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Sanford full-year profit falls 11% as kiwi dollar's strength erodes returns in second half

Wednesday 30th November 2011

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Sanford, New Zealand’s biggest listed fishing company, reported an 11 percent drop in full-year profit after the rising kiwi dollar eroded returns in the second half, higher fuel costs and fleet disruptions.

Profit fell to $22.3million in the 12months ended Sept. 30, from $25 million a year earlier, the Auckland-based company said in a statement today. Sales rose 10 percent to $464 million.

Sanford estimates that a 1 cent decline in the New Zealand dollar adds about $2 million to earnings before interest, tax, depreciation and amortisation, so the impact of the currency averaging 82 US cents in the second half, from 71 cents a year earlier, resulted in about $14 million of lost EBITDA. Fuel costs rose by $6.5 million in the latest year.

Managing director Eric Barratt said the more recent easing in the currency and likely stability in market pricing of the company’s main species, will help make up for fuel prices that are likely to remain challenging.

“We have some optimism that profitability will improve in the next year to closer to acceptable levels,” Barratt said.

Key challenges will be success in catching pelagic species such as squid, skipjack tuna and mackerel, while managing issues such as virus infection in oysters and barnacles on mussels that result in the meat having to be used for lower value products, he said.

The second half of the year was also marked by a $5 million jump in repair costs for Sanford’s Pacific tuna fleet, which also had the effect of reducing days at sea when tuna prices were at record highs, the company said.

Two vessels were detained in American Samoa capital Pago Pago, the San Nanumea related to injury claims from current and former crew, and the San Nikunau for failing to properly document oily water discharges. The company couldn’t currently quantify the potential costs.

Sanford’s aquaculture business benefited from record-high prices for salmon early in the year, which have since declined. The company had “reasonable harvests” of mature oysters, again sold at record prices, though the virus affecting the Pacific oyster “is decimating the young crops being grown for future years.”

“There is a sense that for some species, prices have peaked and there may be potential softness ahead,” Barratt said.

Still, the company is confident major species that generate the bulk of sales – hoki, Greenshell mussels, ling, toothfish and skipjack tuna – “will hold their price levels and enable us to earn improved returns,” he said.

Shares of Sanford last traded at $4.40 and have slipped about 8 percent this year. The stock is rated ‘underperform’ based on four recommendations compiled by Reuters.

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