SAN
30/05/2012 16:26
HALFYR
REL: 1626 HRS Sanford Limited
HALFYR: SAN: Sanford Limited - Six Month Result
Name of Listed Issuer: SANFORD LIMITED
For Half Year Ended: 31 March 2012
Unaudited: NZ$M (millions)
CONSOLIDATED INTERIM INCOME STATEMENT
Revenue: $230.303m ($228.030m) +1.0%
PROFIT BEFORE INCOME TAX: $18.799m ($18.220m) +3.2%
Less tax: $5.464m ($5.103m) +7.1%
PROFIT AFTER TAX BUT BEFORE MINORITY INTERESTS: $13.335m (13.117m) +1.7%
Minority Interests: Profit $0.028m (Profit $0.022m)
NET SURPLUS ATTRIBUTABLE TO EQUITY HOLDERS OF THE GROUP: $13.307m ($13.095m)
+1.6%
EARNINGS PER SHARE: 14.2cps (14.0cps)
Interim Dividend: 9cps (9cps)
Record Date: 15 June 2012
Payment Date: 20 June 2012
Imputation tax credit on interim dividend: 3.8571cps
Comments on Interim Result
For the six months ended 31 March 2012
Overview
Revenue for the six months ended 31 March 2012 is up slightly on the same
period last year to a total of $230m. It is pleasing to report a 15% increase
in EBITDA from $26.0m in the first six months last year to $29.9m in the
current period. After tax profit for the period increased slightly to $13.3m
($13.1m last year) after taking into account a NZ$2m impairment charge in
respect to our Australian operation.
Dividend
Directors have decided to maintain the interim dividend at 9 cents per share
which will be payable 20 June 2012. The Board continues to focus on prudent
management of capital expenditure and efficient use of working capital.
Highlights
Greenshell mussel sales volumes and revenues grew by over 40% for the period
as the acquisition of Pacifica Seafoods and the upgrade at Havelock produced
the expected benefits. Scampi sales increased significantly as the Chinese
market opened up and reduced inventory to current catch levels. These
increases offset declines in sales volumes of hoki, squid, salmon and
skipjack tuna.
Price increases for hake, hoki, ling, Greenshell mussels, skipjack tuna and
squid were in most cases reduced or negated by the strengthened NZ dollar
exchange rate, while prices decreased for salmon, orange roughy and
toothfish. The average exchange rate (i.e. before allowing for foreign
exchange gains) for the six months increased to US$0.80 this year from
US$0.76 for the same period last year.
Profitability improved from inshore and aquaculture operations while
deepwater returns remained stable. Pacific tuna profitability suffered from
the unavailability of the San Nikunau for the first part of the year and
lower-than-expected catches from the other two vessels.
Markets and Pricing
Market prices over the period have remained reasonably firm and stable for
most species during a time when many international commodity food prices have
softened. We show in the following graphs some of our important species which
illustrate trends in prices over the past six months as compared with the
previous four years, with all prices indexed to 1 October 2007.
Mussel prices have remained more stable this year and in almost all markets
demand is firm. There have been signs of softness in European markets which
reflect the economic turmoil currently affecting the Euro centric economies.
There is a potential supply shortage of raw material looming that is related
to the effect of environmental conditions on the natural growing cycle of
mussels in the Coromandel area. This resultant shortage is likely to balance
out any softness in demand in international markets and prices are expected
to remain firm. The sale of retail pack mussels into a range of overseas
markets continues to progress steadily.
Skipjack tuna prices have reached record levels as catches have been mediocre
in a number of international fisheries. It is anticipated that skipjack
prices will remain firm through at least the next quarter. Jack and blue
mackerel prices continue to remain strong in most markets and demand is
steady.
Squid market prices remain strong but have eased from the record highs
experienced last year because catches in the major South Atlantic fisheries
have improved. The demand for squid remains buoyant from all markets.
Hoki prices have remained steady for both fillets and fillet block.
Competitive pressures continue in a range of international markets from the
supply of alternative MSC-certified whitefish such as Alaskan and Russian
pollock.
Ling prices remain firm in all markets, particularly Asia and all available
product is shipped to market as it is produced.
