Morning, everybody. Welcome to the Oceana Interim Results Presentation. My name is Neville Brink, and I'm joined by Zafar Mahomed, and we'll present our results over the next hour, and then we'll have half an hour for questions. Just to start off, I thought about this when I was putting my presentation together, what was the message or the messages that I wanted to convey to both the market and the broader audience? There are two things that I wanted to focus on. One was the strategy that we developed over the last three years still is very much in place. The three-pillar strategy, each of our divisions has a very clear-cut strategy, and that hasn't changed.
Obviously, it's disappointing to see results drop in a year, but I've said to both my management team and to you in the market that we're quite clear on our strategy going forward. The second message, and I'll get to the strategy now, the second message I wanted to deliver was, in particular to the management team, we've got to focus on the controllables, the very nature of the fishing industry, the volatility of it, and there are many uncontrollables that we have difficulty managing, things like climate change, weather, catch, exchange rate. The key for us is to focus on those areas that we can control and focus on driving efficiencies through those areas.
Just to give you a snapshot of the strategy that we've developed over the last three years, first of all, the Lucky Star foods, and that remains to grow consumption through availability, unlimited availability. I'll talk a bit about that later. Affordability is key, especially in the world we live in at the moment, and our consumers are out there that really are struggling. Then to take that iconic Lucky Star brand and deliver outside of pure canned pilchards and grow that food category. That certainly has delivered this year. On our wild caught side, and remember, this is seafood for human consumption. We're given quotas both in Namibia and South Africa, and that quota is finite. The key for us is to deliver as much value out of those quotas in an annual period, maximize catch, maximize the assets that operate in these fisheries.
We spent sizable CapEx over the last two years on these vessels. A vessel alongside is not earning money. A vessel at sea is when we see value being transformed. On the fishmeal and oil side, this is a volume-based business. Both in the U.S. and in South Africa, we have the ability to catch more quota than is out there. At this point, over the last couple of years, we have not maximized quota. We have those vessels and factories, and we have invested in them. It is hard to maximize output to those businesses. We cannot control the fish oil and the fishmeal price. That is a commodity, world commodity market. Pricing is what the pricing is. What we can do is maximize volume and maximize value. Those strategies remain in place and will continue, and we are driving those strategies.
Some of the key highlights for this year's performance, obviously, I spoke about Lucky Star and had a very, very good performance, and we'll go through the details now. Strong demand for our product. We've had operational efficiencies coming through the factories. We've invested in those factories over the last two years, and certainly that has come through. We have healthy inventory levels, and there was a strategic decision that we made this year to buy additional product, and I'll talk a bit about that later, and that certainly has paid dividends and will pay dividends in the second half. We're in a very fortunate position to have very good stock holding, unlike some of our competitors, which will stand in good stead over the next couple of months. On the wild-caught side, catch rates generally have started to improve, and it's pleasing to see.
I would have hoped they would have improved more than anticipated. Generally, across all of the species in South Africa and Namibia, we've seen an improvement in the biomass and the catchability of those species. We've come from an El Niño phase. We're going into a more neutral phase, and we've seen that translate into better catch rates. A little bit disappointing about horsemackerel, and I think that hopefully will start getting better over the next couple of years. Generally, across all species, we've seen an improvement. On the fishmeal side in Africa, very good landings of red eye, which is a catch limit, upper catch limit that the industry gets, and we've had record landings of red eye and very high oil recovery. A good performance of, and remember, in fishmeal in Africa, the real performance comes in the second half.
Our first half, in the first three months, our factories are closed for maintenance, and we only start fishing in late January, early February. It is really a second half business, but good performance coming out of that division. U.S., obviously, this is the star performer from last year. Record first half driven by oil price and the shortage of oil in the market, fish oil in the market, which drove prices up. We have seen a more balanced market and more balanced pricing with Peru recovering last year and this year. In fact, we are probably seeing a slight overcorrection and very difficult to meet the performance of last year. Certainly, the assets and the vessels through our partner are certainly ready for the season, and I will talk a bit about how the season has started.
On the debt side, and Zaf will talk a little bit more about debt in our balance sheet, but we have invested quite heavily in working capital, in frozen poached stock over the period October to December, and I will talk a little bit about that and how that will unwind over the next six months. Let us go straight into the U.S. Performance relative to long-term average is reasonable, obviously relative to last year, a major drop, 55% in ZAR terms and 53% in dollar terms. We saw a strengthening of the Rand over this period, which obviously does not favor this division because it is translated into ZAR, so a stronger Rand does not support this division. Still, the business is in a reasonable state. These are the catch graphs over the last eight, seven years. You can see last year we did not have a great season.
A lot of unusual wins. 527 million fish caught in the year, well below the long-term average of 630,000 tons. What was positive, we had good oil yields, 12.5%, 12.1%. The start of this season, and the graph shows you up to week six. In fact, last week was week seven, and I got the numbers this morning. If you see the red line, that was last year. We started off well, but then the market tapered off, and hence, it continued to taper for the rest of the 28-week cycle, ending quite a low year in 527 million fish. This year, we started reasonably slow, but there has been steady increase. Last week, we landed 32 million fish. I got the numbers this morning. That puts us well above last year and very close to the five-year average.
