of the consolidated financial statements, from which the summary consolidated
financial statements were derived, are in terms of International Financial Reporting Standards and are consistent with those
accounting policies applied in the preparation of the previous consolidated annual financial statements.
The summarised financial information was prepared under the supervision of the chief financial officer, I Soomra CA(SA).
The auditors, Deloitte & Touche, have issued their unmodified audit opinion on the consolidated financial statements for the year
ended 30 September 2017. The audit was conducted in accordance with International Standards on Auditing. These preliminary
summarised financial statements have been derived from the consolidated financial statements, with which they are consistent in
all material respects. These preliminary summarised financial statements have been audited by the company's auditors who have
issued an unmodified opinion. Copies of the audit reports and the full consolidated financial statements are available for inspection
at the company's registered office. The audit report does not necessarily cover all the information contained in this announcement.
Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's work they should obtain
a copy of that report together with the accompanying financial information from the company's website or from the registered office
of the company.
Any reference to future financial performance included in this announcement has not been reviewed or reported on by the
company's auditors.
Canned Fishmeal Commercial
fish and and Horse Lobster cold
fishmeal fish oil mackerel and storage and Deferred
2017 (Africa) (USA) and hake squid logistics taxation Financing(3) Total
Segment R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
2. SEGMENTAL
RESULTS
Operating results
Revenue 3 768 707 1 438 605 1 054 153 144 907 401 555 6 807 927
Operating profit before other
operating items 276 622 390 230 197 559 37 827 99 190 1 001 428
Other operating items 11 601 (2 900) 8 701
Operating profit 288 223 390 230 197 559 37 827 96 290 1 010 129
Investment income 19 792 7 7 907 54 1 488 29 248
Interest paid (277 276) (88 843) (6 027) (37) (222) (372 405)
Profit before taxation 30 739 301 394 199 439 37 844 97 556 666 972
Taxation (11 142) 94 333 59 886 10 540 34 005 187 622
Profit after tax for the year 41 881 207 061 139 553 27 304 63 551 479 350
The above profit for the year
includes the following:
Depreciation
and amortisation 61 170 95 187 55 834 2 741 20 906 235 838
Statement of
financial position
Total assets 1 888 696 5 964 460 545 056 39 322 241 036 27 616 1 337 039 10 043 225
Total liabilities 647 896 435 671 232 444 29 944 68 313 691 068 4 181 260 6 286 596
The above amounts of
assets and liabilities include
the following:
Interest in associate and
joint ventures 127 530 182 209 1 309 740
South
Africa and Other North
2017 Namibia Africa America Europe Far East Other Total
Region R'000 R'000 R'000 R'000 R'000 R'000 R'000
Revenue(1) 3 641 248 412 486 1 137 749 753 315 623 775 239 354 6 807 927
Non-current assets(2) 888 863 5 150 114 6 038 977
Canned Fishmeal Commercial
fish and and Horse cold
fishmeal fish oil mackerel Lobster storage and Deferred
2016 (Africa) (USA) and hake and squid logistics Disposed taxation Financing(3) Total
Segment R'000 R'000 R'000 R'000 R'000 operations(4) R'000 R'000 R'000
Operating results
Revenue 4 275 576 1 930 923 1 227 310 136 622 434 780 238 777 8 243 988
Operating profit before other
operating items 528 464 668 152 269 384 21 145 132 430 9 916 1 629 491
Other operating items 28 707 14 863 180 56 437 100 187
Operating profit 557 171 668 152 284 247 21 325 188 867 9 916 1 729 678
Investment income 18 413 68 2 919 312 377 22 089
Interest paid (285 649) (95 695) (3 597) (14) (239) (8) (385 202)
Profit before taxation 289 935 572 525 283 569 21 623 189 005 9 908 1 366 565
Taxation 85 081 186 756 74 843 6 991 52 112 2 493 408 276
Profit after tax for the year 204 854 385 769 208 726 14 632 136 893 7 415 958 289
The above profit for the year
includes the following:
Depreciation
and amortisation 62 771 104 210 62 857 2 904 26 203 1 440 260 385
Statement of
financial position
Total assets 2 500 368 6 301 086 550 458 40 958 268 871 27 714 1 417 346 11 106 801
Total liabilities 829 927 413 793 289 200 25 455 90 170 700 214 4 750 343 7 099 102
The above amounts of
assets and liabilities include
the following:
Interest in associate and
joint ventures 138 415 181 420 828 1 320 664
South
Africa and Other North
2016 Namibia Africa America Europe Far East Other Total
Region R'000 R'000 R'000 R'000 R'000 R'000 R'000
Revenue(1) 4 305 056 480 669 1 218 840 1 139 988 959 091 140 344 8 243 988
Non-current assets(2) 873 666 5 400 982 6 274 648
The segments have been identified based on both the geographic region of primary group operations and the different products sold
and services rendered by the group.
