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Oceana CEO sees food prices rising

• The fishing company reports record sales of the Lucky Star brand

Katharine Child and Nico Gous

SA food prices will continue their upward trend, Oceana CEO Neville Brink says. Speaking at the presentation of the fish producer’s interim results, the Lucky Star brand’s CEO emphasised how SA’s biggest fish producer was trying to keep canned pilchard prices lower than cost inflation, to ensure poorer South Africans have access to protein.

SA food prices will continue their upward trend says Oceana CEO Neville Brink.

Brink was speaking at the presentation of the fish producer’s interim results. The Lucky Star brand’s CEO emphasised how SA’s biggest fish producer was trying to keep canned pilchard prices lower than cost inflation, to ensure poorer South Africans have access to protein.

“I certainly don’t think food inflation is going to stop over the next couple of months,” Brink said. Food inflation had not yet peaked.

SA food price inflation hit 14% in March this year, the highest since March 2009. Cashstrapped consumers are buying down or avoiding certain foodstuffs, according to SA’s largest food producer Tiger Brands.

While prices of international commodities such as vegetable oil, maize and wheat fell, Brink said the petrol price will rise due to rand weakness. The cost of power cuts has not yet been fully reflected in food prices.

“What’s driving a large portion of inflation in this country is load-shedding. And it’s going to get worse going into winter. It’s affecting every single manufacturing [facility].”

He said there was 14% food inflation in Europe with it even higher in the UK. He expects food inflation to rise another five percentage points in SA before stabilising.

Simon Crutchley, CEO of AVI, which makes Bakers biscuits and Five Roses tea, said earlier this year he did not think food prices were fully reflecting the cost of load-shedding. He predicted increases as the cost of companies producing their own energy was recovered.

In the half year to end-March, the Lucky Star canned fish business, consisting mainly of pilchards, sold 20% more, reaching 5-million cartons with revenue up 38.4%. But the operating profit margin in the canned fish division fell from 9% in the prior period to 5.3%, as Lucky Star did not try to recover all input costs. It knows that if prices rise too high consumers will not buy the products.

The cost of cans, imported fish, transport and tomato paste, all rose faster than inflation.

Lucky Star imports about 90% of the fish used.

Brink said it was going to keep trying to grow volumes even as it made a lower profit per can. “We are as far as possible not going to increase the price. You will always have a moral obligation to try to keep the consumer fed. Food security in this country is a massive, massive problem.”

Canned fish is an affordable protein and does not need cooking or refrigeration, making it popular at spaza shops and during load-shedding.

Oceana makes the bulk of its money from its US fishing operation Daybrook, that it bought in 2015, where it catches Menhaden fish that are turned into fish meal and fish oil.

Fish meal is used in pet food, and the oil is used to feed farmed salmon, which is becoming more popular worldwide. This pushes up demand for omega 3 fish oil, which is in short supply.

About half off all salmon sold globally is now farmed, said Oceana CFO Zaf Mahomed.

Fish oil prices rose 60% in the period and fish meal prices 11%. Daybrook achieved operating margins of almost 35%, its highest since Oceana bought it.

This diversification of Oceana divisions and its ability to earn in dollars allows it to keep SA prices competitive, said Brink.

Smalltalk daily analyst Anthony Clark said Oceana produced a good set of results and predicted an even better second half as input costs for pilchards fall. Clark and the business expect sales in the US fish oil and feed business to rise as they usually do in the second half.

Oceana more than doubled its interim dividend to 130c. Gross profit (revenue minus cost of sales) leapt 47% to R1.22bn.

Net profit more than doubled to R384.65m and headline earnings per share for continuing operations, a common profit measure in SA that excludes certain items, soared by 123% to 313.5c.

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2023-06-06T07:00:00.0000000Z

2023-06-06T07:00:00.0000000Z

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