The other positive thing coming out of this fishery is our oil yield has been also steadily improving, averaging just short of 10% as of week seven, which is certainly a good sign for us going forward into the market. The key for this business is how do we drive volume, and we're working very closely with our partners in Westbank to drive fishing. For the first time since we've taken over the business, we've now commenced with weekend fishing. Our partner has managed to convince and get his vessels to sea over weekends. That traditionally did not happen. We have had two weekends of fishing, which is enhanced fishing. If we can continue to do this, there is a 28-week period of weekends that will add value and volume to the fishing effort.
From a stock point of view, and I've spoken about this extensively, about the need to keep our long-standing customers stocked in the period that we do not fish. Remember, we only fish from April to October, but our customers, both the Scandinavian oil salmon farmers and our pet food customers in the U.S., demand 12 months' supply. We certainly do not sell in the ad hoc market. We have four or five key customers that require monthly and quarterly deliveries, and we've managed to maintain that. We carried over a reasonable amount of stock, in particular on oil, 13,000 tons of oil into the start of this half, and 26,000 tons of fishmeal, which have essentially been sold. The oil has been sold and is reflective in the first half's results.
The meal will be sold over the period right until May and June when we start seeing production coming through into the inventory levels. Good carryover of stock. The right-hand graph is, unfortunately, tracking the pricing, and you can see in 2024, pricing jumped up by 72% in oil from about $3,000- $5,500. As Peru, and you will see some graphs just now in Peru, as Peru started having a normalized season, that pricing has rectified and dropped by 45% this year. The other disappointing stat there is the drop in fishmeal price. Remember, most of our fishmeal is sold to the pet food market, but with Peru also catching very good quantities, that has also softened. We have got the demand from China. China still has not, and Chinese aquaculture industry still has not rebounded from the COVID days.
We've seen a lot of stimulus being put in by the Chinese government to try and stimulate the economy, not only the aquaculture section, but that is coming through, and we expect that to start improving in 2026. Hopefully, that will drive fishmeal prices on the upward trend. We still believe that the long-term trajectory of this business, the fishmeal and oil business, is positive. Finite resource, growing demand for raw material, and hence a long-term increase in pricing over the period. Fishmeal and oil in Africa, obviously same type of business. Again, as I spoke about earlier, this is a business of two halves. Generally, our fishing only starts in February. An improvement in operating profit, but still an operating loss. The second half is when we realize the sales of the catchers, but certainly an improvement. We've invested heavily in this business.
As you remember, last year, we spent capital on our two fishmeal and oil factories. We closed Lifeplac for almost four months, where we upgraded just about all of the machinery, and we certainly are seeing those coming through in our performance from the factory. On a catching point, the top left-hand graph is showing what is referred to as red eye or South Atlantic herring. This is not a quota-based species, but it is called an Olympic system. The industry gets a quota, and it is first come, first served. Vessels go out and catch the species. We have had record catches of South Atlantic herring. When the quota was announced, or the puckle, as we call it, was announced, it was 130,000 at the beginning of the season. A couple of months ago, they adjusted that to 160,000, and they have just adjusted to 200,000 tons.
Industry has caught almost 80% of that 200,000 so far. Very, very positive start to the season on Atlantic. Conversely, on anchovy, which is a quota-based species where each company gets allocated a TAC, we've seen very little signs of anchovy. Normally, it starts in about April. As of currently, we've seen very little anchovy landings, and we've been concentrating mainly on South Atlantic herring. Just a comment on research. The Africana, which is the DAFF research vessel, goes out annually and does research on all the species. This year, unfortunately, when it does the pelagic survey, it normally goes around November and does the survey November, December. Unfortunately, the vessel had maintenance problems and was broken down. DAFF only managed to get the vessel back to sea in late March, and it went out for a survey.
Interesting, the survey has shown quite poor results for anchovy and pilchards, and I'll talk a bit about pilchards, which is very different from what we're seeing at sea. What our vessels are seeing is strong catches of South Atlantic herring, obviously no anchovy, and strong catches of pilchards. Yet the survey is showing very low recruitment levels. We are obviously talking to DAFF about this because we're not sure if it's a function of the delay in the research trip or it is a function of actual biomass sustainability and health. On the top right-hand graph, I just want to show what we've caught. The dotted line shows where we were at the end of March, our half year, relative to last year, almost 50,000 tons caught, so well ahead of last year, and that trend has continued.
As of today, early June, we caught almost 68,000 tons versus last year, 50,000 tons. This is South Atlantic herring only. Good landings, which obviously translates into stock, translates into sales into the second half. The other very positive point is the efficiencies that we've derived out of our two fishmeal and oil businesses on the West Coast through investment that we've done over the last couple of years has driven both from a quality point of view and a yield point of view. The key component that we've introduced in the Lifeplac factory is a real-time data ability to track the parameters of the fishmeal as it's being produced. Fishmeal has various components. If you can increase, you can reduce the moisture, and you can increase the protein levels and the quality of the meal, it translates into price.