Revenue excludes the following inter-segmental revenues in South Africa and Namibia which are eliminated on consolidation:
Canned fish and fishmeal R1.3 billion (2016: R1.2 billion), horse mackerel and hake R23.1 million (2016: R16.8 million) and
commercial cold storage and logistics R68.3 million (2016: R108.0 million).
Notes:
(1) Revenue per region discloses the region in which product is sold and services rendered.
(2) Non-current asset per region discloses where the subsidiary is located, includes property, plant and equipment and intangible assets.
(3) Financing includes cash and cash equivalents and loans receivable and payable.
(4) Disposed operations includes segmental information pertaining to the French fries operation (Lamberts Bay Foods Limited) and the CCS fruit
operation disposed of in the prior year.
Audited Audited
Year Year
ended ended
30 Sept 30 Sept
2017 2016
R'000 R'000
3. OTHER OPERATING INCOME/(EXPENSE) ITEMS
Transaction costs arising from business combination (2 040)
Profit on the disposal of immovable property 11 601
Loss on disposal of fishing vessel (3 536)
(Loss)/profit on disposal of non-current assets held for sale(1) (2 900) 74 836
Profit on disposal of business interests 31 521
Impairment of equipment (594)
8 701 100 187
Note:
(1) The R2.9 million relates to a claim settled in the current year in relation to the prior year sale of the CCS
fruit business.
Transactions outside the ordinary course of business that are substantially capital or non-recurring in nature and are identified by
management as warranting separate disclosure are disclosed under other operating items in the statement of comprehensive income.
These comprise profits or losses on disposal and scrapping of property, plant and equipment, intangibles assets and non-current assets held
for sale, impairments or reversal of impairments, profits or losses on disposal of investments, operations or subsidiaries and business
combination related costs or gains.
4. DERIVATIVE ASSETS
Non-current
Interest rate caps held as hedging instruments
Opening balance 7 636
Additions 18 569
Fair value adjustments recognised in profit or loss (ineffective portion) (243) (2 732)
Fair value adjustments recognised in other comprehensive income (effective portion) (5 556) (8 201)
Closing balance 1 837 15 837
Interest rate caps and swaps recorded in the cash flow hedging reserve, derivative assets and derivative liabilities are regarded as
level 2 financial instruments. Level 2 fair value measurements are those derived from inputs that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
The fair value of interest rate caps and swaps is calculated as the present value of the estimated future cash flows based on
observable yield curves.
Interest rate caps were executed in the prior year, with a maturity date of 20 July 2018 and 20 July 2020. Interest rate caps were
designated as cash flow hedges and executed to hedge the interest that is payable under various debt facilities with principal values
of R1 810 million. The amount of the principal value designated as a hedged item is R980 million. Gains or losses on interest rate
caps held as hedging instruments in designated and effective hedging relationships are recognised in other comprehensive income
and are reclassified to profit or loss in the same period that the hedge cash flows affect profit or loss.
Audited Audited
Year Year
ended ended
30 Sept 30 Sept
2017 2016
R'000 R'000
5. DERIVATIVE LIABILITIES
Opening balance 176 301 209 963
Loss recognised in other comprehensive income 246 6 513
Gain recognised in profit or loss (42 623)
Transferred to current liabilities (164 181)
Foreign currency translation adjustment (6 083) 2 448
Closing balance 6 283 176 301
Put option 170 053
Interest rate swap 6 283 6 248
Closing balance 6 283 176 301
The put option recorded in derivative liabilities is regarded as a level 3 financial instrument for fair value measurement purposes.
