Steering Oceanus Group out of troubled waters

Three years after Peter Koh stepped in to helm the troubled abalone producer, Oceanus Group is on its way out of storm-tossed waters.

The group chief executive has made good on his plan when he joined in end-2014 to cut costs, clean up the balance sheet and grow the company's profits by end 2017.

For its financial year ended Dec 31, Oceanus turned its first net profit attributable to shareholders in five years, of 176 million yuan (S$36.8 million). It is in a positive net cash position, of 114 million yuan, for the first time in seven years.

Mr Koh said that it was a feat he could not have imagined, just a few years ago, when there were doubts that the debt-laden, loss-making company could go on.

Troubled seas

Before the turn of the decade, Oceanus - which listed here in 2002 - boomed thanks to China's rise, with its counter hitting its record high in 2009 at 41.6 Singapore cents.

But in 2011, millions of abalones died as a result of a lack of food and summer heat, and the company sank into the red.

Then prices of abalone fell due to new austerity measures in China. In 2014, its auditor said that it could not ascertain if the company would be able to pay its debts as and when they fell due. Its liabilities stood at 581 million yuan, surpassing its assets, at 529 million yuan.

Mr Koh, then retired after founding a branding and marketing consultancy, had invested in Oceanus' counter "around its all-time high".

He became increasingly concerned about the fate of the company, especially after a visit to its farms. He was urged by fellow investors to come out of retirement to lead the firm.

"As a shareholder myself, I was also a victim - and I could only feel sorry for them," he said. "So when I was asked to lead the company, I thought it might be a calling to do something."

Mr Koh decided that he, his country manager and his accountants should stay at the farms in the countryside of Xiamen and Fujian to fix Oceanus' problems.

He was met initially by chaos, ranging from unpaid rent at offices to an "angry mob" of farm workers who had gone unpaid for months.

Not only did his presence on the farm help soften initial suspicion from workers, but being closer to the ground helped him understand Oceanus' long-standing problems.

He learnt from workers, other farmers and specialists that Oceanus, a land farmer, could cut costs by shifting its business model to become a hatchery.

Its old model of farming the abalone through their entire life cycle incurred high land and labour costs as well as mortality risks.

It now spawns juveniles and sells them to sea farmers and buys them back. The completion of the spawning cycle helped Oceanus' revenues double in 2017. Oceanus also launched a canned abalone product line in 2015.

But the hits kept coming. The straight years of pre-tax losses, combined with its average daily market capitalisation falling below S$40 million, led it to be placed on the SGX watch list in end-2015.

The company also admitted in June 2015 that it did not have enough money to pay auditors for its FY2014 accounts.

In 2016, Mr Koh embarked on his goal of completing a debt restructuring. "I didn't join Oceanus to do a Chapter 11," he said. Talks with creditors went nowhere until what he called a "blessing in disguise" happened in March 2016.

A Chinese creditor which provided security services to Oceanus' farms took over one of the farms and occupied it due to disputes over payment and services rendered.

That gave Mr Koh the opening to call for an emergency meeting with creditors, where he could push for a restructuring on the basis of ensuring the company's survival.

Negotiations culminated in three key creditors - BW Investment, Ocean Wonder International and Ocean King - agreeing to take a haircut and a debt restructuring that converted 85 per cent of Oceanus' debt into equity, while providing S$6 million in much-needed fresh capital, including S$900,000 from Mr Koh.

A 182.5 million yuan (sale of some 13 farms to the Gulei Zhen People's Government in China helped clear the remaining 15 per cent of debt.

The debt restructuring exercise was completed in December 2017, giving Mr Koh a 10.25 per cent stake in the company, up from 0.24 per cent.

Meanwhile, the successful spawning of abalones at its farms helped revenues from its live marine product segment to nearly triple in FY2017, which offset a 44 per cent decrease from its processed marine product segment, which includes its canned abalones, due to an overall decline in the global supply of grown abalones.

New voyages

Oceanus is now focused on infusing science and technology in production. It set up a research and development (R&D) arm, Oceanus Tech, in April 2017, which inked research memorandum of understandings (MOUs) with James Cook University and Temasek Polytechnic.

The company is now focused on diversifying its revenue base so that it is neither reliant on a single product, abalone, nor based in China alone.

Oceanus Tech secured its first consultancy project from a Singapore Exchange (SGX) listed agriculture group, to provide R&D-related services and studies. That contributed to its bottom line in FY2017.

SGX has granted the company an extension of up to six months to June 2, 2018, to meet the criteria to exit its watch list. Oceanus said that the earlier deadline did not give the company enough time to present audited statements, although it believes that it has fulfilled the requirements based on the unaudited figures.

Oceanus is still far from its best days on the stock market, Mr Koh admitted. Its shares stand at 0.9 Singapore cent with a market capitalisation of S$218.7 million as of March 16.

A hiccup has occurred with a plan to take a 60 per cent stake in an Australian abalone processor and retailer BNY Abalone World Factory Outlet, after vendors commenced legal proceedings against Oceanus alleging that the acquisition is void.

Oceanus said that it has obtained legal advice and disputed the vendors' allegations, and has also taken steps to enforce its rights.

But Mr Koh, who is staying on at Oceanus for at least another five years, hopes to see it become a "food security company" that conducts business through the seafood supply chain.

Oceanus is looking into farming fish and prawns as well, and is studying other countries for expansion. "We have not started our celebrations," said Mr Koh. "Our work has just begun. Now, there's even more to do then before."

Yunita Ong

17 March 2018