Customers pay for protein levels, and we've been able through the system to actually adjust the cooking parameters to increase the protein and increase the fat levels and reduce the moisture levels, which has translated to a gain of ZAR 24 million in efficiencies and ZAR 41 million in quality parameters. That ZAR 5 million loss that you saw there in the earlier graph would have been a lot worse if these factories hadn't delivered these efficiencies. Certainly, the investment we've put into these businesses has started to pay dividends. This is not a short-term investment. This is a long-term investment that will pay off over the next couple of years. Again, as I said to you in the early part of the presentation, fishmeal and oil in both U.S. and S.A. are volume-grade business.
We have the ability, the quota that we get, both in anchovy and herring, generally is not caught by the industry, so we have the ability to catch more fish. In the U.S., it's an effort-based fishery. We have the ability to fish for seven months of the year and catch as much as possible. That is the drive for us, drive the volume. I can't control the price, but what I can drive is the quality of production that we produce and the volume that we can try and get our vessels to catch. As you can see in the top left-hand graph there, that is the volume we produced this year, 62,000 tons. We've increased our trimmings, that 22% you see on the top there. That is from the offcuts when we produce canned pilchards and we cut the head and cut the tail off.
With our increased production from the canned pilchards, which you'll see later, that translates into trimmings into the fishmeal plant. So almost just over 20% is from trimmings and almost 80% is from raw fish catch, but a healthy increase in production levels and a healthy increase in oil levels. That 5.9% oil, that comes traditionally from the trimmings because we have bought Pacific pilchards that go through our cannery. That is high in fat, which translates to a high oil yield out of the fishmeal and oil plant. Bottom left-hand graph shows the pricing very similar to the trend you saw in the U.S., 49% increase in price from 2023 to 2024 and a drop of 42% in price and a similar trend in fishmeal price, 18% drop. Very difficult for us to counter that.
What we've got to do is try and catch more product to counter the drop in pricing. This is the, and it's important that I show, this is the Peruvian season, and this is what drives the fishmeal and fish oil price worldwide. An interesting fact, Peru produces about 35%-40% of the world's fishmeal and oil requirements. China produces a similar quantity, and there are many countries that produce fishmeal and oil. The one difference between Peru and most other countries that produce is Peru doesn't have a domestic market for its own oil and meal. It exports 100% of its production, and that determines the price. China, conversely, produces a similar level, about 35%, but consumes everything in China, so it doesn't determine the price.
The top left-hand graph there is the first season, and you can see the blue, the dark blue is, and Peru has two seasons, an early season and a late season. This is showing the first season and what the catch was. You can see 2023, very low, just over 1 million tons was allocated as a TAC, but they only caught around 200,000 tons. A very low catch in 2023, which drove the price in 2024 and the early part of 2025. In 2024, increased up to 2.5 million tons, and they caught 98%, 100% of the allocation was caught. This year, in 2024, they have allocated a quota of 3 million tons, and certainly catching has been going well, and they have caught 54%. Expectations, they will catch very close to 3 million tons, which is driving the price that we are seeing at the moment.
At the moment, there is not a market price for oil at the moment. Both customers and sellers are hesitant to finalize the price. The customers are trying to understand where Peru is going to end up, and so they are reluctant to commit to a price. We obviously just started producing our oil, so we have very limited quantities, and we obviously are testing the market, but we have not formally committed into any pricing going forward at the moment. On the right-hand side is the oil production, just translating from quota to oil. As you can see, only produced 19,000 tons in the 2023 year, 170,000 tons last year. The expectation, because they are having a fairly low oil yield this year, positive for us, is they will not, even with a high catch, produce any more oil than they produced last year.
We expect pricing to correct, there'll be some correction in 2026. This was the graph that I was speaking about. On the top left is about 5.5 million tons of Peru anchovies caught in Peru. 36% of that comes from Peru. Sorry, 5.5 million tons is produced in total. 36% comes from Peru. As you can see, the red graph, that's China, but it's all consumed in China. The other positive aspect is one of the reasons why we've invested in this fishery is the growth in the salmon farming. As you can see over the last 15 years, there's been a constant increase in salmon farming from both sea-based ponds that are in the fjords in Scandinavia to land-based RASes that are now starting to pop up around the world.
In fact, there are some indications that there will be salmon farms being looked at on the West Coast of South Africa and the West Coast of Namibia because certainly our sea conditions lend itself to salmon farming, but not in our sea conditions are too rough to put it at sea. There will be land-based operations. There is a continuous growth in the salmon farming worldwide, and that is driving and will continue to drive oil price long-term because there is a finite resource of catch. I think I've covered all of fishmeal and oil. On the wild-caught seafood side, remember this is all the species that we catch for human consumption, both in Namibia and South Africa, hake, horsemackerel, squid, and lobster, and bycatch of king clip and monk. A reasonable performance for this business, off a very low base.
Certainly, we've seen an improvement, in particular in the hake, squid, and lobster. A little disappointing around horsemackerel, and I'll talk a little bit about that later. On the hake performance, and remember, we've invested in these assets over the last two years, in particular on our vessels. Last year, I spoke about unplanned breakdowns, and that certainly affected our businesses in all of the species. A vessel alongside doesn't make money. A vessel at sea is operating, and when it's alongside, it's just a cost. The key for us is to keep those vessels at sea, and when they do come in, is to turn them around as quickly as possible. You can see our catch rates in hake moved from 9.7 tons in 2023 to 11.1 tons in 2025, a nice healthy improvement, but still getting better.