Level 3 financial instruments are those derived from inputs that are not based on observable market data (unobservable inputs).
The fair value of the put option is determined using discounted cash flow analysis.
In terms of the Westbank operating agreement the remaining shareholders of Westbank Fishing Limited Liability Company
("Westbank") could put their 75% equity stake in Westbank to Daybrook Fisheries Incorporated ("Daybrook") or its nominee for
a fixed price of USD31.5 million ("put option strike price"). Effective 1 November 2016, the Westbank Fishing Limited Liability
Company exercised the put option in terms of the Westbank operating agreement. The exercise of the put option triggers the
payment of the put option strike price plus the put option premium as well as any unpaid distributions on the put closing date,
being 15 November 2017. The put option derivative liability amounting to R 164.2 million has been classified as a current liability at
30 September 2017 due to the expected settlement thereof within 12 months from the end of the reporting date.
The put option liability was remeasured to fair value at 30 September 2017 by measuring the put option strike price plus the
put premium to the fair value of Westbank Fishing Limited Liability Company. Westbank Fishing Limited Liability Company was
valued using a discounted cash flow model and unobservable inputs including forecast annual revenue growth rates of 2.0%
(2016: 1.8% to 2.0%), forecast EBITDA margin of 18.0% and 22.2% (2016: 22.6% to 25.6%) and a risk-adjusted discount
rate of 7.8% (2016: 8.2%). A change in the discount rate by 1% would increase or decrease the fair value by R74.0 million
(2016: R70.0 million). No fair value adjustment (2016: R42.6 million gain) was recognised in operating profit.
The notional principal amount of the interest rate swaps at 30 September 2017 amounts to R938 million (2016: R1 136 million).
This comprises hedges on the term debt of R1 564 million (2016: R1 894 million). The swap is to hedge the interest that is
payable under the debt facility. During the period a fair value loss of R0.2 million (2016: R6.5 million) was recognised in other
comprehensive income.
Audited Audited
Year Year
ended ended
30 Sept 30 Sept
2017 2016
R'000 R'000
6. DISPOSAL OF NON-CURRENT ASSETS HELD FOR SALE
6.1 Seasonal fruit business (CCS)
The group disposed of the commercial cold storage fruit business in the prior year.
Non-current assets held for sale 13 163
Consideration (paid)/received (2 900) 69 609
Net (loss)/profit on disposal (2 900) 56 446
6.2 Vessel - Desert Rose
The group disposed of the Mfv Desert Rose fishing vessel in the prior year.
Non-current assets held for sale 26 315
Consideration received 44 705
Net profit on disposal 18 390
Net cash (outflow)/inflow from non-current assets held for sale (2 900) 114 314
Audited Audited
Year Year
ended ended
30 Sept 30 Sept
2017 2016
R'000 R'000
7. DETERMINATION OF HEADLINE EARNINGS
Profit after taxation attributable to shareholders of Oceana Group Limited 468 310 916 446
Adjusted for:
Profit on the disposal of immovable property (11 601)
Insurance proceeds (998) (1 330)
Profit on disposal of non-current assets held for sale (74 836)
Headline earnings adjustments - joint venture (1 144) (16 030)
Profit on disposal of business interests (31 521)
Profit on change of interest in investment (122)
Impairment of equipment 594
Net loss on disposal of property, plant and equipment and intangible assets 1 200 7 030
Total non-controlling interest on above 195 4 362
Total tax effect of adjustments 1 469 15 593
Headline earnings for the year 457 309 820 308
Headline earnings per share (cents)
- Basic 391.9 703.4
- Diluted 357.9 640.5
8. DIVIDENDS
Estimated dividends declared after reporting date 416 519
Dividends per share (cents) 90.0 469.0
Number of shares in issue net of treasury shares 116 753 116 672
Audited Audited
Year Year
ended ended
30 Sept 30 Sept
2017 2016
R'000 R'000
9. SUPPLEMENTARY INFORMATION
Amortisation 57 568 57 051
Depreciation 178 270 203 334
Operating lease charges 129 059 112 039
Share-based expenses 2 187 87 512
Cash-settled compensation scheme (7 475) 58 539
Equity-settled compensation scheme 8 999 26 600
Oceana Empowerment Trust 663 2 373
Capital expenditure 193 248 241 588
Expansion 14 730 13 883
Replacement 178 518 227 705
Budgeted capital commitments 161 047 226 708
Contracted 14 445 25 386
Not contracted 146 602 201 322
Audited Audited
number of number of
shares shares
'000 '000
10. ELIMINATION OF TREASURY SHARES
Weighted average number of shares in issue 135 526 135 526
Less: Weighted average treasury shares held by share trusts (13 732) (13 806)
Less: Weighted average treasury shares held by subsidiary company (5 094) (5 094)
Weighted average number of shares on which basic earnings per share and basic headline earnings
per share are based 116 700 116 626
Weighted average number of shares on which diluted earnings per share and diluted
headline earnings per share are based 127 769 128 076
11. RELATED-PARTY TRANSACTIONS
The group entered into various transactions with related parties in the ordinary course of business, on an arm's-length basis.
