SAN
28/05/2014 14:54
HALFYR
REL: 1454 HRS Sanford Limited
HALFYR: SAN: Sanford Limited - Six Month Result
Name of Listed Issuer: SANFORD LIMITED
For Half Year Ended: 31 March 2014
Unaudited: NZ$M (millions)
CONSOLIDATED INTERIM INCOME STATEMENT
Revenue: $221.052m ($244.575m) -9.6%
PROFIT BEFORE INCOME TAX: $16.260m ($20.309m) -19.9%
Less tax: $4.549m ($6.244m) -27.1%
PROFIT AFTER TAX BUT BEFORE MINORITY INTERESTS: $11.711m ($14.065m) -16.7%
Minority Interests: Loss $0.046m (Profit $0.035m)
NET SURPLUS ATTRIBUTABLE TO EQUITY HOLDERS OF THE GROUP: $11.757m ($14.030m)
-16.2%
EARNINGS PER SHARE: 12.6cps (15.0cps)
Interim Dividend: 9cps (9cps)
Record Date: 13 June 2014
Payment Date: 20 June 2014
Imputation tax credit on interim dividend: 3.5cps
Certain amounts shown here do not correspond to the 2013 Interim Report and
the 2013 Annual Report and reflect adjustments made as detailed in note 12 of
the Financial Statements (pages 31-36 of the Interim Report attached to this
announcement).
Chairman and Chief Executive Officer's Report
For the six months ended 31 March 2014
Overview
Profit after tax for the period decreased 17% to $11.7m unaudited ($14.1m
unaudited last year) largely due to timing of sales and significantly reduced
prices for skipjack tuna and other pelagic species. These factors resulted in
a reduction in revenue for the six months ended 31 March 2014 of 10% to
$221.1m while EBITDA decreased 17% from $28.8m to $23.9m.
Dividend
Directors have decided to maintain the interim dividend at 9 cents per share
which will be payable 20 June 2014.
Highlights
The first half of this financial year has been marked by the arrival of our
new CEO, Volker Kuntzsch, following the retirement of Eric Barratt, Managing
Director of 16 years. We thank Eric for the leadership he exhibited in
Sanford Limited and the seafood industry, locally and internationally.
Commodity price trends varied greatly, depending on species, with pelagics,
especially skipjack tuna, being significantly down on the previous year. Our
aquaculture division has improved on the back of attractive pricing for
Greenshell mussels and king salmon.
Total revenue has also been affected as a result of the natural availability
of certain species, seasonality of catches, and tactical decisions
influencing the timing of sales.
The introduction of a Culture of Continuous Improvement across the Group is
leading to a stronger focus on quality and value, and successfully
complements our sustainable development activities.
The average US dollar exchange rate (before allowing for foreign exchange
gains) for the six months increased marginally to US$0.832 from US$0.829 for
the same period last year.
Health & Safety
Sanford has embarked on a programme to improve the way health & safety is
embedded into the organisation's culture. Initiatives to promote people
engagement, greater awareness and learning, and an improved understanding of
responsibilities have been introduced.
Committed leadership from Director and executive levels support the
organisation to adopt higher standards of effective safety management
throughout the Company's diverse range of operations. The implementation of
the new Maritime Operator Safety System, as introduced by Maritime New
Zealand, has made good progress.
Sustainable Development
We continually strive to work more responsibly across our marine environment
and land based factories to underpin our commitment to producing sustainable
seafood. The impact of our operations is measured and communicated annually
through our Sustainable Development Report.
Fishing
Freezer Trawlers
Our three freezer trawlers, San Waitaki, San Discovery, and San Enterprise
are ahead of expectations, but behind last year due to scheduled dry
dockings, differences in the timing of landings and subsequent product sales
compared to the same period a year ago.
Freezer Longliners
Both vessels, San Aotea II and San Aspiring have had a better than expected
fishing season in the Ross Sea and performance has improved compared to last
year.
Scampi Freezer Vessels
Sanford's five scampi vessels are slightly behind expectations due to a drop
off in catches during March and refit delays with the San Tangaroa. The other
four vessels compare well to last year.
Charter Vessels
We are chartering three Korean vessels (last year: four) that contribute to
an efficient utilisation of our annual catch entitlement and enable us to
harvest species that require specialist fishing skills, for example squid.
Due to the reduction in the number of vessels the operation is behind last
year, but ahead of expectations.
