STOCK TAKE | Oceana in calmer waters - and why the UK doesn't deserve to be an emerging market

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OPINION

Oceana

Out of the deep end

Oceana Group finally seems to be righting the ship and heading for calmer waters, announcing the appointment of experienced former Cell C and McDonalds SA executive Zafar Mahomed as CFO designate from 1 November. Joining a team headed by new CEO Neville Brink, Mahomed’s appointment should give investors some peace of mind that stability is returning after a stormy few months.  

It also comes hot on the heels of the appointment of new auditors Mazars in July after Oceana had a very public break-up with former auditors PwC.

These latest developments will have done much to reduce market jitters around the owner of the Lucky Star canned fish brand, for which 2022 has unquestionably been an annus horribilis. With the spectacular collapse of Steinhoff in December 2017, which still haunts corporate South Africa, the mere whiff of a potential scandal can see even usually buoyant firms plunge.

While there have never been any doubts in the market about the fundamentals of Oceana’s underlying business, which has been a solid performer over the years, Oceana has had to work hard in recent months to assure investors that all is well at the company from a corporate governance perspective. It would appear this is starting to pay off for the group, which employs about 5 000 people.

Since early this year, a cloud has been hanging over the group. February saw the exit of key executives at the group, with Imraan Soomra resigning for personal reasons just a week after the suspension of CFO Hajra Karrim. No other reasons were provided for Soomra’s resignation. Karrim was later fired for "gross misconduct" in June, with no further explanation given by Oceana, though it made clear it wasn't related to financial information. Then, at the end of May the resignation of PwC as auditors sent further shockwaves reverberating through the group, especially as it had been facing other challenges including a forensic probe relating to accounting issues at its US business and an ongoing investigation by the Financial Sector Conduct Authority into whether it made false and misleading statements.

While the forensic investigation by ENSafrica  found no evidence of any financial malfeasance on the part of Oceana, it did highlight "behavioural and conduct matters" relating to certain employees at the company. The investigation by the FSCA is still ongoing. At the time of PwC’s resignation, Oceana conceded the relationship between the two had been strained stating in a SENS announcement its exit was due to its "assessment of significant doubt as to whether there is objective and transparent communication between PwC and the board [of Oceana]".

But having Mazars step into the void left by PwC would have eased fears that anything sinister was lurking in the shadows, as the respected audit firm would have undoubtedly conducted a thorough due diligence to satisfy itself that all was in order at its new client.

Securing the services of Mahomed is also a coup for the group.

Oceana notes he has more than 25 years "finance and business experience across major industries, multinationals and listed companies and worldwide brands in multiple industries ranging from telecommunications, manufacturing to retail, financial services, real estate and property, food, medical devices, hospitality, mining equipment and FMCG [fast moving consumer goods]".

The appointment of such a respected executive in the top financial job at the company will also send the right message to investors, which is that there are steady hands at the helm.

Sorry, UK 

You don't get to be marked as emerging

Of all the horrors that befell the UK this week, it seems none was more shameful than being constantly compared to an emerging market.

As its government’s shock budget - which cut taxes without a clear plan for containing debt – triggered a crash in the pound and bonds, pundit after pundit breathlessly remarked that UK assets are being subjected to volatility usually seen in emerging countries.

It’s true that the UK has things in common with some emerging countries: unstable political leadership, electricity problems, market mayhem, inflation woes.

But it’s not an emerging country. It should be so lucky.

A real emerging market has a young population (UK median average age: 40 years. Africa: 19.) It is supposed to have a rapidly growing economy - or at least the potential for strong growth, along with high levels of productivity. Nope, nope and nope. Often, an emerging market is transitioning from a closed to an open economy, with strong scope for exports. Brexit moved the UK in the opposite direction. The IMF also defines an emerging country as one with growing global economic relevance. Well.

Importantly, global investors would never have allowed an emerging market to balloon its debt to 99.6% of its GDP without severe consequences. (South Africa has been junked, and its debt-to-GDP is below 70%). The rules were simply different for the UK. Until now. As its government debt looks set to spiral to unthinkable levels, it seems the rules can only bend so far.

While the UK may be closer to haemorrhaging than emerging, it offers poorer countries important lessons of fiscal prudence and clear signalling – never surprise the market.

It can also learn from real emerging countries' experience of trying to placate global capital: You've got to work twice as hard to get half as far. Them's the breaks.

Quote of the day

Between Brexit, how far the Bank of England got behind the curve and now these fiscal policies, I think Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.
Larry Summers, former U.S. Treasury secretary

Tweet of the day

Graph of the day

Bumper wheat crop

Agricultural economist Wandile Sihlobo reports that South Africa’s 2022 wheat production forecast was boosted by 2% from last month to 2.2 million tonnes. The crop forecast is now roughly at the same levels as last year’s crop, which was the largest in two decades. Sihlobo expects further improvements in the coming months with good rains in the Western Cape.


Number of the day

1 million
Number of Rolex watches produced by the Swiss company every year. Source: Bloomberg

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