The nature of related-party transactions is consistent with those reported previously.
12. CONTINGENT LIABILITIES AND GUARANTEES
The group has given cross suretyships in support of bank overdraft facilities of certain subsidiaries and the company.
13. EVENTS AFTER THE REPORTING DATE
In terms of an addendum to the Westbank Fishing Limited Liability Company operating agreement entered into on 31 October
2017, the put closing date was extended to 15 February 2018 on which date the put option strike price (USD31.5 million) as well
as any unpaid distributions will be due for payment. In addition it was agreed that the put option premium (USD15.0 million) will
be paid no later than 15 January 2018. No other events occurred after the reporting date that may have an impact on the groups'
reported financial position at 30 September 2017 or require separate disclosure in these financial statements.
COMMENTS
FINANCIAL RESULTS
Oceana's financial performance for the year has primarily been impacted by a stronger rand, lower global fishmeal prices and a slowdown
in South African consumer spend.
Group revenue, from continuing operations, decreased by 15% to R6 808 million (2016: R8 005 million). Revenue gains
from improved pricing in most sectors has been materially offset by the negative effect of a stronger rand on export and foreign revenues,
and lower global fishmeal and fish oil prices. US Dollar revenue for 2017 was converted at an average exchange rate of R13.37/USD
compared to R14.79/USD for the comparative period.
Group operating profit before other operating items decreased by 39% to R1 001 million (2016: R1 629 million).
This decrease is primarily attributed to the revenue impact discussed above, and was further exacerbated by an adverse movement in net
foreign exchange, from a gain of R73 million in 2016 to a loss of R61 million in this reporting period. These movements were primarily
due to the effects of forward exchange contracts to cover the cost of imported frozen fish for our canned fish business. In addition,
material improvements in our cost base due to group-wide procurement efficiencies have been offset by reduced pilchard landings,
and lower CCS occupancies in Gauteng.
Net interest expense for the year is R343 million (2016: R363 million). The average interest rate for all debt is currently 7.3%
(2016: 7.1%).
Headline earnings for the year decreased by 44% compared to the prior year.
In the context of this year’s performance relative to the level of gearing in the Group the board considers it prudent to conserve cash
and forego the payment of a final dividend. It is anticipated that the Group will resume dividend payments in 2018.
FINANCIAL POSITION AND CASH FLOW
Cash generated from operations for the period has increased to R1 707 million (2016: R1 631 million) due to a R656 million
improvement in working capital utilisation offsetting the effect of lower operating profit. At year-end the group had positive cash
balances of R1 222 million (2016: R1 313 million) of which R749 million (2016: R735 million) is held in dollar denominated accounts.
At 30 September 2017 group net debt is R2 942 million (2016: R3 417 million) of which R949 million (2016: R1 099) million is
denominated in US dollars. The net debt to EBITDA ratio at September 2017 was 2.4 times (2016: 1.7 times).