Inshore
Auckland-based vessels performed behind last year due to lower regional
trevally and barracouta catches, while snapper catches have improved.
Tauranga-based vessels' performance is similar to last year, but slightly
below expectations, mainly due to reduced jack mackerel and kahawai catches.
Trevally catches have been good. This year's skipjack season is now complete
with catches slightly better than anticipated. Weak demand and price for
pelagic species, in particular blue mackerel, have the potential to further
impact on Tauranga's performance.
The overall result for Timaru-based vessels is well below last year, mainly
due to reduced catches of barracouta and hoki, but these are expected to
improve in the second half of the year.
Our processing plants have made great progress in implementing a Culture of
Continuous Improvement, resulting in a safer workplace, impressive idea
generation throughout the workforce and ongoing efficiency improvements that
will strengthen our position within the local communities.
Quota Trading
Surplus annual catch entitlement (ACE) of species in excess of our internal
requirements or catching capacity is traded out to other fishers. This
trading activity has delivered a return similar to last year.
Pacific Tuna
Despite higher catches compared to the same period last year, revenue for the
six months was significantly down due to tuna prices in the Bangkok market
almost halving. Although R&M expenses for our three international purse
seiner vessels were lower than expected, total costs were greater than last
year as all three vessels were operational for this half year. Significant
cost increases compared with the prior year are an increase in depreciation
following capital upgrades, fishing access and fuel costs. These led to an
unsatisfactory result for the period.
Aquaculture
Greenshell Mussels
Improved market prices, an increase in the fair value of stock in water and
lower than expected production expenses, have resulted in significantly
improved results compared to the previous year, although volumes were
slightly lower than anticipated.
King Salmon
Harvesting volumes are down on last year due to fish losses from a damaged
cage, but results have improved due to strong fresh fish sales into the New
Zealand market.
Markets and Pricing
The major export markets for our main species have either been buoyant or
remained firm for the first six months. The only significant exceptions have
been the skipjack commodity market which has suffered from short term
oversupply, and the blue mackerel market which has experienced a significant
reduction in demand. The domestic market has performed well, particularly for
quality fresh fish.
The following graphs highlight the price trends of our most important species
over the past six months as compared with the previous three years, with all
prices indexed to 1 October 2010.
Mussel prices have firmed strongly in all markets and demand currently
exceeds available supply. The shortage of raw material is not expected to
improve for around two years due to limited spat supply. The sale of retail
pack mussels into a range of overseas markets continues to progress steadily.
The orange roughy price has remained stable over the past six months. Major
US retailers have shown growing confidence in the sustainability of orange
roughy fisheries managed under the robust New Zealand quota management
system. Sustainability certification for the main orange roughy fisheries is
being progressed.
Ling demand and prices remain firm in all markets, particularly Asia. Smooth
dory fillet prices have been improving over the past year and are expected to
remain strong. Demand for smooth dory is firm from all major markets.
Hoki prices have softened for commodity fillet block as a result of
competitive pressures from other whitefish supply, but discerning customers
are increasingly differentiating hoki from species like Alaskan pollock on
the basis of its own superior characteristics. Hoki fillet prices have been
holding steady gains in the past several months. Competitive pressures
continue in a range of international markets from the supply of alternative
whitefish such as Atlantic cod as well as Alaskan and Russian pollock.
Skipjack tuna prices declined sharply from record levels reached last year as
a result of a strong period of catching in all international fisheries. There
have been some recent signs of a modest improvement in skipjack prices and
this encouraging trend is likely to continue through the next quarter. Jack
mackerel prices continue to remain strong in most markets and demand is
steady. Blue mackerel prices have softened because of the decline in skipjack
pricing as both products are used as canning commodities.
Squid market prices remained steady for the past several months but have
recently firmed because of poor catches in New Zealand this season. The
demand for squid remains steady from all markets.
Scampi prices are stable and demand is firm with product shipped as it is
caught. Demand is expected to remain firm in all the traditional markets.
International salmon prices have been buoyant in recent times. The demand for
king salmon has exceeded our supply and prices have been rising both on the
domestic and international markets.
Australia Seafood Segment
The Australian wholesale market business has improved, but performance is
below our medium term expectations. Restructuring efforts and an increase in
marketing products from our New Zealand production through this channel have
resulted in marginally improved returns.