We have seen it certainly in the last months, not in these graphs, but certainly over April and May, we have seen a continuous improvement in hake catches across the board. With increased catches, that drives cost down. I have always spoken about a vessel at sea as a fixed cost. When it catches 1 kg or 100 tons, it carries the same daily cost. The more you can catch, the more your costs come down. The other focus for us, in particular on the hake, is what we call a volume strategy. When a vessel goes out and is targeting hake and there is limited hake about on that particular day, the focus is to maximize catch. There are other bycatches which have value—snook, horsemackerel, anchovy, other species that we will catch—to drive the volume on a daily basis.
You fill the vessel, you fill the production capacity of that vessel on a daily basis, which will drive down costs. The last stat there to look at is that 515, that's sea days. That's the amount of days that we've kept the vessels at sea. You can see that marked improvement from 2023, where unplanned breakdowns, maintenance periods, we only kept the vessel at sea for 372 days. This year, there's been a huge improvement in fishing days. From a market point of view, the market is still very, very strong. That price increase that you see, export price, 10.9% increase in euro terms. The Western European market is where the bulk of our hake is sold, and the market is hungry for hake at the moment.
There's a global shortage of cod, which is a main competitor of ours, and that has driven price. Certainly not a problem to sell the product. The problem is we've got to maximize catch, which is certainly what we've done. Good performance from hake, volumes up, cost down, and market very strong. Horsemackerel, unfortunately, not as positive as hake. This is predominantly in Namibia, where we operate three vessels. Our South African horsemackerel vessel, the Desert Diamond, has had a very poor performance over the last two years. In fact, what we did in the latter part of last year was send the vessel to Namibia to assist the Namibian vessels to catch horsemackerel there. It certainly was not a huge profitable exercise, but it certainly stopped the bleeding in South Africa because when she was fishing in South Africa, she certainly was not catching sufficient to cover her costs.
At least in Namibia, she covered her costs and made some contribution to the Namibian performance. You can see the catch rates, the yellow block there across the top left. Catch rates have remained fairly pedestrian over the last four or five years. Certainly at 70-80 tons, that's not the level that we would hope. It is concerning. I'm certainly hoping with this change from El Niño to the more neutral phase that we'll see that start improving next year. More concerning is the cost level. That is driven by the three components: our own quota, and certainly, we've got less and less of own quota, so we have to purchase quota from other quota holders, and that comes at a cost, and then the maintenance cost of those vessels and the crew cost.
We've had low catch rates and high costs, which is concerning, and we really need to drive those catch rates up to improve this business. From a market point of view, affordable protein, which is where horsemackerel plays in Africa, is in high demand. We simply can't supply the market enough. We've had reasonable sales volumes, slight increase in price. As you can see, the price has increased year on year for the last three years. It's really to try and bring those catch costs down, and that is a function of catch rates. We're hoping in the next couple of years to see catch rates improve. On our two smaller businesses in this division, squid, and let me talk about squid. As you know, we invested last year in one of our opposition sold their squid rights, and we bought those squid rights.
We have increased the size of our business there. We have invested in a new vessel. Bottom left is our new catamaran. It was commissioned two, three weeks ago. The new season starts 1st of July, and that vessel will go out. We have got the latest technology, and certainly will enhance the catchability. Remember, this is an effort-based fishery. You get X amount of licenses that you can catch, and your vessel then, over a period of a season, can catch as much as possible. The more effective your vessel, and the catamarans have proved much more effective than the monohulls, the more effective you can give your crew an opportunity to catch fish. That catamaran will go into the sea on 1st of July.
Certainly, there's been a nice improvement in catch rates, and we measure it per man, per day, how many kilos a man can catch per day while he's at sea. Both in terms of sea days and in terms of catch per man, that nice improvement in squid. The market, and remember, this is 100% exported, mainly to Western Europe, and the market is very strong. Looking for some good things in squid over the next couple of seasons. Our two smaller operations in lobster, West Coast and South Coast lobster. There was an increase in West Coast rock lobster this year. Surprisingly, DAFF is telling us the resource, despite the level of poaching, has rebounded, so we got an increase in quota. We fully caught all of our West Coast rock lobster by the end of April, which is unusual.
Certainly shows the abundance of West Coast lobster. South Coast lobster is a deep-water lobster, so no levels of poaching. It is very difficult to get at. And that resource is very, very healthy. The one negative of South Coast lobster, a very small part of our business, is this is exported 100% to the U.S. Obviously, the tariffs and the tariff war that is playing out at the moment is going to impact this resource. At the moment, the tariff is at 10%. Certainly, we can live with it, but we don't know where this is going to end up. It definitely has affected the demand for South Coast lobster into the U.S. because of the pricing barriers. It plays at the top end of the value chain.
