Picture: AFP/Frilet Patrick/hemis.fr/Hemis
Picture: AFP/Frilet Patrick/hemis.fr/Hemis

When a financial director steps into the role of CEO, there is usually a well-grounded suspicion that the firm’s strategic focus will rapidly turn inwards. Belts will be tightened to bolster cash flows, acquisitive tilts abandoned to build up margins, operations "right-sized" for efficiencies, and noncore assets hived off so that management can focus on the most profitable assets.

That said, the recent — and well-deserved — elevation of Imraan Soomra from FD to CEO of Africa’s largest fishing group, Oceana, won’t have shareholders rushing for the lifeboats for fear of a wave of operational consolidation.

Soomra is seen as a capable hand on the tiller. An executive of a rival fishing company says Soomra is a strong implementer who worked well with former CEO Francois Kuttel (now the owner of the majority stake in Oceana’s fishing partner in the US). "He learnt the fishing business very quickly, and always had [Kuttel’s] back. He is as hard as nails when it comes to business … I’ve seen that personally."

A focus on cash flows, margins and streamlining Oceana’s operating structure is a given in tricky trading conditions. But Soomra remains intent on looking expansively in international waters.

What is also apparent is the dogged determination to eke out organic growth from the SA operations, which span pilchard canning, hake, horse mackerel, squid, west coast lobster and cold-storage services.

In an interview last week, Soomra stressed that there are no plans to steer the business in a dramatic new direction.

So, realistically, it would be safe to bet on Oceana pursuing more selective offshore acquisitions to complement its promising Daybrook Fisheries fishmeal and fish oil operation in the US state of Louisiana.

These will include attempts to snag fishing assets that are not restricted or influenced by quotas. So it should not be too long before Oceana drops a line into the well-diversified aquaculture sector — most likely pitching for an established cash-generative business before casting out for more fledgling operations.

Soomra, though, will need to be vigilant at the wheel as Oceana trawls in increasingly difficult SA waters.

The key challenge locally is the upcoming 2020 long-term fishing rights allocation process. Talk around the docks is that the department of agriculture, forestry & fisheries is determined to spread quotas among newer — and smaller — players.

Soomra believes that though Oceana is the "big fish" in local waters, there is a compelling case for the group retaining its fishing rights.

Industry observers are adamant that when it comes to the larger commercial fishing enterprises, only the players with the strongest empowerment credentials are likely to emerge from the process without marked quota cuts.

Lately, a number of previously "white-owned" fishing counters have sold controlling stakes to black-controlled companies. These include the Saldanha Group (TerraSan), Pioneer Fishing (Stephen Dondolo’s African Pioneer Group), Port Elizabeth-based squid specialist Talhado (African Equity Empowerment Investments-controlled Premier Fishing) and Viking Fishing (Brimstone-controlled Sea Harvest).

But Oceana’s local dealmaking efforts in recent years have betrayed some reluctance by authorities to fully credit the group’s empowerment efforts. Certain parts of the deals with Lusitania and Foodcorp’s fishing assets faced resistance or were blocked.

A serious perception problem is that household goods conglomerate Tiger Brands still holds a dominant 42% stake in Oceana. Though Tiger clearly doesn’t have the run of the boardroom these days, that holding remains a huge impediment to Oceana being perceived as a strongly empowered company — especially when listed rivals such as Sea Harvest and Premier Fishing are largely regarded as "black-controlled" enterprises.

In truth, Oceana has done much for furthering empowerment, even though these efforts are not reflected in the share register. Workers have shared in Oceana’s solid wealth creation over the past decade, and some have become influential players in the local fishing sector.

Officially, the share register reflects that Brimstone, which controls Sea Harvest, holds a 7% stake in Oceana, with another 10% held by the Oceana Empowerment Trust (OET).

Just to add some perspective, the value of the OET stake in Oceana is roughly the same size as the market capitalisation of Premier Fishing. In other words, the quantum of empowerment is unquestionably large.

Still, one can’t help but feel the Tiger stake will raise a red flag in the upcoming fishing rights allocation process. One possible way around this (and this assumes Tiger Brands is willing to sell all or part of its stake) is to allow Brimstone — most likely heading a broad-based empowerment consortium — to increase its effective stake in Oceana to a controlling level. That, however, is easier said than done.

Aside from balance sheet considerations, Brimstone may feel that taking a markedly bigger stake in Oceana overexposes its portfolio to the fishing sector. The authorities may also regard Brimstone’s controlling or influential stake in both Sea Harvest (now with Viking Fishing on board) and Oceana as an overconcentration in the fishing sector.

One possibility, though perhaps premature at this juncture, is that Oceana splits its local and Daybrook offshore business, with the Lucky Star canned pilchards business spearheading the former and Daybrook the latter. Tiger could choose to stay invested in the offshore hub and relinquish control in the local business to empowerment shareholders.

But would Tiger really want to give up on a bestselling household brand like Lucky Star? Perhaps not.

Soomra points out that assuming a worst-case scenario around 2020 quota cuts for Oceana, the key Lucky Star operation — which already buys in most of its fish for processing — will lose margin.

Estimates suggest that a 30% quota cut in key catches could shave only about 5% off earnings in the shorter term.

The other challenge, of course, is additional competition in pilchard canning, with a number of parties mobilising in the sector.

One manoeuvre Soomra could try is to further insulate Oceana against quota cuts by bringing community-based empowerment partners directly into its smaller horse mackerel, hake, squid and lobster businesses.

Some shareholders may believe it’s better to sell off these businesses to larger empowered fishing groups, thereby allowing management to focus more intensely on reinforcing Lucky Star’s market dominance and, perhaps more importantly, the offshore thrust.

Though Soomra is keen to build a meaningful global or rand-hedged aquaculture business within five years, he also intimates that Oceana has the capacity to snag an integrated global fishing business.

Admittedly, it would be surprising to hook a sizeable global fishing business that offers the same returns and margins as Oceana.

Still, with sentiment around the Daybrook deal starting to settle, Oceana needs to cast its nets wider offshore sooner rather than later.

Soomra’s handling of the risk/reward equation could determine the success of his tenure at the helm.