Clever move surmounts adversity and expense

The market seemed to be in two minds over prospects for diversified fishing group Oceana prior to the release of its year to end September results.

With no trading statement to navigate by, some difference of opinion was inevitable.

Sentiment in the fishing industry thrives on anecdotal evidence around potential performance. Oceana’s diversity has usually allowed the company to smooth out choppy periods, but this year dark mutterings suggested that the usually dependable company was struggling to net decent catch rates in its key horse mackerel segment. In the end the old salts were spot on about Oceana’s travails in that department, which in recent years has ranked as a star performer. Audited results showed profits dropped almost 40% in the horse mackerel and hake division to R211m after poor catch rates in South African waters and a higher cost attached to Namibia imports.

What is worrying is that Oceana hasn’t been able to locate viable schools of horse mackerel in familiar fishing grounds. Such species migration does hit the fishing industry every so often, and there is not much that can be done about it.

At least the rest of the fishing business managed profitable hauls. Oceana’s canned pilchards business, Lucky Star — a protein staple in millions of local households — and fishmeal segment looked robust, with revenue increasing 10% to R3,4bn and operating profit rising a wholesome 19% to R453m.

But on closer examination it seems Lucky Star’s volumes dragged in the second half after belated consumer resistance to a price increase in January this year. In fact, the margin gains in this division were due largely to higher landings of industrial fish to the fishmeal plants (which boosted production efficiencies and lowered the cost of manufactured product).

Fishmeal profits were also helped by the weaker rand and strong global pricing.

Fortunately, there was an unexpected catch. What the market was not counting on was the extremely encouraging profit donation by recently acquired US-based fishmeal and fish oil specialist Daybrook Fisheries.

Daybrook, which was officially acquired on July 1 for US$382m, contributed for just three months of Oceana’s financial year. But the initial profit was a better than expected R180m from stout revenues of R574m.

Though it’s probably not wise to try “annualising out” three months’ performance of a seasonal fishing business, the initial revenue and operating profit line from Daybrook does seem to confirm that predictions for a 12-month Ebitda number of $45m are not unreasonable.

It may be a bit premature to ask whether Daybrook could be a game changer for Oceana. But it’s worth noting that Daybrook exceeded production targets by 20% by landing 650m Gulf