When you start pushing additional price on top of a very affluent or expensive product, it does affect the market. Lucky Star Foods, and really exceptional performance from this part of our business. Again, around the strategy, drive volume. We have seen increase in volume, we have increase in value, and we have seen increase in operating margin. A very pleasing performance from this team. It is not only from the sales side, but also from the factory side. Last year, we closed our one cannery for three months of the year and the other cannery for two months of the year to invest in those lines, to upgrade the efficiencies of the lines and the throughput. That has played through both from an efficiency and a throughput. Sales volumes of 5.1 million cartons, a record for us on last year.
A value increase of 5.6%. About 4% of that was price increase, and about 1.5% was in terms of mix. You can see in the bottom graph, that is the production that came through to our two factories. As you can see, in 2024, we only produced 1.5 million cartons out of our two factories over the six-month period. Very little in the first three months and 1.3 million cartons in the second three months. This year, because we had the raw material, and I'll talk about the raw material now, we were able, and the factories were up and running, and we closed them for a very short period of time, we maximized production. That came through in terms of efficiency gains. We produced almost 3 million cartons in the six-month period at our two factories. Very, very positive performance.
One of the strategic decisions we made this year, and Zafar will talk a bit when we talk about working capital. We tested it last year, and we started buying frozen product from the Pacific off the Japanese coast. The reason we started doing that was we were very concerned about the supply and the biomass out of Mauritania and Morocco. The resource has not performed as well as it should over the last couple of years. When we bought product from those two sources, we have seen mixed quality, varying sizes, and mixed quality in terms of fat content. It has affected our ability to produce and efficiencies at the factory. We took a decision two years ago to test that resource and bought a fair amount of product.
This year, in the October-November period, because we were concerned about product in the middle of the year being now out of Morocco, we went and bought heavily frozen product from the South Pacific. We bought almost 36,000 tons, and it came in over a very short period of time and put our logistics under strain. In the long run, that has paid dividends. Right now, and we'll talk about pilchards now, there is a shortage of pilchards, fresh pilchards. We're in a very, very good position in terms of not only having production in finished goods, but also having frozen goods in our cold stores that allows our factories to continue producing right until September when our next lot of frozen product will come in from the Pacific.
In a very, very good position, a strategic buy, put some pressure on our working capital, but that will wind itself out as the product gets consumed into the market. As you see in the last point there, closing inventory levels up 41%. We are sitting in a very, very healthy position right now to drive sales for the second month through Lucky Star. Very positive. Just in terms of the resource in South Africa, and obviously, you remember, Lucky Star is supplied by both frozen product that we import from around the world and local fresh catch, which obviously has a higher margin component because it is effectively free product. We do not buy it. We catch it ourselves. The resources, it has been interesting. I spoke about the Africana. The Africana's research has shown that there is a drop in biomass in pilchards.
Yet our vessels have not seen that effect. We issued an interim quota because of the lateness of the Africana research of 35,000 tons last year. The total TAC was 65,000 tons. They gave us an interim allocation. Our vessels went out and started catching. The catches have exceeded last year by far. You can see on the right-hand side a comparative catching point. We have caught, that is our own quota of the 35,000. As of the end of March, we caught 9,000 tons. As of the end of April, we have caught nearly 12,000 tons. In fact, we have caught our full quota well in advance. Last year, this time, we caught only 6,000 tons. In fact, by the end of the year, we did not catch all our pilchard quota.
Very different figures coming out from the research trip and what we're seeing out at sea. Obviously, these pilchards helped, our own fresh catch helped the results out of Lucky Star because obviously, it translates into production at a lower cost than frozen. On the marketing side, again, around the strategy, we introduced a new flavor. It certainly has taken off very nicely, the new peri-peri flavor in pilchards. We have started expanding into Africa. In the last six months of last year, we've gone into Ghana. I visited Ghana a couple of weeks ago. Very interesting market, very similar to South Africa in terms of eating habits. They also consume both canned pilchards and canned mackerel in a similar format to South Africa and Southern Africa. It's known to them, very, very popular in Ghana. Obviously, Lucky Star as a brand is not known there.
We are embarking, and we've had some very nice offtake in the early part. We obviously have to drive the marketing side to get Lucky Star known. It's a high-quality brand, so doing very well. On the extension in terms of food, canned meat, which both includes chicken and meat, very nice offtake, in particular in the cross-border markets, Botswana, Namibia, Zambia. Obviously, in the school feeding schemes, as I've spoken about before, the canned chicken livers is going into the school feeding schemes and is really developing momentum now. We are introducing a second line in that business because there's certainly a lot of upside in terms of that offtake. Just in terms of the market, it's interesting to compare Lucky Star versus the S.A. food market. Top left-hand graph there is the value graph.
You can see in value terms, and now this is not total Lucky Star foods. This is just canned pilchards. We have seen a growth in the last six months of 7.5% versus a food basket of 4.5%. In volume terms, 1.5% versus just over 0.4% from volume. In both categories, we are exceeding the food market, which is nice to see. As I spoke about in the export market, our Lucky Star certainly has done extremely well. We have driven this export volume where obviously there is less competition, and Lucky Star is certainly in demand in there. You can see all of the percentages there, the growth percentage we are seeing in our cross-border market. Very positive. That certainly will carry through into the second six months. Very resilient canned fish market.