Scampi prices are stable and demand is firm with product shipping as it is
produced. In the past year
the scampi market has been expanded to China which is now accounting for a
substantial proportion of our sales.
The orange roughy price has been softening over the past quarter and has now
returned to levels last experienced around three years ago. The downward
trend in prices is a result of some US retailers expressing concerns about
the sustainability of orange roughy catches and as a consequence they have
curtailed stocking this product. In our view these concerns are unfounded as
all New Zealand orange roughy fisheries are robustly managed under the quota
management system and there is no
rational reason to be concerned about their sustainability, either now or in
the future.
The oreo dory fillet prices had been softening in most markets over the past
few years in response to competitive pressures from alternative whitefish
supplies but prices appear to have stabilised during the last six months.
International salmon prices have continued to decline for the past year.
Global market prices have been impacted by the renewal of substantial
Atlantic salmon production from Chile after a period where disease had
decimated supply from that source. Many buyers are hesitant to make pricing
decisions until they see signs of more market stability. In this climate
salmon prices may remain in flux for some time. In recent years our Bluff
facility has diversified its exposure to this market risk by producing
specialist portion products for a range of overseas restaurant chains.
Iwi Collective Partnership
We are now well into the second year of our partnership with the Iwi
Collective Partnership (ICP) and we continue to progress at a positive rate
our shared values and targeted result areas. Besides investigating future
investment opportunities we have implemented programmes around education and
work opportunities and continued to work together on long term industry
sustainability issues.
New Zealand Seafood Segment
The New Zealand seafood segment of the business has produced an improved
performance despite several challenges as reported below, whilst benefiting
from a significant increase in mussel volumes.
Auckland
The Auckland factory and inshore vessels have exceeded expectations with
strong catches of snapper and trevally. The Auckland Fish Market auction has
set a number of new sales records so far this year and the Seafood School
facility is being well utilised. Retail activity remains stronger following
the opening of the Wynyard Quarter and the Rugby World Cup peak.
Tauranga
Early season blue mackerel catches were well ahead of previous years while
the skipjack tuna season was slower than anticipated, mainly due to
unfavourable weather conditions, rather than fish availability.
Export Cold Storage has been operating at close to capacity and results were
up to expectations.
Timaru
Improved red cod catches from the inshore fleet this year have kept the
Timaru factory busy when not processing frozen-at-sea orange roughy and
smooth dory.
The San Won coldstore has been busy and close to capacity for most of the
period. Alterations to the building will commence shortly to provide an
additional environmental load out area to improve efficiency and inventory
rotation.
Freezer Trawlers
The three large freezer trawlers have all performed well, targeting hoki,
oreo dory and orange roughy for the first quarter, and squid during the
second quarter, with pleasing results across all fisheries.
Freezer Longliners
It is pleasing to report improved catch rates by the San Aotea II in the
southern area ling fisheries this year. Prior to the Ross Sea season, the San
Aspiring successfully caught our recently purchased Patagonian toothfish
quota within the New Zealand exclusive economic zone. While the Ross Sea
toothfish season was very challenging, due to unfavourable ice conditions,
collectively the two vessels performed very well.
Scampi Freezer Vessels
Scampi catches have been strong during the period and in line with the
excellent performance of the same period last year.
Charter Vessels
An extensive survey period during the first quarter for three of the four
charter vessels reduced fishing activity for the period with a subsequent
reduction in landed catch. Fortunately recent squid catches have assisted in
making up some of this lost ground. The review of foreign charter vessels
will likely result in some changes to the ways in which foreign crews are
remunerated and paid, and as a responsible operator and with our pre-existing
100% observer coverage, we expect to be able
to implement any required changes.
Quota Trading
Income from trading surplus quota has been lower than last year, a likely
reflection of the reduced catching capacity available across all sectors, and
the further hoki quota increase.
Pacific Oysters - Kaeo
The full impact of the OsHV-1 ("herpes") virus resulted in the closure of the
Kaeo processing facility at the completion of the season in December 2011.
All oyster farmers have been affected and there are now simply too many
processing facilities for the significantly reduced crop expected next
season. The farming operation and maintenance of the water space will
continue, with the coming season's crop likely to be toll-processed at
another facility. We continue to work with government and other industry
participants to develop virus resistant oyster spat, as well as investigating
alternative uses for the water space.