REVIEW OF OPERATIONS
Canned fish and fishmeal (Africa)
The canned fish business experienced declining sales volumes in the first half of the year reflecting both the nature of the trading
environment and the timing effect of price increases in October 2016. Volumes in the second half improved on a relative basis reflecting
strong demand into the last quarter of the 2017 calendar year. On an overall basis, including export volumes, 7.9 million cartons of
canned fish were sold, compared to prior year's volumes of 9.4 million cartons. After adjusting for the impact on volumes of the price
increase effect on October 2016, normalised volume decline is 6% on the prior year.
The 2017 South African Total Allowable Catch (TAC) for pilchard was decreased to 45 560 tons (2016: 64 928 tons) and the Namibian pilchard TAC for
2017 was maintained at 14 000 tons. A difficult catching environment in the second half of the year, resulted in an increased reliance on
frozen fish imports to meet canned production demand. This ensured improved utilisation of local production capacity and the continuity
of supply of Lucky Star product. While margins on canned product from imported fish are more challenging, good progress was made
during the year in driving efficiencies in the supply chain and production processes. This had a positive impact on cannery overhead
recoveries, and also increased the hours worked and wages earned by factory employees.
Profitability in the canned fish business was further impacted by foreign exchange losses of R77.4 million (2016: R66.1 million foreign
exchange gain) attributed to forward exchange contracts to cover the cost of imported frozen fish.
While the pilchard resource remains under pressure, the South African anchovy resource recorded its highest recruitment level for
30 years, with the 2017 TAC increased to its maximum 450 000 tons (2016: 354 326 tons).
Landings of industrial fish to the group's fishmeal plants in South Africa and Angola were higher than prior year at 179 984 tons
(2016: 162 169 tons) which together with improved oil yields resulted in higher production volumes. Despite the higher volumes,
profitability declined due to the effect of the stronger rand and lower global fishmeal and fish oil prices as a consequence of higher global
production, particularly in Peru.
Fishmeal and fish oil (USA)
The 2017 Gulf menhaden fishing season, which runs from April to the end of October, has seen landings of 735 million fish, an increase
on the 686 million fish landed last year and is the second best seasonal catch on record.
Daybrook production of 55 406 tons fishmeal (2016: 50 994 tons) and 17 737 tons fish oil (2016: 27 545 tons) for the year resulted in a
combined production yield of 32.8% (2016: 37.3%). Oil yields at 7.6% were below the 12.5% historical average.
Fishmeal and fish oil pricing has come under pressure, as indicated above, resulting in a decline in average realised prices by 4% for
fishmeal and 13% for fish oil. Softer pricing, in addition to the material effect of reduced oil volumes, has contributed to an overall
revenue decline of 18% to USD107.2 million (2016: USD130.3 million).
Despite a strong focus on costs, revenue challenges have contributed to Daybrook's operating profit decline to USD29.1 million
(2016: USD45.4 million). The effect of the stronger rand has also contributed adversely when consolidating earnings into the group's
results with an operating profit contribution from Daybrook of R390 million (2016: R668 million).
Horse mackerel and hake
The 2017 Namibian horse mackerel TAC increased by 1.5% to 340 000 tons (2016: 335 000 tons). The Ministry of Fisheries and Marine
Resources has allocated the full TAC for the 2017 fishing season. Our allocation for the period was 24 717 tons (2016: 26 265 tons).
The Precautionary Maximum Catch Limit (PMCL) for targeted catch of South African horse mackerel decreased by 27.0% to 28 231 tons
(2016: 38 656 tons).
Sales volumes in Namibia have been negatively impacted by reduced sea days arising from statutory maintenance for both vessels operating in
Namibia during the period. However, the fleet has continued to perform well in terms of landings, efficiency, product quality and cost management
and this has translated into consistent operating margins over the period.
In South Africa, the Desert Diamond catch rates continued to improve over the period. Good size mix has contributed to improved price
realisation, despite the effect of a stronger rand on USD horse mackerel prices. As a result, profitability of the Desert Diamond has been
restored in this financial year.
In May 2017, the provisional outcome of the Fishing Rights Application Process (FRAP) process was announced, proposing a 28.0%
reduction in the allocation to existing rights holders. Consequently, quota available to Oceana through own and joint venture allocations
decreased to 24.3% (2016: 34.7%) of the PMCL. This allocation is presently under appeal.