It is a symptom of where the consumers are at the moment. Consumers are constrained. We are very conscious about pricing. Obviously, we are importing a large percentage of our production. It comes at the expense of a Rand-dollar conversion. A favorable Rand certainly suits us going forward from this division point of view. It is going to import product, the frozen product, in the second half of this year. A stronger Rand certainly supports this division. We are very conscious about where the consumer is. Remember, we compete in the protein market, not in the canned pilchard market. All of the canned proteins are competitors to Lucky Star pilchards. You might have heard, and I am sure you are aware of the ban on Brazilian offal and Brazilian chicken because of the avian flu that has hit Brazil.
That has a positive and a negative potential effect on this business. Obviously, from a canned meat and a canned chicken, that may affect supply of offal, which is fully imported into those two products. On the positive side, with the shortage of offal, the ability for all of the producers to produce sufficient polony, which comes from the Brazilian import, will be restricted, which will have a positive effect on Lucky Star pilchards. We're not sure how that's going to play out. The ban still exists at the moment. There's a lot of work in trying to regionalize the ban. At this point in time, we've seen pricing of offal from the local producers increase substantially over the last couple of weeks. That'll play out over the next couple of weeks when we see what's going to happen with the ban.
We have sufficient raw material to cover us certainly for the next four or five months. We are in a reasonable position, but we are going to have to watch this space very closely. With that, I will hand over to Zaf, and then I will come back and conclude.
Thank you, Neville. Good morning, everyone. I will be covering the key features of our performance for the six months ending 31 March 2025. Detailed interim financial statements are included in the appendix to this presentation and the results booklet, which is available on our website. A strong performance by Lucky Star and an improvement in the wild-caught seafood business partially offset the decline in the group's profitability due to global fish oil prices correcting from record highs in the prior period.
Revenue increased by 2.9% to ZAR 5.2 billion, primarily due to increased sales volume of canned foods, fishmeal and fish oil, hake, and Namibian horsemackerel, together with firm pricing in wild-caught seafood. This revenue growth was offset by lower sales pricing for fishmeal and fish oil. The 33.5% reduction in operating profit to ZAR 676 million for the half year was primarily due to significantly lower fish oil prices driven by the recovery in the Peruvian anchovy resource and production levels as global supply normalized. Headline earnings per share decreased by 43.9% to ZAR 3.249 per share due to the significant decline in US earnings and an increase in net interest expense. An interim dividend of ZAR 1.10 per share has been declared compared to the ZAR 1.95 per share in the comparative period.
The group's net debt to EBITDA ratio increased to 2.2 times at the end of March 2025, primarily due to investment in working capital in Lucky Star and reduced profitability in Daybrook. Total operating profit has grown steadily, and the first half of 2025 compares favorably with the past five years. Excluding the disposed cold storage business, this was surpassed only by the record performance in the comparative period. On a segmental basis, the contribution of Daybrook to operating profit has reduced significantly from 83% in the prior period to 56% in the current period. Lucky Star Foods delivered strong results, supported by steady consumer demand, increased local production volumes, and greater operational efficiencies following recent capital investment. Improved landings and plant performance contributed to better results in the fishmeal and fish oil Africa segment, while the decline in fish oil pricing negatively impacted Daybrook's profitability.
The wild-caught seafood segment benefited from stronger hake catches in the second quarter, combined with firm pricing and insurance proceeds, which were related to vessel breakdown losses incurred in the prior year. Gross profit reduced to ZAR 1.4 billion, and gross margin decreased to 27.8%, attributable to lower fishmeal and particularly fish oil prices and a higher proportion of low-value bycatch and increased quota costs in Namibian horsemackerel. The Lucky Star Foods margin increased, driven by the higher local production volumes and improved efficiencies following cannery upgrades in the previous financial year. Operating profit decreased by 33.5% to ZAR 676 million, mainly due to the lower gross margin at Daybrook. The growth in overhead expenditure at 3.4% was contained below inflation.
Net interest expense increased to ZAR 144 million due to higher borrowing levels to fund the capital expenditure program implemented over the past few years and the investment in working capital during the current period. The renewal of the interest rate swap in the U.S. in February 2024 at higher rates, where 50% of the U.S. debt is hedged, contributed to the increase. The effective tax rate increased to 24.3% due to the reduced earnings from the US business, which is taxed at a lower rate. Profit after tax decreased by 43.7% to ZAR 402 million, driven mainly by the decline in operating profit of the U.S. segment and an increase in the net interest expense.
The increase in net working capital was primarily driven by the strategic decision to change the geography and timing of frozen fish imports to ensure consistency of supply and to maximize quality and yields, resulting in comparatively higher inventory levels and Lucky Star Foods net working capital increasing by 38% to ZAR 1.6 billion. Net debt increased to ZAR 3.5 billion at the end of the period compared to ZAR 2.5 billion in March 2024. In South Africa, net debt rose by ZAR 995 million. During the second half of 2024, we converted ZAR 700 million into long-term debt and increased our total facilities to support our capital investment program. At the same time, the higher imports of frozen fish resulted in an increase in short-term facilities to fund our working capital investment. As a result of the increased borrowings, our net debt to EBITDA ratio rose to 3.7 times.