GreenshellTM Mussels - Coromandel, Havelock, Christchurch and Bluff
Mussel production volumes are significantly higher than last year due to the
completion of the mechanisation upgrade at Havelock, full integration of the
Pacifica Seafoods acquisition in Christchurch and no further earthquake
disruptions in Christchurch. While mussel growth and volumes harvested from
our main growing areas in the Marlborough Sounds have been up to expectation,
the challenge this year has been the very slow growth rates experienced on
Coromandel mussel farms, resulting in a shortage of suitable crop for
harvesting and processing at the jointly owned North Island Mussel Processors
facility in Tauranga. In contrast to this Stewart Island mussels are growing
at record rates, clearly showing environmental factors in play.
King Salmon - Stewart Island and Bluff
Operationally the salmon growing activity at Stewart Island is improving year
on year as new technology and innovations are implemented. Unfortunately the
market impact of increased salmon production in Chile has produced some
challenges for the profitability of this business unit.
Bluff Oysters
Oyster fishers have had an excellent season to date, with settled weather and
good catch rates producing one of the best seasons for many years. An
additional in-season quota allocation has recently been announced, so
customers can look forward to an ongoing supply of fresh Bluff oysters beyond
the traditional season closure date.
Pacific Tuna Vessels
Skipjack tuna catches were well down on the same period last year due to slow
catching in the Western and Central Pacific region and the San Nikunau being
unable to fish for the early part of this period. Recent catches have been
more promising and high market prices have assisted in offsetting, to some
degree, the reduced overall catch.
Australia Seafood Segment
Results from the Australian segment were below expectations and an impairment
charge of NZ$2m has been taken in the six months accounts. Going forward we
will be selling certain non-core quota assets and licences to reduce the
asset base of the business, and move to earn returns closer to the cost of
capital invested.
There were some capital profits earned in the period arising from sale
proceeds of other surplus licences. Catches in Australia were close to
expectations and market revenue and profitability improved in the later part
of the period.
Other Investments
Weihai Dong Won Food Company Limited, China (50% owned)
This company continued to be a profitable operation although at a lower level
than previously, as higher raw material costs were not sufficiently covered
by higher selling and reprocessing charges. A cash dividend was received
during the period.
Staff levels continue to be satisfactory. Certain processing changes are
being made to improve the efficiency of operations and reduce operating
costs.
Pure New Zealand Greenshell Mussels Partnership (China 55% owned)
This company cooperatively markets Greenshell mussels in China for four
companies (Sanford Limited, Sealord Group Limited, Kono LP, and Greenshell NZ
Limited). Significant progress is being made in expanding the knowledge and
use of Greenshell mussels across a wide range of consumers in China and
volumes continue to grow as our promotion effort continues. This assists
moving volume to a
newer and non-traditional market and in keeping market demand for mussels
close to supply availability.
North Island Mussel Processors Limited (33% owned)
This company operates a large automated toll mussel processing plant in
Tauranga and toll processes mussels on behalf of Sanford Limited, Sealord
Group Limited and Greenshell NZ Limited. With the slow growth rates being
experienced in the Coromandel region the facility was shut down in early May
and is not expected to reopen until some time towards the end of 2012. With
the temporary closure of processing facilities, shareholders are now required
to service the company's debt directly from their own resources.
Subsequent to 31 March 2012 Greenshell NZ Limited advised it does not wish to
continue funding its share of commitments and is seeking to transfer its
ownership in NIMPL jointly to Sanford Limited and Sealord Group Limited.
Negotiations are currently underway among the shareholders and as the outcome
is uncertain the impact on the Financial Statements cannot be quantified.
Statement of Financial Position
Sanford's ratio of shareholders equity to total assets at 69% continues to
improve as we focus on reducing bank debt following the Pacifica Seafoods
purchase on 30 November 2010. The working capital ratio decreased slightly
from 2.32 at end March 2011 to 2.12 as we reduced term debt whilst continuing
to use a slightly higher level of short term debt. Inventory levels were
consistent with the same time last year and reflect the seasonal increase
over the September to March period. We would expect the level to decline over
the next six months if markets remain consistent with previous years.
