- Release Date: 30/05/12 18:26
- Summary: HALFYR: SAN: Sanford Limited - Six Month Result
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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
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