This was partially offset by EBITDA increasing by 14.5% from ZAR 688 million- ZAR 788 million, reflecting stronger underlying operating performance in South Africa. In the U.S., we saw a decrease in net debt due to term debt repayments, which was offset by lower cash generated from operations during the period. As a result, net debt to EBITDA increased from 0.4 to 0.7 times. Net debt increased from $29 million- $33 million, and EBITDA declined from $74 million in the prior period to $44 million. At a group level, net debt to EBITDA rose from 1.2 times in March 2024 to 2.2 times in the current period. The group complied with all lender covenant requirements for both its South African and U.S. debt.
Capital expenditure of ZAR 183 million was primarily related to dry docks and further upgrades to the hake and horsemackerel fleet, including the Desert Jewel Freon conversion. As mentioned previously, we expect to spend a total of ZAR 342 million in 2025. This includes expansion CapEx of ZAR 75 million, bringing the total expansion CapEx over the four-year period to ZAR 427 million. Our diversified business model, cash generation, and strong balance sheet have allowed reinvestment throughout the business to benefit from the continued strong demand and pricing across our product range. The group has completed its capital investment program to upgrade its processing facilities and vessels. The focus has been on bedding down the capital spent to continue to deliver direct efficiency gains and will benefit future operational performance.
An interim dividend of ZAR 1.10 per share has been declared, compared to the ZAR 1.95 per share in the comparative period, and is consistent with the decline in headline earnings per share. The factors that have been considered in determining the dividend include headline earnings levels, working capital investment, capital expenditure requirements, and debt levels. The group delivered cash operating profit of ZAR 902 million for the six months to the end of March 2025, with South Africa contributing ZAR 442 million and the U.S. contributing $460 million. The higher Lucky Star frozen fish imports, combined with the strong trading experience in March, were the primary drivers of the ZAR 892 million working capital change for the half year. The South African operations were the major contributor of the net interest paid for the period of ZAR 149 million.
The group paid ZAR 381 million in dividends, which was a final dividend of ZAR 3.00 per share declared for the 2024 financial year. As a result of the aforementioned items, the group raised net debt of ZAR 802 million, resulting in the group's cash balances closing slightly higher at ZAR 827 million compared to the ZAR 760 million opening cash position. The strong Lucky Star inventory position will continue to support our ability to meet demand with the anticipated unwind of inventory supporting cash generation in the second half. The group continues to prioritize reducing debt, along with the prudent management of costs and capital expenditure. The capital invested in our business over the past few years has positioned Oceana for sustained growth and is expected to create long-term value for all shareholders.
Thank you, and I hand you back to Neville, who will cover the outlook for the business.
Thank you, Zaf. Okay, where to for the next six months? It really is just continuation of that strategy I spoke about upfront. From the Lucky Star Foods point of view, continued volume growth, and I certainly believe that that will continue. The demand for our Lucky Star product is strong. We have the product available, and certainly affordability is there. We'll continue with our brand extension. We are continuing to look at other opportunities to take the brand further than we currently do, and that is happening right now. Our factories certainly are operating extremely well and will continue to drive efficiencies and maximize throughput through those two factories. The export volume remains a focus for us.
is a lot of demand in the export market, and certainly the margins and the throughput are there, so we will continue to drive that. As I spoke about, our inventory levels are certainly in a very, very positive position. We have the ability to drive sales and promote our product, so we are in a very good position in terms of supplying customer needs, and service levels are at the 98% level, so very, very positive from that point. I expect Lucky Star to continue as we have seen in the first six months. On the wild-caught seafood side, vessels are operating well. We have had zero unplanned breakdowns this year, and I would hope that would continue. Drive vessels at sea, catch rates in particular, South Africa and the market will continue. We need to have a focus on Namibian cost reduction.
It does concern me if the catch rates remain as they are at the current way. We have to take some costs out of the business, and that will be a key focus of that division and where they are. We will continue investing in our fleet, and there are some upgrades that are coming over the next six to eight months, which will further enhance that fleet. Obviously, the new catamaran, I'm looking forward to seeing that vessel go to sea in July and see how she operates. I visited the vessel a couple of weeks ago, very impressed with the technology we put on the vessel, and I'm looking for good things from that vessel. On the fishmeal and oil side, obviously, pricing is concerning.
We can't do anything about pricing, and I think there's been a slight overcorrection, so we are concerned about where pricing will end up. We are currently negotiating, obviously, for our contracts on both oil and meal in the salmon and pet food industry. I expect Peru to catch these 3 million tons. The second season hasn't been announced. That only gets announced in the next couple of months, and then we'll see where that goes. From a local catch point of view, the herring remains strong. Obviously, we're going into winter, so winter does affect the ability to purse seine, and our vessels cannot operate in high seas, but certainly the product is there. We will see if anchovy biomass makes an appearance. We're waiting for the research. There's a second research trip happening on the Africana.