The 2017 hake TAC reduced by 4.7% to 117 194 tons (2016: 123 020 tons). Hake landings declined by 6% on a relative basis as a
result of lower vessel utilisation caused by unanticipated breakdowns. Firmer European prices driven by strong demand have been
countered by the effects of a stronger rand. Revenue and operating profit were consequently lower than the prior year.
Lobster and squid
The 2017 TAC for West Coast Rock Lobster (WCRL) remained unchanged at 1 924 tons. Quota available to Oceana for the current season
was 256 tons (2016: 264 tons). In July 2017, the provisional outcome of the FRAP process was announced, proposing a 30% reduction
in the offshore commercial TAC for existing WCRL rights holders.
Lobster catch volumes improved by 15% year-on-year due to improved catch performance and vessel scheduling which mitigated the
effect of the decrease in the offshore TAC allocation. Revenue declined however, due to weaker Chinese live lobster prices and the effect
of the stronger rand. Despite lower revenue, a strong focus on cost management resulted in the lobster business delivering an increased
operating profit.
Fishing rights allocated to the squid business remained unchanged over the period. The squid business reported a third consecutive year
of strong results, reflecting improved biomass availability and catches, as well as enhanced operational efficiencies.
Commercial cold storage and logistics (CCS)
CCS coastal facilities have delivered growth for the year due to improved business with third parties. However, the performance of the division
has been materially affected by a more competitive environment in Gauteng due to excess capacity. In addition, the Western Cape region
saw a reduction in the storage of frozen fish following improved inventory management by the canned fish business.
As a result revenue and operating profit have declined on the prior year.
PROSPECTS
Africa operations
Our African operations are well-positioned to deliver growth in the year ahead. In South Africa we expect recent improved demand in canned
fish to continue into the new year. However, production costs in the canned fish business could be negatively impacted by a weaker rand and
lower local pilchard landings. Improved vessel utilisation across all our divisions will be a focus area while CCS will continue to expand
customer service offerings and endeavour to consolidate its position in Gauteng. In Namibia, we are committed to ensuring that we satisfy
government expectations and regulatory requirements for quota renewal.
USA operations
The strong volume performance at Daybrook this year, despite lower prices and oil yields, reinforces our view regarding the potential of
this resource. There are signs of a recovery in both fishmeal and fish oil pricing with global demand being stimulated by lower prices
and improved demand in Asia. Daybrook's performance for the first half of the year will continue to be impacted by lower prices due to
forward sale contracts, which is normal practice, concluded on approximately 70% of inventory on hand at the financial year-end.
The exit of our current fishing partners in Westbank, which was scheduled to coincide with the end of the 2017 fishing season, has been
extended until 15 February 2018. The process of finalising a suitable US-based partner for the 75% equity stake in Westbank is ongoing
and the process is expected to be concluded prior to the commencement of the 2018 fishing season.
We will continue to leverage on our size to make Oceana a more efficient business. Balance sheet strength and improved profitability are
key focus areas for the year ahead.
Any forward-looking statements set out in this announcement have not been reviewed or reported on by the auditors.
On behalf of the board
MA Brey FP Kuttel
Chairman Chief executive officer
Cape Town
16 November 2017
By order of the board
JC Marais
Company secretary
16 November 2017
DIRECTORATE AND STATUTORY INFORMATION
Directors: MA Brey (chairman), FP Kuttel* (chief executive officer), ZBM Bassa, PG de Beyer, NP Doyle,
GG Fortuin, LC Mac Dougall, S Pather, NV Simamane, I Soomra* (* Executive)
Change to Directors: PB Matlare resigned from the Board of Directors effective 16 February 2017
Registered Office: 9th Floor, Oceana House, 25 Jan Smuts Street, Foreshore, Cape Town, 8001
Transfer Secretaries: Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Bierman Avenue, Rosebank, Johannesburg, 2196
(PO Box 62053, Marshalltown, 2107)
Sponsor - South Africa: The Standard Bank of South Africa Limited
Sponsor - Namibia: Old Mutual Investment Services (Namibia) Proprietary Limited
Auditors: Deloitte & Touche
Company Secretary: JC Marais
JSE share code: OCE
NSX share code: OCG
ISIN: ZAE000025284
Date: 16/11/2017 05:30:00
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