Product Development Initiatives
Considerable effort is being invested in initiatives to market products
beyond a commodity format. A range of tailored retail products has been
successfully developed in conjunction with our key customer in the Australian
market. Similar initiatives are occurring in other markets with revised
packaging formats designed to enhance returns.
Investments
Considerable effort is being invested in initiatives to market products
beyond a commodity format. A range of tailored retail products has been
successfully developed in conjunction with our key customer in the Australian
market. Similar initiatives are occurring in other markets with revised
packaging formats designed to enhance returns.
Investments
North Island Mussels Limited (NIML)
Greenshell mussel crop supply to NIML, 50% owned by Sanford, has been below
expectations and last year due to a shortage of spat supply. The supply
shortfall, higher purchase costs for crop in Coromandel, coupled with fixed
processing costs, resulted in a loss in the first six months of this
financial year.
Weihai Dong Won Food Company Limited
Production and profitability at Weihai Dong Won, 50% owned by Sanford,
continues to be steady and as per expectations. We take pride in maintaining
a good working environment for our staff, which is exemplified by a return
rate of workers to the plant after Chinese New Year of over 90%. The high
return of experienced staff also allows Weihai Dong Won to process and supply
consistent and high quality products to our customers.
SPATnz
This Primary Growth Partnership project has made great progress in
hatchery-reared Greenshell mussels. The upscaling of the operation has,
however, been delayed slightly due to weather and building constraints.
Precision Seafood Harvesting (PSH)
PSH now has three prototype designs being commercially tested in the snapper,
middle depths and hoki fisheries. The designs are intended to deliver fish of
a very high quality, improve in-water selectivity and enhance post-harvest
survival. Increasing familiarity of the test vessels and their crew with the
new design is allowing a growing volume of high quality seafood to be landed
to market including some live fish deliveries.
Iwi Collective Partnership
Our relationship with 12 iwi in the Iwi Collective Partnership (ICP)
continues to strengthen our business by giving us access to a valuable
package of deepwater catching rights, and also assisting us to work more
confidently within Maori communities. An ICP representative joined us in
Korea to meet our joint venture partners and tour the Weihai Dong Won Food
factory in Weihai, China. Three more scholarships have been awarded,
including for the first time a Sanford staff member with ICP affiliations.
Financial
Consolidated Statement of Financial Position
The adoption of NZ IFRS 11: Joint Arrangements results in the proportionate
consolidation of our 50% holding in North Island Mussels Limited. However,
this has not materially impacted our statement of financial position. The
ratio of equity to total assets is slightly lower than September 2013 but
remains strong at 69%. The working capital ratio has decreased to 1.69 as a
result of our two year $35m term loan expiring in March 2015, being
reclassified as a current liability. The repayment dates of some of our bank
facilities will be reviewed to improve the working capital ratio at 30
September 2014.
Financing
In March 2014 we renewed our Rabobank one year working capital facility at
more favourable pricing. Sanford Limited's financial covenants remain well
covered.
Capital Expenditure
Capital expenditure primarily reflects the SPATnz mussel spat hatchery
development and the rebuild of the Timaru coldstore which was completed in
January 2014 at a final cost of $3.6m.
Outlook for the Six Months to 30 September 2014
A generally strong global demand for seafood will support firm prices for
most of our products. However, pelagic species, for example skipjack tuna and
blue mackerel, will remain under pressure compared to last year.
Weather permitting, supply from our fishing and aquaculture operations is
expected to exceed the prior year. Our processing facilities will continue
their focus on improving the value we derive from every tonne of seafood we
harvest.
The acquisition of Greenshell New Zealand business assets after the reporting
period will provide strategic benefits to our successful mussel business. The
Coromandel-based assets will significantly enhance our supply and minimise
biological risk through geographical diversity.
The continuing strength of the New Zealand dollar will present challenges but
we are confident of offsetting these by improving our margins through CCI
related efficiency improvements and the introduction of further value added
items.
We have only just embarked on our mission to make Sanford the New Zealand
Company of choice for customers, shareholders and employees by sustainably
providing innovative, quality seafood and marine products. We are making some
organisational changes to support our objectives and we are looking forward
to implementing some exciting projects to improve our results.
The Directors and management thank all customers, colleagues and suppliers
for their continued support of Sanford.
J G Todd
Chairman
V Kuntzsch
Chief Executive Officer
28 May 2014
End CA:00250970 For:SAN Type:HALFYR Time:2014-05-28 14:54:46
