Sanford Limited (NS) Analysis

Overview

The company's origins go back to the 1880s and in 1904 Albert Sanford incorporated Sanford Ltd. The group's resources are committed almost entirely to the inshore and deep-water fisheries of NZ, and allied operations of coolstores, shipbuilding, engineering and aquaculture.

The company has also become involved in joint venture operations with Japanese, Taiwanese and Korean interests, and in overseas operations following acquisitions in Chile (1994 - closed 1997), Namibia (1996) and Australia. Its fishing fleet includes inshore vessels specialising in longline and trawl snapper for Asian customers, deep water freezer vessels, mid-water trawlers, ice vessels, specialised vessels for scampi fishing and purse seining, and deep water longline operations. Initiatives included joint participation in a bid to acquire Brierley Investments' 50% stake in NZ seafood processor Sealord Products, and acquisition of a strategic stake (approximately 14.8%) in Canadian seafood processor FPI.

In December 2002 it announced a change of balance date from 31 August to 30 September to coincide with the end of the fishing quota year.

In September 2004 it acquired a 25% stake in Chinese seafood processing company Weihai Dong Won Food Co Ltd and in October 2004 it bought the NZ fishing business and assets (apart from the scampi quota) of Simunovich Fisheries Ltd.

On 1 December 2010 Sanford acquired the Greenshell mussel and Pacific oyster businesses from Pacifica Seafoods for $85 million.

SAN has been granted Listing with a 'Non-Standard' (NS) designation. This designation has been granted due to a waiver from NZX Main Board Listing Rule 11.1.6 and an approval under Rule 11.1.5 that allow SAN to incorporate provisions in its constitution that enable SAN to monitor the aggregate holding of SAN's securities by Overseas Persons and to maintain it at a level below approximately 22.5%. This is a key aspect of SAN's ability to reduce the risk of SAN being required to forfeit its fishing quota under the provisions of the Fisheries Act 1996 by virtue of SAN becoming an "Overseas Person" without prior consent being obtained under the Overseas Investment Act 2005 (something which SAN would otherwise have very limited ability to control).

Specifically, the provisions in SAN's constitution grant SAN's board the power to:

• require information from a security holder or proposed transferee of SAN's securities;
• restrict a transfer of securities in certain circumstances, including where registration of that transfer would cause SAN to Breach the Overseas Ownership Threshold (as defined in the Fourth Schedule of SAN's constitution);
• suspend the voting rights attaching to securities that SAN's Board determines are Affected Shares (as defined in the Fourth Schedule of SAN's constitution); and
• require a security holder to sell, or to sell on behalf of a security holder, any securities that SAN's Board determines are Affected Shares (as defined in the Fourth Schedule of SAN's constitution) to non-overseas persons.

For further information, please see a copy of the waiver and approval decision under Documents on SAN's homepage on nzx.com.

Performance

The following information was extracted from Sanford Limited's half year results, released on 29 May 2024:

Sanford announces an improved half year result

Sanford announced today an unaudited NPAT of $16.2m, a 46% uplift on the prior comparative period (pcp), and its highest half year adjusted earnings result in recent times.

Key highlights for the six months ended 31 March 2024:

• Revenue of $276.0m was on par with pcp (HY23: $277.6m)

• Adjusted EBIT of $38.5m, up 45% on pcp, (HY23: $26.6m)

• Net profit after tax of $16.2m, up 46% on pcp (HY23: $11.1m)

• Interim dividend declared of 5.0 cents per share (HY23: 6.0cps)

Newly appointed Managing Director, David Mair, said: “Our first half performance is pleasing with our highest recent half year adjusted EBIT result. Our improvement has been driven by a continuing strong performance from the Salmon business; an improving Mussel result; and a positive result for Wildcatch following the sale of the North Island inshore ACE and related assets in October 2023.

The commoditisation of some nutraceutical products has led to a challenging performance in our 50% held Two Islands investment. As a result, Sanford has written down the value of this business by $3.3m.”

Gross margin increased from 21% to 25% because of strong pricing across an array of products and a more targeted sales mix.

Profit after tax was up 46% to $16.2m and includes a $1.0m gain on the sale of assets as part of the Moana transaction, as well as a reduction in IT implementation costs post the rollout of Sancore (Sanford’s new IT system).

Net debt increased to $220.5m as at 31 March 2024 (from $183.6m pcp) reflecting capital expenditure of approximately $24m and funding of increased inventory.

Sanford continues to invest in initiatives to support growth, including the new scampi vessel due early in the next calendar year. Early-stage sales of marine extracts are now gaining traction but are not yet at desired performance and profit levels.