Our banking facilities continue to be shared approximately two thirds with
the ANZ Banking Group and one third with Rabobank. We have continued to meet
all obligations in respect to our banking arrangements.
Capital Expenditure
Capital expenditure has been limited in the period with no major capital
expenditure contemplated for the remainder of this financial year.
Sustainable Development
We have recently renewed our ISO 14001 certification of our New Zealand sites
and Sanford-owned and New Zealand-based fishing vessels. Our commitment to
continue to push for sustainable certification of our fisheries to the
highest possible standards continues with the southern blue whiting fisheries
in New Zealand recently certified, and the hoki fishery has now been
re-assessed with what
we understand to be amongst the highest scores for any fishery assessed by
MSC, demonstrating
our commitments to continuous improvements within our sustainable management
practices in
New Zealand.
Foreign Charter Vessels
There has been significant news media coverage of the negative aspects of
some foreign charter vessels. A government commissioned independent inquiry
also recently presented a report to Government Ministers. In response to the
report and media coverage we proactively (in some cases in conjunction with
some of our customers), conducted extensive independent investigations and
audits of various aspects of our charter operations in New Zealand, Korea and
Indonesia. As a result of these investigations we are implementing new
systems to ensure increased accuracy, transparency and traceability exists
between Sanford and all relevant parties, particularly the crews.
The recent Government decision to require all foreign chartered vessels to be
reflagged to the New Zealand flag over a four year phase-in period will
require us to carefully assess our future options. It is too early to assess
whether we or our Korean partners see reflagging as a viable option.
Sanford would also need to consider what other catching capability options
might be feasible in
the future.
San Nikunau Court Case
The United States federal court case against Sanford Limited over alleged
incorrect recording and reporting of oily water separator operations and
discharges, and various alleged obstruction and other charges, will be heard
in Washington DC in August. Sanford will vigorously defend these charges on
various grounds. As with any litigation there is a risk as to the outcome of
this action.
Outlook for the Six Months to 30 September 2012
We expect profitability in the second six months of this year will be
improved over the same period last year providing international market
conditions remain the same as they have been over the first six months. The
recent reduction in the value of the New Zealand dollar will assist if it
remains below US$0.80. We have recently increased our foreign exchange
hedging position to protect us from further extreme variations of the New
Zealand dollar.
There is no reason to expect that catches of species such as hoki, ling,
silver warehou, scampi, snapper, trevally, jack mackerel and tarakihi will
not be in line with our expectations. Greenshell mussel production in
Havelock and Christchurch should continue to be at high levels and will
likely minimise the effect of the reduced mussel production from the
Coromandel area.
Market conditions for most species should be stable although there is concern
over salmon prices as Chile production volumes increase. The squid season has
been reasonable so far although it is too early to say whether it will run as
long as last year. With high prices for skipjack tuna the final result for
the year will very much depend on catch rates in the Pacific over coming
months. The San Nikunau will
have a delayed start to the Pacific season as it undergoes its planned survey
and maintenance programme.
Earlier this year we instituted a range of initiatives across the business to
improve the return on capital employed. Some of these initiatives are short
term and are already delivering cost saving benefits and others are more
strategic and will require a longer time frame for the benefits to flow. One
of the initiatives is the establishment of a small dedicated research and
development team working with specialist in-house facilities and our more
strategic customers to deliver increased value from our valuable seafood
resources.
Our excellent and well qualified management team and staff have taken up the
challenge of improving the return on capital employed with dedication and
enthusiasm.
INFORMATION REQUIRED BY NZX
SANFORD LIMITED
Unaudited results for announcement to the market
Reporting Period 6 months to 31 March 2012
Comparative Reporting Period 6 months to 31 March 2011
Amount Percentage change
Revenue from ordinary activities $NZ230.3m 1.0%
Profit (loss) from ordinary activities after tax attributable to security
holders. $NZ13.3m 1.6%
Net profit (loss) attributable to security holders $NZ13.3m 1.6%
Interim Dividend Amount per security Imputed amount per security
9 cents per share 3.8571 cents per share
Record Date 15 June 2012
Dividend Payment Date 20 June 2012
J G Todd E F Barratt
Chairman Managing Director
30 May 2012
End CA:00223425 For:SAN Type:HALFYR Time:2012-05-30 16:26:28