She comes back in the end of June, and there will be an announcement on all of the species in South Africa, and it will be interesting to see what that comes out. Obviously, the tariff landscape is a concern for us across the board. Negotiations are happening right now between the US and the European Union, which could and may affect our oil exports. Remember, all of our oil goes to Europe. A portion of our fishmeal does go to China, although there seems to have settled to some sort of arrangement there with a 10% tariff on Chinese imports, Chinese exports from the U.S. That still is playing out, and I do not think we have seen the end of the effect of what is happening on the tariff landscape.
Certainly, I think strong performance from Lucky Star and wild-caught fish meal and oil, I think, given where the pricing of oil is in particular, I think we'll certainly, I don't expect that to change in the short term. What I do expect is to see if we can have a decent catch out of the U.S. this year, with the early part of the season being very positive, and let's hope that translates into the second half with a decent catch out of the U.S. I think I'll leave it at that, and happy to take any questions from the audience.
Neville, we in Zaf, we have a few questions on the line. First one is from Lowendo at All Weather Capital. Do you have a view on the protein pricing environment with chicken and beef prices increasing?
Do you anticipate consumers switching to your Lucky Star brands for protein? It's a difficult question to say switching. I think there'll be increased demand for our product. As I spoke about the ban on imported product coming into the market and the potential shortage of polony, which is a staple in our market, chicken is definitely going to go up. We haven't planned a price increase for the second six months, and I don't think we will, so we will hold our pricing. We're in a very strong position from a supply point of view, so certainly if there is an increase in pricing on chicken and a shortage of polony, I think it will translate into increased sales of Lucky Star.
Thank you. Second question from Owetu at Pricient Securities. Do you believe this is the new normalized fish oil price around about $3,000 per ton?
If not, where do you expect it to be?
My answer to that is there is no normal. It does depend on supply and demand. I think long term, as I spoke about earlier, long term you'll have a continuous increase in demand as the aquaculture industry continues to grow to supply the world food market. There is a finite supply of raw material, so in the long term, I see you'll continue to see an increase in pricing. In the short term, I think pricing will stay at its current level till the early part of next year, and then we'll have to see what the Peruvian catch looks like.
Thanks, Neville. From Murray at Eilert, talk more about the current shortage of poultry and why you are well placed currently. Will it benefit volumes or price? You already own the category, so won't necessarily help with direct competitors.
As I spoke about, the industry has effectively caught all of the interim allocation, the 35,000 tons of poultry that have been issued to us so far. The research trip only comes back at the end of June, and then they will decide whether, based on the research, whether they'll give us a second allocation. Most of the industry do not have frozen product as Oceana has in storage to keep their factories going, so there will be a shortage of competitive canned poultry. Quite right that we own; we dominate the market, but it does help us in terms of cost recoveries through our factories, which the other businesses do not have. I do believe that that will assist in terms of bottom line.
Thanks, Neville. Another one from Murray. How are you approaching export markets, especially the rest of Africa? How are you getting cash out?
Certainly, our export markets that we export, and obviously that would be horsemackerel in Africa, is mainly horsemackerel. In all of the countries that we export to, there is free cash flow. Our main SADEC countries, Mozambique, Zambia, Zimbabwe, DRC, certainly it's on a cash upfront basis, so we don't have a problem. I'm not concerned about cash coming in from Africa.
Thanks, Neville. I think there's one more on the list, which I think you've answered, but you may want to add something additional. Also from Lowendo at All Weather Capital. Do you anticipate a chicken liver shortage given the import ban on Brazilian chicken imports?
At the moment, we have sufficient stock to cover for three or four months. If there's not a decision by Agriculture, the Minister of Agriculture, to regionalize the ban, then I think there will be a shortage of chicken livers.
Remember, the avian flu has only been picked up in a small portion of Brazil, in the southern part of Brazil. Brazil is obviously a huge country, and the majority of Brazil is avian-free, avian flu-free. If the ban is changed in the short term, I do not think there will be a shortage. If it continues for the next couple of months, there will be a shortage. Certainly, the South African poultry industry does not have the ability to supply the quantities of MDM, mechanically deboned chicken, and offal, because they simply do not produce it. They can substitute the bone-in product, but there is approximately 35,000 tons of product that has been imported monthly into South Africa. Only about 4%-6% is bone-in. The balance is offal, which is simply not available from the South African Poultry Association.
Potentially, it is going to be a problem because not only us, but there are many producers that import MDM that produce the polonies, which is a staple in the market.
Another one from Murray at Eilert. Daybrook landings are in par with poor prior season so far, but your outlook for the remainder of the season seems positive.
Yes. Certainly, it started off fairly slow, and we were concerned about it, but it has picked up quite nicely. Last week, we landed 32 million fish, and if you take the seven-week period, we are actually now well ahead of last year and very close to the five-year average. All the signs from our partner, Westbank, is that there is a very strong sign of fish, combined with the investments we have put into that fishery with the jet engines and the weekend fishing.
Weather aside, I think that it bodes well for a good season out of the US, which obviously helps us to counter some of the drop in pricing with a higher volume.
Thanks, Neville. Neville, Zaf, I think those are the questions that we have.
I really thank everybody that joined the line, and I look forward to the one-on-ones and the meeting with you over the next week. Thank you very much for joining us. Bye-bye.