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Sanford profit growth stalls despite forex hedging gains

Fishing company Sanford sees half-year profit stall as increased sales of greenshell mussels are offset by a decline in hoki, squid, salmon and skipjack tuna prices and a $2 million impairment on its Australian operations.

Hannah Lynch
Thu, 31 May 2012

BUSINESSDESK: Sanford, the fishing company, saw half-year profit stall as increased sales of greenshell mussels were offset by declines in hoki, squid, salmon and skipjack tuna prices and a $2 million impairment on its Australian operations.

On an earnings before interest, tax, depreciation and amortisation basis, the Auckland-based firm saw returns rise by almost $4 million to $29.89 million in the six months to March 31, compared to the same period a year earlier.

However, tax-paid profit was roughly static at $13.34 million, compared to $13.12 million in the prior period, reflecting a combination of higher depreciation, amortisation and impairment costs of $9.97 million ($7.52 million last time), increased net interest costs and a somewhat smaller gain on foreign exchange hedge contracts than in the prior period.

Currency gains from hedging delivered $3.49 million to the bottom line in the first half of the current financial year, compared to $4.33 million the previous year.

The result was achieved on a total sales increase to $230.3 million from $228.0 million. Shares in the company closed the day down 1.3% on $2.90.

On an ebitda basis, "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", the company said.

Its average foreign exchange rate increased to 80 US cents from 76 cents, compared to a year earlier.

While a one US cent movement in the New Zealand dollar exchange rate equates to around $1.2 million in full year ebitda, its hedging policy sees 70% of US dollar sales hedged 12 months ahead, and 65% of yen-denominated sales covered on the same basis, with lower levels of hedge cover running into later years.

The Auckland-based company's profitability also suffered after its San Nikunau vessel was seized by the US Coastguard in December. The vessel was one of two Sanford vessels detained in American Samoa, with the San Nanumea held over injury claims from current and former crew.

Sanford has vowed to fight “vigorously” the seven charges it faces, including obstruction of justice, after an investigation by the US Coastguard. The case will be heard in Washington DC in August.

Earlier this month, the New Zealand government announced foreign-flagged fishing vessels will need to be registered under the New Zealand flag within four years.

The policy is in response to the mistreatment and underpayment of crews working on some boats, which sparked an investigation by the Korean government of Korean-owned vessels.

"We proactively conducted extensive independent investigations and audits of various aspects of our charter operations in New Zealand, Korea and Indonesia," the company said.

"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."

Orange roughy sales were also affected by pushback from some US retailers, who questioned whether it was sustainably caught, which Sanford said was "unfounded".

"All New Zealand orange roughy fisheries are robustly managed under the quota management system and there is no rational reason to be concerned," the company said.

Sanford's Australian business had performed below expectations in the half, and a $2 million impairment charge was taken in the half year, with the company preparing to sell "certain non-core quota assets and licences to reduce the asset base and move to earn returns closer to the cost of capital invested".

The board declared a partially imputed dividend of 9 cents a share, payable on June 20, ex-dividend on June 15.

Hannah Lynch
Thu, 31 May 2012
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Sanford profit growth stalls despite forex hedging gains